MGT 722: Managerial Economics for EMBA

MGT 722: Managerial Economics for EMBA

OwenGraduateSchool of Management

VanderbiltUniversity

Fall Semester 2008

Contact Information

Professor:Luke Froeb (

E-mail:– this is the best and most efficient way to contact me.

Office:(615) 322-9057

Fax:(615) 343-7177

TAs:

Alex Olsen ()

- Quiz & Blackboard questions

Josh Herring ()

- EMBA lead—contact Josh to set up tutoring or help sessions

Course Goals

After completing this class you should be able to:

• Use the rational-actor paradigm to predict firm and individual behavior.
• Compute the relevant costs of any decision.
• Use marginal analysis to make extent (how much) decisions.
• Make investment decisions that increase firm value.
• Set optimal prices and price discriminate.
• Predict industry-level changes using demand/supply analysis.
• Develop long-run strategies to increase firm value.
• Use game theory to predict how your actions influence those of others.
• Bargain effectively
• Make decisions in uncertain environments.
• Solve the problems caused by moral hazard and adverse selection.
• Align individual incentives with the goals of the company.
• Align division incentives with the goals of the company.
• Manage relationships between upstream suppliers or downstream retailers.
• Identify unconsummated wealth-creating transactions and devise ways to profitably consummate them.

Class Material

• Froeb, L. M.,Managerial Economics: A Problem-Solving Approach, (Cincinnati: Southwestern, 2008).

REQUIRED. This is the text for the class, and corresponds closely to the lectures. Learn this material well. It may seem simple, but the only way to tell if you are keeping up is to do the problems, and then explain the answers to someone else. One of the best ways to understand this material is to explain economic reasoning to others—especially those without an economics background. In previous years’ evaluations, the textbook was regarded as one of the best aspects of the class.

• Managerial Economics module of MBA Primer(bundled withtextbook:

REQUIRED. This is a hands-on “how to” primer that teaches the mechanics of costs, demand, marginal analysis, and benefit-cost analysis. There are primers for Financial Accounting, Managerial Economics, Finance, Accounting, and Statistics. Be sure to select MBA Primer Online: Managerial Economics Module Volume 2, 2nd Edition and NOT any of the other primers. Read the material, do the exercises, and take the quiz at the end of each chapter. Repeat the quizzes and review the material until you are comfortable with the concepts and techniques. Quiz yourself using variations of the MBA Primer questions. You are encouraged to discuss the MBA Primer concepts and quizzes with classmates and the TAs. No deliverables are required from the MBA Primer.

When you know the material well, take a similar timed quiz (30 minute limit) on the Blackboard website DO NOT LOG ON TO UNTIL YOU ARE READY TO TAKE THE QUIZ. The Blackboard quizzes count toward your grade and once you log on, you do not get a second chance. The due dates for each quiz are listed in the schedule at the end of this syllabusand on Blackboard.

• Management R&D, Blog,

REQUIRED. On the right hand side of the blog, below the graphic of the textbook, is a list of the book chapters, with links to the blog entries relevant to each chapter. Keep up with current management issues by reading this blog. Some blog entries will be the basis of in class discussion. Please feel free to post comments and/or discussion points.

• James Brickley, Clifford Smith, Jerold Zimmerman, “The Economics of Organizations,” Journal of Financial Economics, Vol. 8:2 (Summer, 1995) pp. 19-31.

RECOMMENDED. I not only want you to be able to identify profitable decisions using benefit-cost analysis (the main thrust of the course as reflected in course goals), but I also want to make sure that you can implement them within your organization. Identifying profitable decisions without being able to implement them, or implementing decisions without knowing whether they are profitable, are both fruitless exercises. This article provides the basis for our study of behavior within organizations.

• Economics Interactive Tutorials ()

RECOMMENDED. While these interactive tutorials have a health care focus, they do an excellent job of introducing basic concepts of economics, especially for students with little background in economics. They are a little easier than the MBAprimer.com. I strongly urge those of you without a strong economics background to go through these. By Samuel L. Baker, Ph.D., Associate Professor, University of South Carolina, Norman J. Arnold School of Public Health, Dept. of Health Administration. These interactive tutorials are great practice for learning the concepts and the quizzes.

Deliverables & Grading

Best 5 of 7on-line quizzes testing the mechanics of cost/benefit analysis.25

Final Exam covering readings, lecture notes, MBA Primer25

Best 5 of 6 Individual HW’s25

5 Group Presentations(slides and memo) applying class ideas to your companies25

My perception of your contribution to the class may also affect grade

Group HW’s:

Answer one of the group HW’s at the end of one of the assigned chapters. These are a designed to give you an opportunity to apply the ideas in class to your own companies. Choose a problem at one of your companies that fits the one of the questions at the end of the relevant chapter and answer it by pretending that you are a consultant hired by the company to fix a problem in your company. You analysis should implicitly answer 3 questions:

1.What’s wrong?;

2.How do we fix it?; and

3.How much will the company save by fixing it, compared to either the status quo or another alternative solution. I want a number and backup support for the number.

As professionals, you are all aware of the importance of strong writing skills. Letters, reports, and even short e-mail notes all indicate to others our ability to communicate. Since good writing follows clear thinking, others will form opinions about your ability and work ethic based upon written correspondence. Typographical errors, grammatical errors, misspelled words, or poor diction and an awkward writing style dramatically reduce the impact of your work no matter how good the content.

In particular, avoid “Bureaucratese” (see article by Alfred Kahn on course website), and write in what Eloquence mail (password and link on course website) calls a “Direct, High Impact, and Forceful” style. Both can be found under “Course Material” in the “Syllabus” folder.

Individual HW’s:

Like the Group HW’s, the Individual HW Questions are found at the back of each chapter, and are similar to those that will appear on the Final Exam. To make sure that you understand the material, try these questions on your own. If you cannot do them, you need help in the class. Ask questions in class. Ask questions of your classmates. Explain your answers to your friends or classmates (There is an old saying in economics—you never understand the material unless you can explain it to someone else). You are allowed to discuss the questions with your classmates, but do not look at their written HW. Everything you turn in is to be your own work. Get help from classmates or from class TA’s. If you would like to set up time with a TA to answer any questions you have about the material, please email them directly (copy me on the e mail). Learning this material is hard work, and the only way you can learn it is by doing the questions yourself. If you cannot answer the question in less than 150 words, then you don’t understand the question.

If you have any questions about grades you receive on homework sets or quizzes, you should submit your question in writing to Professor Froeb.

Course Honor Code Policy

Students are bound by the Honor Code and the following specific guidelines for allwork completed in this course.

By implementing these new guidelines, we hope to make adherence to the principals of the Owen Honor Code easier and without ambiguity. All work is to be YOUR OWN, CREATED AND COMPLETED BY YOU ALONE. When in doubt, ask a TA.

Specific Guidelines:

The following describes the guidelines for Managerial Economics homework, quizzes, and tests:

• Quizzes – Do these on your own. Any communication about the Blackboard quizzes between a student who has taken the quiz, and one who has not, is a violation of the Owen Honor Code. Do not print out the quizzes, even after you have taken them. I do not want hard copies floating around because I may use these in other programs and in subsequent years.
• Individual Assignment –

An individual assignment must be completed by the student individually, without input from other students.

• Generation of Ideas; Discussion of Assignment

Completing an assignment involves several steps. Because the assignments and quizzes are individual, then the analysis of the problem, the generation of ideas, any needed research and preparation of the required work product must all be accomplished by the individual student. In general, a student should assume that all steps of an individual assignment are to be carried out by that student working alone.

• Producing the Final Work

The physical, electronic, or other deliverable (e.g., a problem set) that is provided for assessment is usually the final step in an assignment. Individual work product must be prepared solely by the individual student.

• Data Sources and Tools

Each student is responsible for following assignment instructions with respect to what data sources and tools may be used. If outside sources are used, proper citations are REQUIRED. Materials from prior courses at Owen or similar courses at other institutions are prohibited unless specifically authorized by the professor. Again, when outside sources are used, they should be cited appropriately by the student.

Overarching Guidelines

• Plagiarism, which includes the unauthorized use of previous years’ materials (e.g., examinations, case analyses, homework assignments, quizzes, etc.), is a violation of the Honor Code.

• Written deliverables must useappropriate citations to signify when arguments oranalysesrely on the ideas or insights of others, including any of the readings in the class pack. It is not necessary to reference the case study you are preparing a written analysis of.

• Quizzes are to be completed individually with no outside help. Quizzes are closed-book, closed-note, closed-browser assessments. Any deviation from these guidelines is a violation of the Honor Code.

• Any use of analyses or any other material in any format from previous offerings of this course, other courses taught at Vanderbilt or other universities, or on the Internet, is a violation of the Honor Code. This includes the use of materials in multiple classes without consent of the instructors.

• Above all, maintain your personal integrity.

If you are in doubt as to the type or amount of collaboration allowed on an assignment, it is always your responsibility to consult with the professor. Failure to do so is not an acceptable excuse.

1. Introduction: What is Managerial Economics?