1. MGMT 7730 – Economics and Institutions
Course Convenor:
Houman Younessi
Tel:

2. Course objectives:
This course will introduce the basic principles of economics and establish this discipline as a managerial decision-making framework. The course will draw on economic analysis of concepts such as demand, cost, profit, competition, price and pricing strategy, and market protection and tie them to operational business decisions.

3. Key textbook: Kent, P.G.; Young, P.K.Y.
Managerial Economics: Economic Tools for Today’s Decision Maker;
6th (or Fifth) Edition;
Pearson-Prentice-Hall (2006)

4. Computing Requirements:
Student must be proficient with the basic use of spreadsheet software.
Access to the internet and the World-Wide Web is also necessary
Use of other software packages and facilities is permitted to assist with learning and assignments but is not mandatory.

5. Teaching Method: Assessment:
The principal teaching is through lectures and discussions. There will be 10 lectures during the semester. Whilst formal attendance is not taken, attending all lectures is expected of students and is deemed an important critical success factor.
Assessment:
Assessment is through two take-home assignments and a final paper
Assignments: 30% each (60% total)
Final paper 40%

6. Syllabus: Introduction and the theory of the firm
Demand and various elasticities of demand
Rational choice, estimating demand and forecasting
Production and the production function
Cost, cost factors and break-even analysis
Strategic behavior and game-theory
Markets and competition: strict monopoly - perfect competition, a spectrum
Monopolistic competition and sophisticated monopolistic behavior
Oligopoly
Risk, moral hazard and the principal-agent problem
Public goods and the role of government

7. Silk, Sword and SUV – Global Business
The interaction of enterprise, markets and the environment.

8. Providing Value: need for high quality products and services
Why do business at all?
What products should we make and where should we sell them?
How do I get the most reward for my enterprising effort?
How long can I/ should I continue in that enterprise?

9. Profit Why do business at all? What is Profit?
Accounting profit versus economic profit
Opportunity cost

10. Demand What products should we make and where should we sell them?
If you are certain that there will not be – ever - anyone out there who wishes to
buy the product under question, then it should not be offered

11. How do I get the most reward for my enterprising effort?
Determining which item should be sold where and when
Demand manipulation: Price setting, Advertising, Market generation, Income, Wealth, etc
Elasticity of Demand

12. Supply How do I get the most reward for my enterprising effort?
Supply management: Amount of supply, Competing Products, Complementary products, etc.

13. How long can I/ should I continue in that enterprise?
Risk
Opportunity

14. Profit is the difference between revenue and cost
p = r - c
Profit is the difference between revenue and cost

15. P0 Current profit figure P0 Value of current profit now
P1 Profit next year
Value of next year’s profit now
Value now of profit earned in two years time,
P2 Profit year after next
Value now of profits earned in two consecutive years
So,
Represents the present value of all profits earned over n years

16. The Value of Firm Model:

17. r Firms would have revenue if there was demand for their products.
There will be demand only if the product:
Satisfies a need or want
Represents an adequate level of quality
The required quality is offered at an acceptable price

18. INFORMATION on Retain Obtain Process Disseminate use
What products and, products that we contemplate offering in the future are (or will be) needed?
What level(s) of quality of products will be demanded by the market and where?
What is the quality level of the products we currently make and how much does it take to improve that quality?
What level of demand will there be for our products and when will that demand manifest itself?
What prices should the firm set for their products, and should the prices be uniform or vary in their different markets?
Process
Disseminate
use

19. c
Capability
Production
Quality
Technology
Resources

20. i

21. n

22. Element
Concept
Information Category
Information System
Revenue
Demand
Market trends and marketing
Product quality
Pricing
Data Acquisition
Data Analysis
Control
Forecasting
Optimization
Cost
Production
Process capability
Technology
Estimating
Risk
Uncertainty
Macroeconomic Environment
Internal control
Longevity
Sustainability
Environment
Integration and systemicity

23. Aggregate Demand and Aggregate Supply
Product
Process
Enterprise
Environ.
Quality
Efficiency
Effective- ness
Sustain.
Aggregate Demand and Aggregate Supply
Demand and Supply
Supply Side
Demand Side

24. Demand and the Concept of the Market
Market: A group of organizations and individuals that are in touch with each other in order to buy or sell some good.
Every market has a demand side and a supply side

25. Demand Side of the MarketAt
Price
($) 8 6 4 2
Buyers would buy Quantity
(ton) 10 20 30 40

26. Supply Side of the MarketAt
Price
($) 8 6 4 2
Sellers would sell Quantity
(ton) 10 20 30 40

27. Equilibrium Price 8 Excess Supply 6 4 2 Excess Demand 10 20 30 40
($) 8
Excess Supply 6 4 2
Excess Demand
Quantity
(ton) 10 20 30 40

28. Decline in Demand
Price
($) 8 6 4 2
Quantity
(ton) 10 20 30 40

29. Rise in Demand
Price
($) 8 6 4 2
Quantity
(ton) 10 20 30 40

30. Decline in Supply
Price
($) 8 6 4 2
Quantity
(ton) 10 20 30 40

31. Rise in Supply
Price
($) 8 6 4 2
Quantity
(ton) 10 20 30 40

32. Functional Relationship
Q=f(P)
Q=f(P,I,T,PA,A,…)

33. Marginal Value
The change in a dependent variable associated with a ONE UNIT change in a particular independent variable
As such:
Marginal profit is the change in total profit associated with a one unit change in output

34. Number of units of output
Total Profit
Average Profit
Marginal Profit
---
100 1
100
100
150 2
250
125
350 3
600
200
400
1000
250 4
350
1350
270 5
150 6
1500
250 50 7
1550
221.4
(-50) 8
1500
187.5
(-100) 9
1400
155.5
(-200)
120 10
1200

35. Marginal Change
Profit
Marginal profit is the change in profit with respect to change in quantity
Total Profit Q0 Q1 Q2 Q3
Number of units of output
Profit per unit of output
Marginal Profit Q0 Q1 Q2 Q3
Number of units of output

36. Marginal value is the slope of the tangent of the curve
(P2-P1) / (Q2-Q1)
Profit C B P2
(P3-P1) / (Q3-Q1) P3 A P1
Marginal value is the slope of the tangent of the curve Q1 Q3 Q2
Number of units of output

37. Profit A Q1
Number of units of output

38. Profit A Q1
Number of units of output

39. Total Cost $
Total Revenue
Number of units of output