ECW2731

1. ECW2731 Managerial Economics

2. Subject Adviser Dr Gennadi KAZAKEVITCH Berwick campus, Room 129. Phone: (03) 9904 7135. Fax: (03)9907 4100 Office contact hours: Monday5-6 PM and Wednesday 4-5 PM. E-mail: Gennadi.Kazakevitch@monash.edu.au http://www-personal.buseco.monash.edu.au/~gennadik/gkazwww.htm

3. Lecture 1Lecture 1Subject Information Introduction to Managerial Economics

4. Aims, Questions Assessment Assignment Examination Reading Structure Subject Information

5. Market processes, demand patterns, cost structures, market conditions pricing policies, and the impact of regulation on business decisions Cases and problems illustrate how economic concepts can be applied to specific industries to the problems of formulating rational managerial decisions, corporate and marketing strategies. AimsThis unit reviews the contemporary economic principles in the context most relevant to business people:

6. How do markets work? How do customers value products? What are the relevant production and cost measures for decision making? How does competition affect business decisions in different market structures? What prices should be set? What would be the impact of changes in interest rates on costs, accounting, or capital budgeting? How important to managerial and marketing decisions are changes, in foreign exchange rates, in technology, in incomes, in government regulations, in sources of energy, in the balance of payments? ????? Questions

7. Assessment Assignment 4000 words - 40%. Two-hour written examination - 60 % To pass the unit you must: (a) complete all the required work, and (b) obtain an overall grade of at lease 50% of the total marks, and (c) obtain at least a 50% grade for the examination.

8. Due date: 5 p.m., 20 April 2006 Automatically extended until 4:45 PM Monday, 24 April 2006 We will talk about the assignment later on Assignment

9. Two hours, Section A 4 concise essay style questions on theoretical issues of and (or) analytical technique - 60%. You will be informed about narrow topics in the end of semester. Section B Research Question You will be informed about narrow topics in the middle of semester. Examination

10. E. Mansfield, Managerial Economics, Sixth Edition, 2006 Any other text in Managerial Economics Library search for the research question Media Reading

11. Structure Weeks 7-8 Competition, market structures and business decisions Week 9 Pricing strategies and practices Week 10 Business and Government. Weeks 5 - 6 Production and Costs, technological changes and industrial innovations Managerial Economics Week 11 Capital budgeting Weeks 3-4 Demand analysis and estimation Week. 12 Research question Business and current economic situation. Weeks 1-2 Introduction. The nature of managerial economic decision making

12. Introduction. The nature of managerial economic decision making Managerial economic as an economics discipline The role of managerial economics in managerial decision making Economic optimisation The value of firm Economic constraints Demand The basic economic variables Supply Costs Revenue Profit

13. Demand analysis and estimation Market demand Market supply Market equilibrium Price, cross-price, and income elasticity of demand Normal versus inferior good Implication: optimal pricing policy Implication: optimal level of advertising

14. Production and Costs Production functions Factors of production Total, marginal and average product, revenue and costs Return to factors versus return to scale Firm and plant size Economies and diseconomies of scale Optimal level of single input and optimal combination of multiple inputs Fixed and variable costs Explicit and implicit costs Short run versus long run in cost analysis

15. Competition, market structures and business decisions How does competition affect business decisions in different market structures? Perfect competition; monopoly; oligopoly; monopolistic competition, Monopoly/monopsony confrontation Competitive strategies. Measurement of market structures Market strategies in different market structures. Non-price competition. Multinational companies. Vertical and horizontal coordination.

16. Pricing strategies and practices What prices should be set? Mark-up pricing Competitive strategies. Price discrimination. Bundle pricing Multiple and joint product pricing. Transfer pricing

17. Business and Government The impact of regulation, deregulation and taxation policy on decision making, competitiveness and efficiency. Reasons for regulation. Regulatory response to incentive and structural failures. Taxes and subsidies Anti-Trust Policies. Problems with regulation

18. Capital budgeting Capital budgeting process Cash flow estimation Decision rules Alternative projects Cost of capital. Optimal capital budgeting

19. Business and current economic situation Research topic What would be the impact of high/low interest rates on costs or capital budgeting? How important, to managerial and marketing decisions, are changes in foreign exchange rates, in interest rates, in incomes, in the balance of payments, liberalisation of trade, etc

20. Topic 1. Introduction: The nature of managerial economic decision making

21. Weeks 7-8 Competition, market structures and business decisions Week 9 Pricing strategies and practices Week 10 Business and Government. Weeks 5 - 6 Production and Costs, technological changes and industrial innovations Managerial Economics Week 11 Capital budgeting Weeks 3-4 Demand analysis and estimation Week. 12 Research question Business and current economic situation. Weeks 1-2 Introduction. The nature of managerial economic decision making

22. Introduction. The nature of managerial economic decision making Managerial economic as an economics discipline The role of managerial economics in managerial decision making Economic optimisation The value of firm Economic constraints Demand The basic economic variables Supply Costs Revenue Profit

23. Introduction. The nature of managerial economic decision making Learning objectives This topic is deals with the nature and the scope of Managerial Economics as a whole. The place of Managerial economics in the Economics discipline. How do managers make their decisions? The elements of the economic theory of firm that we need to understand nature of managerial economic decision making are: Economic optimisation; The value of firm; Economic constraints; The basic economic variables, including demand supply, costs, revenue and profit.

24. Introduction. The nature of managerial economic decision making Reading Mansfield, Chapter 1.

25. Introduction. The nature of managerial economic decision making Managerial economic as an economics discipline Economics Macroeconomics Microeconomics “Sector” economics Money, finance, banking Labor economics Economics of IT and EC Managerial economics International Economics Regional Economics Economic Development

26. Introduction. The nature of managerial economic decision making Economic concepts Theory of consumer behaviour Theory of firm Theory of market structures and pricing Decision making tools Numerical analysis Statistical analysis Forecasting Game theory Optimisation Managerial Economics Use of economics concepts and decision making tools to solve managerial decision problems Optimal solutions The role of managerial economics in managerial decision making Managerial decision problems Product price and output Make or buy Production technique Internet strategy Advertising media and intensity Investment and financing

27. Introduction. The nature of managerial economic decision making The role of managerial economics in managerial decision making The Process of decision-making • Identify objectives • Define the problem • Identify possible solutions • Select the best possible solution • Implement the decision

28. Introduction. The nature of managerial economic decision making The role of managerial economics in managerial decision making Theory of the firm • A theory indicating how a firm behaves and what its goals are

29. Introduction. The nature of managerial economic decision making Economic optimisation Functional relationships Q = f (P) for example Q = 200 - 5P

30. Introduction. The nature of managerial economic decision making Economic optimisation Marginal value The marginal value of a dependent variable is the change in this dependent variable associated with a 1-unit change in a particular independent variable

31. Introduction. The nature of managerial economic decision making Economic optimisation CENTRAL POINT The dependent variable is maximized when its marginal value shifts from positive to negative

32. Introduction. The nature of managerial economic decision making Economic optimisation Relationship between output and profit -- Roland Corporation

33. Introduction. The nature of managerial economic decision making Total, marginal, and average profit -- Roland Corporation Economic optimisation

34. Introduction. The nature of managerial economic decision making Economic optimisation Choose alternative that produces a result the most consistent with managerial objective What is the primary managerial objective? It depends upon the ownership structure Profit maximisation? Sales/revenue maximisation? The value of firm maximisation? Profit per employee maximisation?

35. Introduction. The nature of managerial economic decision making The value of firm The present value of the firm’s expected future cash flows N – firm’s life time I - discount rate - current value of the profit earned in t years time

36. Introduction. The nature of managerial economic decision making The value of firm

37. Introduction. The nature of managerial economic decision making Economic constraints Limited resourses Labour Capital Finance Raw materials Environment Limited capacity of market Demand Choice/Opportunity cost