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MBA - Managerial Economics

MANAGERIAL ECONOMICS

BBS7MEC

Faculty of Business

2011/12

MBA (Level 7)

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Table of Contents

1. Module Details.............................................................................................................................. .... 3

2. Short Description ...................................................................................................................... ........ 4

3. Aims of the Module ................................................................................................................ ........... 4

4. Learning Outcomes.................................................................................................................. .......... 5

4.1 Knowledge and Understanding............................................................................................................ 5

4.2 Intellectual Skills .......................................................................................................................... ...... 5

4.3 Practical Skills ................................................................................................................................ .... 6

4.4 Transferable Skills ...................................................................................................................... ........ 6

5. Assessment of the Module ................................................................................................................. 7

6. Feedback ........................................................................................................ ................................ 10

7. Introduction to Studying the Module ................................................................................................ 11

7.1 Overview of the Main Content .......................................................................................................... 11

7.2 Overview of Types of Classes ............................................................................................................. 11

7.3 Importance of Student SelfManaged Learning Time ........................................................................... 12

7.4 Employability................................................................................................................................ ... 13

8. The Programme of Teaching, Learning and Assessment ...................................................................... 14

9. Student Evaluation .................................................................................................................. ........ 21

10. Learning Resources.................................................................................................................. ........ 21

10.1 Core Materials .............................................................................................................................. .. 21

10.2 Optional Materials.................................................................................................................... ....... 21

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1. MODULE DETAILS

Module Title: Managerial Economics

Module Level: 7 (MBA)

Module Reference Number: BBS7MEC

Credit Value: 20 CATS POINTS

Student Study Hours: 200Contact Hours: 60

Blackboard Contact Hours: 20

Private Study Hours: 120

Prerequisite Learning (If applicable): None

Corequisite Modules (If applicable): None

Course(s): Executive MBA & MBA

Year and Semester 1 (Semester 1)

Module Coordinator: Ceyhun Elci

MC Contact Details Room:

Email:

Tel:

LR 317 (London Road)

[email protected]

020 7815 7071

Teaching Team & Contact Details:Room:

Email:

Tel:

Contact Details:

Room:

Email:

Tel:

Brain ArdyLR137 (London Road)

[email protected]

020 7815 8129

Michael Wood

LR 51 (London Road)

[email protected]

020 7815 7780

Subject Area: Business

Summary of Assessment Method: 1. Discussion Question Responses

2. Project Proposal and Outline Report

3. Unit Final Project Report

(See page 79)

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2. SHORT DESCRIPTION

This module is designed to provide students with an understanding of how economics can

inform managerial decisions and provide a range of tools for optimising the profitability of the

firm. Students will be introduced to many realworld case studies illustrating the concepts

studied in a practical context.

The unit will show how economic theory can reinforce decisionmaking in the development and

implementation of business strategy for greater competitiveness in the global economy. The

participants are introduced to the main themes of managerial economics and go on to study

some key management tools in detail. These include optimisation, demand analysis, production

and cost analysis, risk analysis, game theory, and pricing strategy. Consideration is given to the

importance of market structure and the role of government in the economy and in enterprises.

3. AIMS OF THE MODULE

The specific aims of this unit in Managerial Economics are to ensure that students can:

Understand the contribution economic theory can make to the analysis of issues in business

management;

Appreciate the value of economic tools in shaping business decisions and strategy for the

achievement of greater competitiveness;

Gain experience in the use of economics for business and management research, both

academic and practical.

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4. LEARNING OUTCOMES

4.1 Knowledge and Understanding

On completing the unit it is expected that students should be able to:

Demonstrate understanding of economic theory and its relevance to businessmanagement;

Apply economic tools to the analysis of complex business issues;

Critically evaluate the methodologies used in particular economic analyses;

Critically appraise managerial behaviour and firm behaviour in economic reasoning;

Demonstrate a critical understanding of market and government interaction;

Critically apply economic principles to management activities and mechanisms;

Demonstrate an indepth knowledge and comprehension of different methods of

economic evaluation;

Demonstrate a detailed understanding and evaluation of costs, revenues, and economic

financial performance of organisations;

4.2 Intellectual Skills


Evaluate and interpret economic tools, decisionmaking views and information from a

variety of sources;

Demonstrate information gathering, interpretation, and analytical/problem solving skills

with economics for management tasks;

Demonstrate capabilities in economic analysis to form managerial decisions with

strategic economic views;

Demonstrate an ability to apply the methods of economic analysis to the reallife

management decision making;

Critically evaluate alternative performance and success methods with new economic

tools for management;

Effectively communicate the outcomes of quantitative and quantitative decisionmaking

techniques.

Demonstrate the development of critical understanding and analytical judgment of

economic issues.

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4.3 Practical Skills


Develop group and team working skills through case studies and indepth topic

discussions within seminars and workshops;

Develop the ability to engage in selfmanaged learning, including reading and study

skills in preparation for class discussions, coursework and examination assessment,

while considering management tools;

Demonstrate an ability to understand and critically evaluate alternative viewpoints and

theories, weigh evidence and draw conclusions for the better;

Prepare and write a management report with economic theorems for management;

Develop information technology skills through the use of electronic databases and

software used in the corporate field. Interact with the World Wide Web for gathering

corporate information and publisher based learner support materials.

4.4 Transferable Skills


Communication skills through engaging in discussions and debate in the context

seminars (managerial teams)

Engage in interactive, problemsolving with other members of the unit throughdiscussion and debate about managerial decisions;

Problemsolving skills developed through individual work and interactive seminar

discussions;

Critical analysis and evaluation skills though negotiations and debates;

Written presentation skills for professional report writing;

Time management and planning skills in organising time and the working to assignment

deadlines.

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5. ASSESSMENT OF THE MODULE

The unit will be assessed through 3 assignments that will make up the units 100% coursework

assessment:

Unit assessment is made up of 3 main elements:

Assignment 1 Discussion Question Answers & Participation (30% weighting)

Students will have regular online Blackboard interaction with other students from the

unit and the unit team in order to help consolidate the students understanding of

theoretical concepts and to develop skills through discussion exercises. The content of

the online blackboard contact sessions will relate to the materials covered in the

lectures and reading material and will focus on Discussion Questions set by the unit

coordinator prior to weeks 2, 4, 6, 8 and 10.

For assignment 1 Students are required to submit a total of 5blackboard discussions

submissions in response to Discussion Questions that will be set by the unit coordinator

for blackboard submission. Student must submit their initial response to the Discussion

Question for week 2, 4, 6, 8 and 10 by the Sunday prior to the week. A typical answer

should have about 500 words, but it is the quality of the answer that matters, not the

number of words.

The submissions will then be followed by participation in the discussions with followon

postings to your peers answers, making 35 significant discussion question followup

postings in addition to your initial response for each Discussion Question. The questions

will be developed through the blackboard discussion board and in seminars following

the Sunday submission in weeks 2, 4, 6, 8 and 10.

Assignment 2 Unit Project Proposal & Outline Report (20% weighting)

Assignment 2 is to prepare a project proposal of the Final Project Report, for

Assignment 3. The unit requires students to complete a course project that reveals

mastery in application of the macroeconomic and microeconomic concepts emphasised

in the course. This involves reporting on a specific organisation within an industry and

optimal strategies involving pricing and resource utilisation that affect the value of the

chosen firm or industry (see Assignment 3; below).

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Assignment 2 is a proposal and outline of the work intended to be undertaken in the

final project report. The project proposal should include the nature of the students

final project, including the sources of information that is planned to use, and the most

important concepts and techniques to be applied in a managerial economics report.

Tasks are:

1. To assess the macroeconomic conditions and the opportunities and threats

suggested by these conditions for the chosen firm;

2. To analyse the microeconomic market structure and demand, cost, and

production conditions observed;

3. To evaluate the organisation itself for practises of risk management as well as

capital structure and budgeting;

4. To develop a reasoned and evidencebased managerial strategy based on these

macroeconomic, microeconomic, and organisationalspecific conditions in each

area of production, pricing, and resource utilisation.

The proposal and outline should have a 1,250word count and is to be submitted in

week 10, both to the faculty office and the unit blackboard turnitin system. You will

receive feedback on the proposal from the unit teaching team in Week 11, which will

give you time to make adjustments for the final project.

Assignment 3 Unit Final Project Report (50% weighting)

The final assignment is an Individual Final Project Report for the unit. The Individual

Final Project Report is to allow students to demonstrate their attainment of the

learning outcomes of the unit, through the application of the concepts and techniques

learnt.

The purpose of the Final Project is to apply the concepts and techniques of the unit to

the analysis of realworld situations or problems. Students are expected to use diverse

sources of information and to carry out an original analysis rather than summarise or

rehash existing work. Students are encouraged to use situations and data from their

own experience where possible.

The Final Project Report should be a formal report that provides both specific strategies

and tactics involving pricing, production, and resource utilisation in order to enhance

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the value of the chosen firm. These strategies and tactics are to be supported with

macroeconomic and microeconomic theory.

The Final Project Report should follow the given outline:

1. Brief company background and history;2. Description of firm's organisation and management model;

3. Competitor and market analysis;

4. Product and services pricing strategies;

5. Degree of regulation or deregulation;

6. Risk management;

7. Capital structure and budgeting;

8. Conclusion,

The Final Project should also include a section on how and where you obtained the

information sources as well as the methodology used to perform any analysis

The final report should have a 2,500word count and is to be submitted in week 13,

both to the faculty office and the unit blackboard turnitin system.

KEY DATES:

Discussion Question Responses: Deadline the Sunday (midnight) prior to the

start of weeks, 2, 4, 6, 8 and 10. Followed by 3

5 followup responses.

Project Proposal and Outline: Day of lecture in Week 10

Final Project Report: Day of lecture in Week 13

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6. FEEDBACK

Feedback will normally be given to students 15 working days after the submission of an

assignment.

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7. INTRODUCTION TO STUDYING THE MODULE

7.1 Overview of the Main Content

The main indicative content of the unit are:

To build on students experience to date of managerial services and foster your own

understanding of the issues that inextricably link management and economics. The aim is to

familiarise students with the main principles of managerial economics, focussing on the

economic evaluation of differing and new managerial technologies. The module will introduce

students to the conduct and critical appraisal of managerial economic evaluations. At the end of

the module, students should be able to recognise and understand key economic terms and

have the skills to engage in discussions with colleagues about the advantages and challenges of

using economics to make informed managerial decision making and prioritysetting of tasks.

On completion of this unit you should be able to:

Critically appraise managerial behaviour in terms of economic tools with further analysis

of the firm behaviour in managerial decision making aspects;

Demonstrate a critical understanding of economics if firm activities;

Critically apply economic principles to managerial activities and mechanisms;

Demonstrate an indepth knowledge and comprehension of different methods of

economic evaluation;

Demonstrate a detailed understanding and evaluation of costs, revenues, and economic

financial performance of organisations;

Demonstrate a critical understanding of the rational behind organisation management

in an economics perspective.

7.2 Overview of Types of Classes

Learning will be via a twohour lecture each week to introduce participants to the theories and

concepts underpinning the unit. Each weeks theme will be made up of several topics, which

will enable you to achieve the learning objectives for the week and one or more of the learning

outcomes of the module. These topics will be addressed in the Lecture Notes and readings for

the week.

This will be supplemented with a twohour seminar each week to provide extensive discussion

experience with the practical/applied aspects of the unit. The seminars will develop on

managerial economics themes through a combination of selfstudy and the use of open learning

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materials that will be provided via the blackboard. The seminars will require students to

undertake substantial interactions with other students and the teaching team, in order to

consolidate theoretical concepts and develop skills through discussion and exercises. The

content of these seminars will relate to the materials covered for each week and will include

Discussion Questions set by the teaching team.

The unit will use lectures and open learning materials to introduce the full range of topics that

need to be covered, although some additional detail will arise through discussion and

collaboration between students and the teaching teams professional experience in managerial

economics, and through students own exploration of recommended further reading. One of the

strengths of the seminarlearning program is the high level of student interaction, where

students are encouraged to share their own experiences in the classroom for the benefit of the

others.

Each part of the module has detailed learning objectives, indicating the topics and level of

competence that students should achieve on completion of that part.

7.3 Importance of Student SelfManaged Learning Time

Students will be studying this unit through a combination of selfstudy and classroom

interactions. Selfstudy materials are vital for achieving weekly learning outcomes and introduce

the full range of topics that need to be covered with prior selfstudy while after class selfstudy

links the material to own experiences.

Hence, all students are expected to undertake substantial selfmanaged learning time. The self

study part of the unit includes:

Overviewing the written and presented lecture notes covering managerial economics

topics within each of the unit;

Becoming aware of links to slides and other media offering additional insights to

managerial economics;

Analysing the recommended reading relating to the topics within the weekly theme.

It is important that all students understand that the lectures provide only an outline of the topic

under consideration. It is, therefore, essential that all students supplement lectures with

reading from both the lecture notes and the core reading. It is also important to keep abreast of

the topics being covered in the lectures, as many lectures build on material covered in previous

lectures. This means doing some reading every week, while engaging in discussions that will

develop fundamental economic management views that may not be obvious from just following

the lectures and the reading material.

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7.4 Employability

The unit aims to meet the expectations of industrial executive management employers. The unit

and course will develop techniques for students to be able to demonstrate an awareness of

economic theory and techniques that describe the role and function of top executive managers.

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8. THE PROGRAMME OF TEACHING, LEARNING AND

ASSESSMENT

Week 1: Introduction to economics for management

Topics

Economic models and assumptions

Pages 49 in Chapter 1 provides an introduction to the field of managerial

economics. The content examines the field of economic theory and decision

sciences and how these areas are incorporated into the decisionmaking process

for managerial economics.

Theory of the firm

Pages 1015 in Chapter 1 analyses the existence of the firm itself and the firms

primary functions. The theory of the firm is explained while constraints and

limitations are also introduced in order to evaluate the theorys usefulness.

The nature and function of profits

Pages 1623 in Chapter 1 illustrates the difference between business and

economic profits while also presenting several theories of profits. The reading also

examines the function of profits in a freeenterprise economy.

The global context of managerial economics

Pages 2328 in Chapter 1 discusses the growing implications for firms as they

operate and compete within an international framework. The author does write

from the viewpoint of an American firm, but the issues presented can be broadly

applied.

Demand, supply, and equilibrium

Pages 3236 in the Appendix to Chapter 1 a review of the basic economic concepts

of demand, supply, and equilibrium are provided. The appendix illustrates the

demand and supply curves while also discussing how shifts in such curves can

occur and the subsequent impact on equilibrium.

Selfstudy for Week 1:

Read and/or review the lecture notes for each topic

Read the textbook pages indicated under each topic

Week 2: Management tools for optimisation and introduction to demand

Topics

Economic relationships

Pages 4147 in Chapter 2 analyses the economic relationships between total,

average, and marginal costs and revenues. The author explains each of the

concepts and also provides graphical representations.

Optimisation analysis

Pages 4752 in Chapter 2 analyses the marginal concept of costs and revenues, as

firms seek to optimise their performance. The author describes how firms should

produce to the point where marginal revenue equals marginal costs, which is

known as optimisation analysis.

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Benchmarking, reengineering, and the learning organisation

Pages 5259 in Chapter 2 discusses the popular tools of benchmarking, total quality

management, and reengineering as they apply to improving a firms performance.

The reading demonstrates a stark contrast between the three tools and analyses

the potential within each. The author also introduces the concept of the learning

organisation and describes the five basic components that serve as its foundation.

Other management tools for optimisation

Pages 6063 in Chapter 2 provides a general overview of several different

management tools that may be implemented for increasing efficiency and

competitiveness of the firm. While many of these tools are new, it is believed that

they will gain in popularity as firms seek novel and better ways to improve in the

future.

New Management Tools and Functional Specialisation

Pages 6467 in Chapter 2 provides a general overview of several new management

tools that are becoming more used for decisionmaking.




Discussion Questions:

Submit DQ1 by Sunday prior to week 2 (see weekly reading handbook)

Week 3: Demand Theory and Analysis

Topics

Demand theory

Pages 8898 in Chapter 3 analyses consumer demand and the factors affecting it.

The author examines the forces that determine the demand for a firms particular

product.

Elasticity of demand

Pages 99116 in Chapter 3 analyses the responsiveness in the quantity demanded

of a commodity with regards to change in forces such as price, consumer income,

and crossprice (or related commodity prices).

Demand estimation

Pages 138146 in Chapter 4 discusses the marketing research approaches for the purpose of estimating demand for a firms commodity. The reading examines the

general difficulties in deriving a demand curve.




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Week 4: Introduction to Regression Analysis and Demand Forecasting

Topics

Basics of regression analysis

Pages 147150 in Chapter 4 provides a basic introduction to regression analysis and

how the regression equation is constructed.

Using regression analysis to estimate demand

Pages 167171 in Chapter 4 entail how a firm conducts regression analysis for the

purpose of estimating a demand curve. The author discusses the steps involved in

determining the appropriate regression model for demand estimation.

Demand forecasting

Pages 186214 in Chapter 5 provides a synopsis of the various quantitative and

qualitative methods that firms utilise to develop accurate economic forecasts. The

ability to forecast demand and sales are essential for organisations in the planning

of resources and production.

Selfstudy for Week 4: Read and/or review the lecture notes for each topic



Submit DQ2 by Sunday prior to week 4

Week 5: Production and Innovation

Topics

Production theory

Pages 232236 in Chapter 6 analyses the basic production function that thefirm must address with regards to the levels of labour and capital.

Production estimation

Pages 236258 in Chapter 6 outlines and discusses the approach toestimating production for a firm with one or two variable inputs. The readingalso explores the Law of Diminishing Returns and its relation to production.

Innovation

Pages 262269 in Chapter 6 discuss the meaning and importance of the

innovation process with regards to the production of the firm. Product and process innovation are explained, and the Open Innovation Model isexamined for future significance.




Week 6: Cost Analysis and Estimation

Cost theory

Pages 280308 in Chapter 7 examines the nature of costs of production the

differences between accounting and economic costs.

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Short/Longrun and Economies of Scale

Pages 290-308 in Chapter 7 examines Total, average, and marginal costcurves are explained for both the short-run and the long-run. Examiningcosting in view of economies of scale. The Chapter also looks at theLearning curve and the minimising of costs through international

management.

Cost estimation

Pages 309315 in Chapter 7 provides a look at the methods for estimating

costs for a firm and explore plant size, economies of scale, economies ofscope, and the learning curve. Consideration is also given to supply chainmanagement and break-even analysis.






Week 7: Market structure

Topics

Perfect competition

Pages 340345 in Chapter 8 introduce the perfect competition market structure.

You will also examine how to determine price and output for the firm.

Monopoly

Pages 346360 in Chapter 8 outlines and discusses the monopoly structure.You will explore the sources for monopoly power and analyse the effects of

product variation and operational expenses.

Monopolistic competition

Pages 346360 in Chapter 8 outlines and discusses the monopolisticcompetition structure. Here you will analyse the effects of product variationand operational expenses under monopolistic competition.

Oligopoly and market concentration

Pages 370374 in Chapter 9 presents the various forms of the oligopoly and the

sources that lead to such a market structure. You will also be introduced to methods

for computing the market concentration of an industry to determine the degree to

which it is dominated by a few large firms.

Profitability and efficiency

Pages 383393 in Chapter 9 examine the implications of profitability and efficiency

on the oligopolistic firm. Porters strategic framework should help you to better

understand the strategic challenges that firms face as they attempt to maximise

sales.

Firm architecture

Pages 394402 in Chapter 9 provides a look at the alternatives for organising,

operating, and responding to change. The ideal firm and its general characteristics

are examined along with the rise of the creative and virtual corporations.

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Week 8: Strategic decisions and Dominant Equilibriums

Topics

Game theory and strategic behaviour

Pages 416429 in Chapter 10 examine game theory and its application to

explaining and predicting the strategic behaviour of firms.

Strategic behaviour and international competitiveness

Pages 429432 in Chapter 10 incorporate the implications of action by international

firms in making strategic decisions as well as the possibility of government

interaction.

Dominant Strategy and Nash Equilibrium

Pages 416429 in Chapter 10 analyses the Nash equilibrium and the prisoners

dilemma as enhancements to game theory.

Price and Nonprice Competition

Pages 416429 in Chapter 10 examines the prisoners dilemma and considers the

decision element of competition, through both pricing and nonpricing competition,

in differing management decision markets.






Week 9: Pricing

Topics

Pricing strategy

Pages 441448 in Chapter 11 examine the issues of multiple products produced bya firm in determining price levels. You will explore the interrelationships of demand

and production for such products as well as fixed and variable joint production.

Price discrimination

Pages 449457 in Chapter 11 discusses the concept of price discrimination and how

the ability to discriminate affects pricing strategy. International price

discrimination, or dumping, is also considered along with the possible trade

restrictions that governments may impose.

Transfer Pricing

Pages 465-476 in Chapter 11 discusses the concept of transfer pricing as

alternative methods of pricing strategy.

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Pricing practices

Pages 465476 in Chapter 11 provides a look at the alternatives for pricing, such as

bundling, and skimming.




Week 10: Regulation of the Economy

Topics

The role of government

Pages 494509 in Chapter 12 examine the role of government through the

economic theory of regulation and the public interest theory of regulation. You will

explore various ways that governments have regulated competition and their

effects on business decisions and consumers.

Enforcement of competition/antitrust laws

Pages 510517 and 518 in Chapter 12 outlines and discusses the major antitrust

laws that have been developed and how the legal system has interpreted these

laws based on organisational structure or business conduct.

Deregulation

Pages 517 and 519520 in Chapter 12 briefly examines the negative effects that

government regulation has created and the growing call for governments to loosen

the restrictions on business practices. The reading also introduces the benefits of

deregulation.

Regulation of international competition

Pages 519523 in Chapter 12 examine the reasons that governments enact trade

restrictions on international organisations. These restrictions protect domestic firms

from exporters that can charge lower prices; however, these restrictions are

generally not beneficial to consumers.

Taxation and its effects

Pages 523525 in Chapter 12 provide a brief look at the reasons that governments

impose corporate taxes on certain industries or products. You will find that taxes

can greatly influence the amount of investment in a country as well as the ability to

generate revenue.






Project Proposal & Outline:

Submit your Project Proposal

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Week 11: Risk Analysis

Topics

Measuring risk

Pages 533543 in Chapter 13 examine the methods for measuring risk and the

concepts that are essential for conducting risk analysis.

Dealing with risk

Pages 544556 in Chapter 13 discuss the importance of the managers attitude

towards risk with regards to decision making. You will also examine how to adjust

the valuation model for risk related to investment analysis and how decision trees

and simulation are being used to assist with complex decisions subject to risk.

Uncertainty

Pages 556569 in Chapter 13 examine how decisions are made under

conditions of uncertainty. This rather subjective process can be aided with

the use of some objective decision rules: the maximin criterion and the

minimax regret criterion.




Week 12: Investment Decisions and Capital Budgeting

Capital budgeting

Pages 580592 in Chapter 14 provide an overview of the capital budgeting process

and the various steps that are involved.

Capital Rationing and the Profitability Index

Pages 580592 in Chapter 14 examine the important concepts of cash flows, net

present value, and internal rate of return in evaluating investment projects.

The cost of capital

Pages 592601 in Chapter 14 explore the two general funding sources available to

firms and how to calculate the cost of each. As these funding sources are vital for

undertaking capital projects, firms must use the cost of capital to discount cash

flows and also as a benchmark against the internal rate of return for a project.

Reviewing Investment Projects After Implementation




Week 13: Final Project Report

Final Project:

Submit your Final Project Report

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Other Materials

London South Bank Universitys Intranet and computer based resources, CLSD LSBU

library.

The Economist magazines, journals & relevant articles in boardsheet newspapers.

Managerial Economics Blackboard Site.

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Documents

Transcript of BBS-7-MEC MG