Course Outline, Managerial Economics

MGCR 293 002, Fall 2017

SECTION 2
Lectures: Mondays and Wednesdays
08:35 AM-09:55 AM
ROOM: 151 (Bronfman)

INSTRUCTOR: Dr. Kamal S. Salmasi, Ph.D., D.P.A., M.B.A.

OFFICE: Bronfman 236
PHONE: 514-398-6065
E-MAIL: mgcr293@yahoo.com
OFFICE HOURS:
Thursdays (4:30 p.m. – 5:30 p.m.) in 688 Sherbrooke West, Room 1071, and by appointment.
(If my office hours conflict with your schedule, feel free to contact me for an appointment).
WEB HOMEPAGE: https://mycourses2.mcgill.ca/

Tutor:
Brianna Mooney (brianna.mooney@mail.mcgill.ca)
Secretary: Rola Zoayter, OFFICE: Bronfman 454, PHONE: (514) 398-4000 ext. 09295
E-MAIL: rola.zoayter@mcgill.ca

DESCRIPTION OF COURSE
When most people are asked to describe economics, they think of words like business, stock
market, money, etc. While all of these terms have a place within economics, the real focus of
economics is much more magnificent. Economics is the study of how individuals, businesses,
and governments make decisions to maximize their well-being. Since resources are limited,
decision makers cannot obtain everything they want. They must choose among competing uses
of their resources to make themselves as well off as possible. Economic principles can be used
to make sound decisions, as well as to predict and explain others' decisions. However since this
is such a broad topic, we will be focusing on a branch of economics known as managerial
economics.
What is Managerial Economics?
Managerial Economics, in general, is the application of economic theory and the tools of
analysis of decision-making to analyze how a person, a business, a not-for-profit institution or a
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governmental entity (such as a firm or an organization) can utilize its limited resources most
efficiently.
My goal in my lectures will be show the students how to analyze the economic forces, which
influence the choices that managers must make in different settings. We will discuss subjects
such as supply, demand, cost, revenue, and how firms set prices. Also, from the level of the firm
we will proceed to look at the interaction of firms in a market from the viewpoint of competitive
strategy. Government-business relations & global competition are yet other topics to be
discussed.
This course covers the basic theory of individual economic units – the “microeconomic” level
(individual markets, individual consumers, and individual firms) and some analysis tools of
decision science to examine, the choices that individuals face, how markets respond to these
choices, and when/how government intervention may or may not be desirable.
The emphasis in this course will be on demand analysis, production theory, cost analysis and
decision-making under uncertainty in different market structures. Managerial Economics is an
applied quantitative course in which managerial problems are studied and analyzed (and in many
cases solved) in the context of microeconomic models. The tools of analysis used in this course
include graphs, diagrams, and mathematical expressions and equations (basic knowledge of
derivatives is required).
Course Objectives
Provide students with a basic understanding of the economic theory and analytical tools that
can be used in daily managerial decision-making and problem-solving,
Introduce the fundamentals of microeconomic theory and practice as they are applied to
businesses, governmental entities and not-for-profit organizations in a managerial context,
Enhance the student’s basic analytical skills, insights and managerial decision-making tools
required for sound business decisions,
Provide intuitive guide to marginal analysis and basic economic relations, and
Make students better decision-makers in a business or institutional setting.
Learning Outcomes
1. Basic knowledge of the internal & external environment of the firm
Upon successful completion of this course, the student should be able, among others, to:
Understand the basic terminology and concepts of Managerial Economics,
List the different goals and constraints that firms face and apply the theory of the firm to
model business organizations,
Understand what variables can managers control in an attempt to achieve their objectives,
Understand the basic tools of supply and demand,
Apply demand theory to establish the elasticity of demand,
Apply production theory to manage production,
Understand the vital relationship between productivity (efficiency) and unit cost,
Understand the cost theory to establish short and long run behaviour,
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 Understand how costs are determined and how to differentiate between different kind of
costs,
Describe market structures to establish market equilibrium,
Make decisions in different market structures and evaluate the performance of the firm,
Understand how prices are determined in the short-run and long-run,
Understand when are the characteristics of a market, a line of business, or an industry so
attractive that entry becomes tempting and when are these attributes so unattractive that
exit is preferable to continued operation, and
Understand game theory to decide on appropriate strategies.
2. Applying managerial decision-making tools
Upon successful completion of this course students should be able, among others, to:
Use algebraic equations and graphs to determine the equilibrium price and quantity,
Display data by creating tables, graphs and equations,
Use marginal analysis and derivatives to maximize an economic variable such as profit
or minimize one such as cost, and use constrained optimization techniques,
Estimate the price, income and cross elasticity of demand for a product and how to apply
the information,
Apply the break-even analysis for a new product, store and company,
Determine the optimal price to maximize short-run profits,
Minimize losses in the short-run and find out when is the time to shut down operations,
Evaluate the economic profitability of the firm.

Briefly, this course demands analytical thinking and requires the application of logic to a variety
of problems. The skills of analysis, problem-solving, and critical thinking will not only benefit
students academically, but will also help them throughout their lives.

TEXTS

“The custom text for McGill students” of “W. Bruce Allen, Neil A.
MAIN TEXT: Doherty, Keith Weigelt, and Edwin Mansfield, Managerial Economics:
Theory, Applications, and Cases, 9th Edition (2017), W.W. Norton &
Company, New York.
SUPPLEMENTARY Micheal Parkin and Robin Bade, Microeconomics: Canada in The Global
TEXT (OPTIONAL) Environment, 9th Edition (2016), Pearson Ed. Canada. ISBN Number
(978-0-321-93118-4).

Please check “Student Resource” in the main text’s Website

(http://www.wwnorton.com/college/econ/mec8/).
The student resource provides a wealth of learning tools, including:
Chapter Study Plan and Chapter Outlines, The Chapter Quiz and Chapter Reviews
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 Vocabulary Flashcards and Sentence Completion Exercises
Spreadsheet Exercises and Economic News Server
EXAMINATIONS/ASSIGNMENTS/GRADING

1. MID-TERM EXAMINATION 25%

2 hours, closed book, on Friday, October 27, 2017, TIME: 3:00-5:00 pm
Questions will cover materials from Chapters 1, 18, 2, 3, 5 inclusive. The midterm
exam is multiple-choice questions designed to assess your knowledge and
understanding of the material. No texts or notes are allowed in the midterm
examination.
2. FINAL EXAMINATION 50%
3 hours, closed book in regular final exam period. The final exam will cover
all topics covered in the course. The final exam is broken down into two parts:
Multiple-choice questions designed to assess your knowledge and
understanding of the material and a problem-solving part designed to assess
your ability to apply economic theory and the decision-making tools. No texts
or notes are allowed in the final examination.

3. WEEKLY ASSIGNMENTS 2%
Learning the material in this course is much like learning a language; it is Bonus
impossible to master it without extensive practice and experience. For each Mark
chapter I will assign the end-of-chapter problems from the text. It is very
important that you work on all of them at a minimum in order to keep up.
Answers will be available, and some of them will be discussed in class and/or
tutorials. In addition, I will be happy to discuss the solutions with you any
time. My Assistants will check the weekly assignments randomly two times
throughout the semester during the Friday tutorial sessions. For any
completely-done weekly assignment you will be given a (+1) bonus mark.
4. GROUP ASSIGNMENTS 10%
To better serve the objectives of this course, two Group Assignments are also
required. Students will organize themselves into groups of 6. Each group will
design & solve 6 questions for each assignment. Each question will partially
cover the material presented in a specific chapter presented in the class (For
assignment 1, Chapters 1, 18, 2, 3, 5 and 6, and for assignment 2, Chapters 7-
12 will be covered).
The details regarding the Group assignments will be discussed in first class.

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5. PRESENTATIONS & WRITTEN REPORTS 15%
You will be asked to read material about current economic issues and cases as
well as course related readings (a list and brief description of case studies will
be given in the first class). A portion of each Monday or Wednesday class
period will be dedicated to group presentation and discussion of the topic
assigned for each group. Each group will prepare a 2-pages presentation
summary for distribution in class. You all are expected to participate in class
discussions.
In addition to the instructor’s evaluation, your presentations will also be
evaluated on content, delivery, and questions & answers by the previous and
next presentation group (e.g., the presentation of Group # 2 will be evaluated
by Group # 1 and Group 3, and so on). A Presentation Evaluation Form (see
attachment) has been structured into these three categories and in each
category the most important factors are listed. This form will be used by
students to evaluate the group presentations.
(Because of a large class size and subsequently the large size of student
groups, some groups can choose to submit a written report. To do so, these
groups must choose an economic topic and analyze it as it pertains to this
course. They have to submit the topic and 4-5 questions of economic nature
related to the topic for the instructor’s approval. After, my approval, these
groups must do their research and submit their projects in a 20-page single-
spaced report with no presentation).
The details will be discussed in first class.
Total 100%

TENTATIVE LECTURES SCHEDULE AND READINGS

The assigned chapters are required readings. I will expect that you have read them prior to class
and will expect you to participate based on these readings. You will not do well without doing
the assigned readings.

Part 1: Introduction and Optimization

Week 1 Chapter 1: Introduction to Managerial Economics
Wednesday, Details about course procedure and the syllabus. Topics for class
th
September 6 presentations and formation of groups. The scope of managerial economics
& Monday and the basics of the theory of the firm and competitive market model.
September 11 Other topics include: what is profit? Managerial interests & the principal-
agent problem, Demand & supply and equilibrium/market price.
Week 2 Chapter 18: Optimization Techniques
Wednesday, Optimization and basic elements of differential calculus and marginal
September 13 & analysis. Relationship between total, marginal & average values,
Monday Using derivatives to solve maximization & minimization problems,
September 18 & Marginal cost equal marginal revenue rule, Partial differentiation & the
maximization of multivariable functions, Constrained optimization and
comparing incremental costs with incremental revenues.

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Part 2: The Nature of Markets
Week 3 Chapter 2: Demand Theory
Wednesday, Key concepts in demand theory, market vs. individual demand, price,
September 20 & income and advertisement elasticities, marginal, average and total revenues.
Monday Empirical applications of demand theory and the implications that
September 25 & elasticities have for pricing and marketing.
Class presentation of case example # 1 (Monday, September 25th)
Week 4 Chapter 3: Consumer Behaviour and Rational Choice
Wednesday, The theory of consumer behaviour, the tools of indifference analysis and
September 27 & consumer preferences. The usage of graphical analysis to solve the
Monday, October consumer problem.
2 Class presentation of case example # 2 (Monday, October 2nd)
Part 3: Production and Cost
No class on Monday, October 9: Thanksgiving Day
Week 5 Chapter 5: Production Theory
& Wednesday, The production function and optimal choice of input usage. How production
October 4 & theory can inform the manager concerned with cost minimization as well as
Wednesday, the manager concerned with producing as much output as possible with
October 11 available budgets.
Class presentation of case example # 3 (Wednesday, October 11th)
Week 6 Chapter 6: The Analysis of Costs
Monday, October The relationship between outputs and their costs, both in the short-run and
16 & Wednesday, in the long-run. Break-even analysis and the produce or shut down
October 18 decisions.
Class presentation of case example # 4 (Wednesday, October 18th)
Part 4: Market Structure and Simple Pricing Strategies
Week 7 Chapter 7: Perfect Competition
Monday, October Different markets structures, and in particular, perfect competition and
23 & Wednesday, implications for price and output strategy.
October 25 Class presentation of case example # 5 (Wednesday, October 25th)
Midterm Examination: Friday, October 27, 2017, TIME: 3:00-5:00 pm
Week 8 Chapter 8: Monopoly and Monopolistic Competition
Monday, October Other Market structures, i.e., Monopoly and Monopolistic Competition, and
30 & Wednesday, their implications for price and output strategy.
November 1 Class presentation of case example # 6 (Wednesday, November 1st)

Part 5: Sophisticated Market Pricing

Week 9 Chapter 9: Managerial Use of Price Discrimination
Monday, Appraisal of pricing techniques and their effects on profits and the value of
November 6 & the firm. Concepts and models of Price Discrimination, Peak Load Pricing
Wednesday, and Two-Part Tariffs.
November 8 Class presentation of case example # 7 (Wednesday, November 8th)
Week 10 Chapter 10: Bundling and Intra-firm Pricing
Monday, Other pricing techniques such as bundling, When to unbundle, Bundling as

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November 13 & a pre-emptive entry strategy, Tying, Transfer Pricing and the global use of
Wednesday, Transfer Pricing.
November 15 Class presentation of case example # 8 (Wednesday, November 15th)
Part 6: The Strategic World of Managers
Week 11 Chapter 11: Oligopoly
Monday, Market structures with few competitors and their implications for price and
November 20 & output strategy, Cooperative behaviour, The breakdown of collusive
Wednesday, agreements, Price leadership model and Duopolies & price competition
November 22 with differentiated products.
Class presentation of case example # 9 (Wednesday, November 22nd)
Week 12 Chapter 12: Game Theory
Monday, The basics of Game Theory. How should one play a winning game! How
November 27 & game theoretic models (such as Equilibria, Dominant Strategies, The Nash
Wednesday, Equilibrium, Repeated Games, Incomplete Information Games,
November 29 Coordination Games, Strictly Competitive Games and the use of Backward
Induction) could assist managers make sound managerial decisions.
Class presentation of case example # 10 (Wednesday, November 29th)
Week 13 Chapter 12: Game Theory (Cont.)
Monday, Course Review
December 4 &
Wednesday, Class presentation of case example # 11 (Wednesday, December 6th)
December 6
TUTORIAL AND CONSULTING PERIODS
Tutorial periods, run by my teaching assistant and tutor are scheduled each week on Fridays from
01:05 PM-02:25 PM in room: BRONF 045 (to begin in the second week) for the purpose of
providing clarifications regarding course materials and solutions to the problem exercises. Tutorials
are an integral part of the course and attendance is extremely important.

In addition to my office hours, consulting periods are also scheduled each week (to begin in the third
week). Also run by the TA and tutor, these are helpful in obtaining additional explanations
regarding course material and problem exercises. Students, in particular those who could not
participate in tutorial sessions because of scheduling conflicts, are strongly encouraged to use the
consulting facility as soon as they need help. The TA will answer questions to the best of his
knowledge. Due to the large number of students registered in this course, it is impossible to provide
consulting in a timely base by phone or e-mail. Therefore, please use my e-mail in special
circumstances (e.g., personal problems or requests) and to submit your assignments and projects.
NOTES
Attendance is not taken regularly, but you are expected to attend regularly. You are responsible for
all lecture material, and announcements made in class, including amendments to this syllabus (some
lecture material will not be found in the exact form as discussed in class in the textbook). I will be
happy to spend time answering your questions and helping you with any difficulties you may have
in this course.

Managerial Economics might be a difficult subject for some students. It requires analytical
thinking, not just memorization. Moreover, while most individual concepts discussed in this course
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are not especially difficult to understand, it is often challenging for students to recognize the
importance of specific concepts and to realize how the concepts fit together to tell a complete
story. The solution is to read, re-read, and ask a lot of questions. The payoff is worth it. Since a
13-week semester moves pretty quickly, don’t fall behind.

Some sections/chapters in the text should be reviewed for general knowledge and are not subject to
testing. I will announce those sections/chapters when applicable.
Course Requirements
Calculators. Only non-programmable, no tape, noiseless, calculators are permitted. Calculators
capable of storing text are not permitted in tests and examinations.
Handheld Devices. Handheld devices capable of storing text and having calculator functionality
(Palm) are not permitted.
Dictionaries are permitted.
Exam Policy
Please note that students should not make other commitments during the exam period. Vacation
plans do not constitute valid grounds for the deferral or the rescheduling of examinations. If there is
a valid reason, approved by B. Com. Office, for missing the mid-term exam, the grade for it will be
based upon the mark scored by the student on the final exam. The rules normally followed by the
university will govern any absence from the final exam.
Students are required to present their I.D. Card (with photo) for entrance to their exams. In both
midterm and final exams, before you start, please make sure that you have completed the Student
Identification section (your ID #, your SECTION # and the exam VERSION #) on both the exam
paper and the scantron answer sheet.
Course Website
Grades, updates and news will be posted “MyCourses”. You are required to visit the course website
for this course in addition to this outline. The website will be kept as current as possible to reflect
developments in the course as they unfold. You may be asked to post your presentations and reports.
Posting group projects will be all group members’ responsibility. Please make sure you delegate
and discharge this responsibility properly.
Group Assignments and Presentation Reports Submission
Please submit the electronic copy as well as the hard copy of the group assignments before their
deadlines. All assignments must include your name, student number and SECTION NUMBER.
Your assignment must be written and saved in a word file under this file name: <SECTION 2,
Assignment (1 or 2), (only family names of the group members), Fall 2017doc>

Always make sure that you have a backup of your assignment. Your group assignments will be
corrected by my TA. You may request a review within one week of grade posting. In such a case,
please indicate in writing why you feel the mark is not justified and give it back to the instructor for
re-grading.

For the class presentations, you will have two submissions. Please submit the electronic copy of 1)
a 2-page summary of highlights and 2) the completed presentation file (PowerPoint format with
appropriate footnotes and references for EACH SLIDE) at least one day ahead of the presentation
date. You also have to prepare enough copies of your 2-page presentation summary for distribution
in class at the time of presentation. In addition, you need to submit the HARDCOPY of your
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detailed presentation to the instructor at the time of presentation. Please don’t forget to write the
complete names of the group members, the topic and date of your presentation, your group and
section number on both the summary page and PowerPoint first slide (on the electronic copy as well
as the hard copy).

a) Your 2-page summary must be written and saved in a word file under this file name:
<SECTION 2, Summary, Your project title (only family names of the group members), Fall
2017doc>

b) Your presentation slides must be prepared and saved in a PowerPoint file under this file name:
<SECTION 2, Slides, Your project title (only family names of the group members), Fall
2017ppt>

When submitting your project files, please put the file name (i.e., SECTION 2, your project title,
family names of the group members, Fall 2016) in the “Subject” area of your e-mail message.
Always make sure that you have a backup of your presentation files.

Also, when sending e-mails to me, please ensure that “SECTION 2”followed by the subject matter
appears in the “Subject” area of your e-mail message.
Class Participation
Please do your best to limit your absences. In addition to the text book, you are also responsible for
topics covered in class and materials posted on “MyCourses”. Do your best to participate in the in-
class discussions as much as possible. If you find yourself having difficulty understanding a certain
topic or subject, don’t hesitate to ask questions in class and during the office hours, and feel free to
stop by or give me a call any time if my office hours conflict with your schedule.
Right to submit in English or French written work that is to be graded

In accord with McGill University’s Charter of Students’ Rights, students in this course have the
right to submit in English or in French any written work that is to be graded. This right applies to all
written work that is to be graded, from one-word answers to dissertations.
Academic Integrity at McGill
McGill University values academic integrity. Therefore all students must understand the meaning
and consequences of cheating, plagiarism and other academic offences under the Code of Student
Conduct and Disciplinary Procedures (see www.mcgill.ca/students/srr/honest for more information).

L'université McGill attache une haute importance à l’honnêteté académique. Il incombe par
conséquent à tous les étudiants de comprendre ce que l'on entend par tricherie, plagiat et autres
infractions académiques, ainsi que les conséquences que peuvent avoir de telles actions, selon le
Code de conduite de l'étudiant et des procédures disciplinaires (pour de plus amples
renseignements, veuillez consulter le site www.mcgill.ca/students/srr/honest).

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Assignment & Project Submission Deadlines:
First Group Assignment (electronic copy plus hard copy):
Electronic copy (by e-mail): Sunday, October 22nd, 2017
Hard copy: Monday, October 23th, 2017

Second Group Assignment (electronic copy plus hard copy):

Electronic copy (by e-mail): Tuesday, November 28th, 2017
Hard copy: Wednesday, November 29th, 2017

Project Report (only for those who have chosen to submit a written report instead of class oral
presentation).

Both Electronic copy (by e-mail) & Hard copy: Monday, November 20th, 2017

This outline will remain as work-in-progress throughout the term. The instructor reserves the
right to adjust it in order to optimize the progress of the course when it becomes necessary.
Adjustments will be discussed in the class.

Please note that the following parts in different chapters in the text should be reviewed for general
knowledge and are not subject to testing.

Chapter18:Optimization Techniques
Lagrangian Multipliers (pp. 754‐756).
Chapter 2: Demand Theory
Constant‐Elasticity Demand Function (pp. 59‐60).
Chapter 5: Production Theory
Estimation of Production Functions (pp. 161‐165).
Appendix: Lagrangian Multipliers (pp. 168-171).
Chapter 6: The Analysis of Costs
Transactions Costs (pp. 194-201).
Appendix B: Measurement of Short Run Cost Functions (pp. 214‐221).
Chapter 8: Monopoly and Monopolistic Competition
Appendix A: Allocation of Output Among Plants (pp. 298‐301).
Chapter 9: Managerial Use of Price Discrimination
Appendix: Two‐part tariff with intersecting demands (pp. 351 – 356).
Chapter 10: Bundling and Intra-firm Pricing
Optimal Prices (Separate, Pure Bundle & Mixed Bundle) in the Case of Uniformly
Distributed Consumer Reservation Prices (pp. 370 – 372).
Chapter 11: Oligopoly
The Cournot Scenario with More than Two Firms (pp. 429‐435)
The sticky Pricing of Managers (pp. 439 – 440).

PLEASE READ THIS COURSE OUTLINE VERY CAREFULLY

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 Presentation Evaluation Form (MGCR 293- SECTION 2- Fall 2017)

The presentation of each group will be evaluated by the previous and the next presentation groups.
Please return this form to the Instructor at the end of the presentation.

Topic:……………………………, Date………………………….
Content:
Poor Avg Great
1 2 3 4 5 Introduced motivation and interest in the topic
1 2 3 4 5 Gave overview of presentation
1 2 3 4 5 Identified key points early in talk
1 2 3 4 5 Organized material in logical, coherent way
1 2 3 4 5 Supported discussion of key points with sufficient detail
1 2 3 4 5 Presented significant results
1 2 3 4 5 Planned concluding remarks
1 2 3 4 5 Selected appropriate material for audience
1 2 3 4 5 Referencing (paragraphs, tables and figures) was very good
1 2 3 4 5 Overall, I learned a lot from this topic
Please add any additional comments that you feel are relevant:

Content Score: _______ /100 (multiply total points by 2)

Delivery:
Poor Avg Great

1 2 3 4 5
Accurately followed the title and abstract and stayed on topic
1 2 3 4 5
Spoke key points, intro, and concluding remarks without reading
1 2 3 4 5
Used appropriate number of words and items on slides
1 2 3 4 5
Used concept-related graphs to show relationships
1 2 3 4 5
Used concept-related statistics to show relationships
1 2 3 4 5
Used relevant Audio-Video clips
1 2 3 4 5
Well structured, followed up logically and with good transition between the sections
1 2 3 4 5
Good visual quality (content displayed well visible, good choice of font, colours,
pictures, etc.)
1 2 3 4 5 Appeared confident and enthusiastic
1 2 3 4 5 Adheres to time requirements
Please add any additional comments that you feel are relevant:

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 Topic:……………………………, Date………………………….
Q & A:
Poor Avg Great
1 2 3 4 5
Listened to question without interrupting
1 2 3 4 5
Addressed response to everyone
1 2 3 4 5
Began with general answer and then followed up with details
1 2 3 4 5
Overall, this presenting group gave correct and completed answers to
questions
1 2 3 4 5 Overall, I learned a lot from Q&A and discussions
Please add any additional comments that you feel are relevant:

Questions & Answers Score: _______ /100 (multiply total points by 4)

Overall Score: ______ /100 (average of 3 scores)

Additional General Comments:

Desautels Faculty of Management

MGCR 293 002, Fall 2017
6
Your Name…………………………………………….

Your ID #........................................................................

Date:…………………………………………………...

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