Managerial Economics

Term 3, 2002





       Chongwoo Choe

       Office: Room 335, AGSM Bldg.

       Office Hours: TBA

       (Phone) 9931-9528; (Fax) 9313-7279; (Email)



Lecture Time/Venue


       Lecture: TBA



Objectives of the Subject


The subject has three broad themes:


      Foundations of managerial economics: techniques for managerial decision making and the analysis of markets;

      Market structure and managerial decisions: diverse pricing techniques and strategic issues in various market settings;

      Managerial decisions in organizations: private information, organization design and incentive compensation





The assessment for the subject is based on the following weights.


       Two equally weighted group problem sets                                       30%

       One individual assignment (depending on enrolment number)         20%

       Two-hour comprehensive final exam                                             50%


Late submission will incur a 10% penalty for each day (or a fraction thereof) of late submission. The maximum penalty is 50% of the mark, and submission after 5 days of the due date will not be accepted.  Final marks for the subject will be moderated to fit the following curve:


A         30-50% of class

B          35-55% of class

C          0-20% of class

Fail      < 10% of class

Mean between 70 to 74.

Course Material


Lectures will be mainly based on lecture slides and material from the course pack. 


       Lecture slides


They can be downloaded from the subject homepage (TBA) about one week before each lecture. Feel free to download lecture slides but please do not print them from the computer lab since hardcopies will be distributed at the beginning of each lecture.  Subject home page will have additional information updated regularly. 


       Course pack


Course pack contains cases, articles and chapters from the books for additional reading.  At times, more reading material will be distributed throughout the term.


       Books for additional reading (available in the Frank Lowy library)


Besanko, David, Dranove, David and Mark Shanley (2000), Economics of Strategy, 2nd edition, Wiley. (BDS)


Brickley, James, Smith, Clifford and Jerold Zimmerman (1997), Managerial Economics and Organizational Architecture, Irwin. (BSZ)


Gans, Joshua, King, Stephen and Gregory, N. Mankiw (1999), Principles of Microeconomics, Harcourt Brace & Company. (GKM)


Mansfield, Edwin (1997), Applied Microeconomics, 2nd edition, Norton. (M)


Mansfield, Edwin and Gary Yohe (2000), Microeconomics, 10th edition, Norton (MY)


Mansfield, Edwin, Allen, Bruce, Doherty, Neil and Keith Weigelt (2002), Managerial Economics: Theory, Applications and Cases, 5th edition, Norton. (MADW)


Milgrom, Paul and John Roberts (1992), Economics, Organization & Management, Prentice Hall. (MR)


Shapiro, Carl and Hal Varian (1999), Information Rules, Harvard Business School Press. (SV)


Varian, Hal (1999), Intermediate Microeconomics, 5th edition, Norton. (V)


       Problem sets


They will be distributed about two weeks before the due date.  You can also download them from the subject homepage.  Answers to problem sets will be made available for download after the due date.


Course Outline and Reading Guide


The following is a skeletal outline of the subject.  Depending on circumstances, topics may be reshuffled or modified.  Readings are divided into two types:


1.     Background reading: You may read these before each lecture. Most of the background reading material is based on GKM, which, I assume, you have read in term 1.

2.     Required reading: You should read these before each lecture since class discussions will be based on these.



Theme 1: Foundations of Managerial Economics


       Week 1: Techniques for managerial decision making

1.     Background reading: none

2.     Required reading

       MADW, pp 36-80 (course pack)

       MY, pp 493-509 (course pack)


       Week 2: Revision of demand, supply and costs

1.     Background reading: GKM, Chapters 4, 5, 6, 13

2.     Required reading:

       The case of black gold, M, pp 162-180 (course pack)

       The case of milk and dairy products, M, pp 273-295 (course pack)



Theme 2: Market Structure and Managerial Decisions


       Week 3: Revision of market structure

1.     Background reading: GKM, Chapters 14, 15, 16, 17

2.     Required reading

       BDS, pp 227-259 (course pack)


       Week 4: Commitment and dynamic competition

1.     Background reading: GKM, Chapter 15

2.     Required reading

       Garda, R. A. and M. Marn (1993), Price Wars, The McKinsey Quarterly, pp 87-100 (course pack)

       BDS, pp 268-281, 290-297 (course pack)


       Week 5: Topics in pricing

1.     Background reading: material from weeks 4 and 5

2.     Required reading

       MADW, pp 477-522 (course pack)


       Week 6: Economics of information technology

1.     Background reading: none

2.     Required reading

       V, pp 602-616 (course pack)

       SV, pp 19-51 (course pack)

       Shapiro, C. and H. Varian, Versioning: The Smart Way to Sell Information, Harvard Business Review, November December, 1998, pp 106-114. (course pack)



Theme 3: Managerial Decisions in Organizations


       Week 7: Private information and economic organizations                                                 

1.     Background reading: none

2.     Required reading

       MR, pp 126-159, 166-194 (course pack)


       Week 8: Case discussion 

1.     Background reading: material from week 7

2.     Required reading

       HBS Case (9-797-011), Coming Soon: A Theater Near You (course pack)


       Week 9: Incentive compensation

1.     Background reading:

       Kohn, A. (1993), Why Incentive Plans Cannot Work, Harvard Business Review, 54-63 (course pack)

       Jensen, M. and K. Murphy, CEO Incentives Its Not How Much You Pay, But How, Harvard Business Review, 138-153 (course pack)

2.     Required reading

       BSZ, pp 266-288 (course pack)


       Week 10: Review and final exam