Course Outline

Managerial Economics

Degree Program: MASTER OF BUSINESS ADMINISTRATION (MBA)

Course Title: Managerial Economics
Course Code: MBA651
Credit hours: 2 Hrs
Prerequisites: NONE
Academic year: Year I, Semester I
Course Instructor and
contact Address: Name:- Prof. Antony Dhason, PhD

Email:- prof.antonydhason@gmail.com
Office:- Dept. of Management, College of Business & Economics, Arba
Minch University

COURSE DESCRIPTION

Managerial economics, meaning the application of economic methods to the managerial decision-
making process, is a fundamental part of any business or management course. It has been receiving
more attention in business as managers become more aware of its potential as an aid to decision-
making, and this potential is increasing all the time. This course seeks to teach students the economic
techniques and tools needed for managerial decision making. Instead of the usual model-based
methodology, it employs a problem-based pedagogy, based on the incentive approach to organizational
design. Rather than teaching students merely to identify profitable decisions, organizational design
shows the students how to implement them. Instructing students how to identify profitable decisions
without providing them the tools necessary to implement them is useless to the future manager. In this
course the students are taught to ask three questions in confronting real-world decision-making
problems: Who made the bad decision? Did the decision maker have enough information to make a
good decision? Did he or she have the incentive to do so?

In answering these questions, the students will then be guided to focus on solutions such as letting
someone else make the decision, changing the information flow, or changing incentives.

Topics covered will include: the role of managers in identifying and implementing profitable decision;
demand, supply and market equilibrium; statistical analysis, marginal analysis and optimal decisions;
elasticity and demand; the theory of production; the theory of cost; managerial decisions for firms in
competitive markets for firms with market power; strategic decision making in oligopolistic markets;
advanced techniques for profit maximization; managerial solutions to the problems of adverse selection,
moral hazard; how to structure incentives to get the employees and its various divisions to work in the
firms best interests.
COURSE OBJECTIVES

In this course the student will learn to use regression analysis and cost-benefit analysis to evaluate
decisions, use marginal analysis in making decisions, compute break-even quantities to make investment
decisions, compute break-even price to make shutdown and pricing decisions, set optimal prices and
learn how to price discriminate, predict industry-level changes using demand-supply analysis, develop
long-run strategies to increase firm value, predict how his or her own actions will influence others‘
actions, bargain effectively, make decisions in uncertain environments, solve problems caused by moral
hazard and adverse selection, motivate employees to work in the firm‘s best interests, motivate
divisions to work in the best interests of the parent company.

Generally, upon completion of this course, the students should be able to:

 Apply economic analysis and techniques to problems facing managers.

 Combine microeconomics and various quantitative methods in a problem-solving and decision-making

context in both the private and public sectors.

 Use economic analysis in identifying and evaluating decision alternatives, understanding the
competitive environment of firms, and examining the factors that influence firm performance.

 Identify profitable decisions using benefit-cost analysis and being able to implement them within an
organization—the main trust of this course.

RATIONALE FOR THE COURSE

This course supplies the economic tools and techniques necessary for managers to make decisions
regarding their firms ‘pricing, output, investment, and incentive structures governing the behavior of
department heads and employees.

TOPICAL OUTLINE

1. Introduction

1.1 The nature of managerial decision making

1.2 Theory of the firm

1.3 Limitations of the theory of the firm

1.4 Theory of profit

1.5 Role of business in society

1.6 Basic economic relations

2. Theory of Consumer Behavior & Demand Theory

2.1 Concepts of Utility

2.2 Demand and Supply

2.3 Market Equilibrium

3. Production and Costs (47)

3.1 Theory and Estimation of Production

3.2 Theory and estimation of Cost

3.3 Profit Maximization and Competitive Supply

3.4 Marginal Analysis and Decision Making

4. Market Structure and Business Decisions

4.1 Perfect Competition

4.2 Monopolistic Competition

4.3 Monopoly

4.4 Oligopoly

4.5. Game theory application in various market structures

4.5.1 Pure strategy games

4.5.2 Mixed strategy games

4.5.3 Dominated strategy

4.5.4 Graphical solution method for games

4.5.5 Simplex method of solving game theory

5. Statistical Analysis of Economic Relations

5.1 Population parameters and Sample statistics

5.2 Measures of central tendency

5.3 Measures of dispersion

5.4 Regression analysis

6. Pricing Strategies and Practices

6.1 Introduction

6.2 Nature of Competitive Advantage

6.3 Market positioning, segmentation and targeting

6.4 Price Discrimination (106)

6.5 Pricing and the marketing mix

7. Getting Employees and Divisions to Work in the Firm’s Best Interests

7.1 Principal Agent Relationships

7.2 The Problems of Adverse Selection and Moral Hazard

7.3 Principles for Controlling Incentive Conflict

TEACHING METHODS

Lectures, class discussion, and written and oral presentation of assigned problems and cases will all be
utilized. Individual and group problems from the text-book will be assigned. The course will follow a
participatory learning approach. It includes lecture discussions, case studies, group work and hands-on
practical sessions as applicable as possible.

Assessment Methods

1 Individual Assignment (Article Summary) 10%

2 Group Assignment (Case Analysis) 10%
3 Term Paper (Business Plan) 30%
4 Continuous Assessment Total 50%
5 Final Examination 50%
6 Total 100%

References: -

Luke M. Froeb and Brian T. McCann, Managerial Economics: A Problem-Solving Approach, Thomson
South-Western, 2008. –

Nick Wilkinson 2005: Managerial Economics: A problem Solving approach. Cambridge University Press –

E. Mansfield, Managerial Economics, Sixth Edition, 2006

Any other text in Managerial Economics