School of Business and Economics
I. LOCATOR INFORMATION
INSTRUCTOR:
Petur O. Jonsson
COURSE:
Economics 610-01/80; Managerial Economics
OFFICE LOCATION:
362 SBE Building
OFFICE HOURS:
TR 9:00 a.m.-12:00 noon
W 9:00-10:00 a.m. & 11:00 a.m. -12:00 noon
and by appointment. *
OFFICE PHONE:
910-672-1984
E-MAIL:
pjonsson@uncfsu.edu
MEETING TIME:
W 6:00 – 8:30 p.m.
CREDIT HOURS:
3 Semester Hours
CONTACT HOURS:
45 Hours
PLACE: SBE 113
FSU Policy on Electronic Mail: Fayetteville State University provides to each student, free of charge, an
electronic mail account (username@uncfsu.edu) that is easily accessible via the Internet. The university
has established FSU email as the primary mode of correspondence between university officials and
enrolled students. Inquiries and requests from students pertaining to academic records, grades, bills,
financial aid, and other matters of a confidential nature must be submitted via FSU email. Inquiries or
requests from personal email accounts are not assured a response. The university maintains open-use
computer laboratories throughout the campus that can be used to access electronic mail.
Rules and regulations governing the use of FSU email may be found at
http://www.uncfsu.edu/PDFs/EmailPolicyFinal.pdf
*
You are welcome to stop by my office at any time, even when I do not have formally scheduled office
hours. If I am not there, please leave a message with Mrs. Vivian Humphrey-Cogdell SBE 352 (672-1480) or
send me an e-mail message, so that I can call you to set up an appointment.
II. COURSE DESCRIPTION
Managerial economics is the application of economic theory and quantitative
methods to managerial decision-making in national and international settings.
Topics include empirical estimation of demand functions, cost and production
functions, product pricing, applications of cost-benefit analysis, risk analysis,
technology change management and plant selection strategies in a global economy.
Prerequisites: ECON 540 or equivalent.
III. DISABLED STUDENT SERVICES
In accordance with Section 504 of the 1973 Rehabilitation Act and the Americans
with Disabilities Act (ACA) of 1990, if you have a disability or think you have a
disability to please contact the Center for Personal Development in the Spaulding
Building, Room 155 (1st Floor); 910-672-1203.
IV. REQUIRED TEXT
Brickley, Smith and Zimmerman, Managerial Economics and Organizational
Architecture, 3rd, 4th or 5th edtition. (New York: McGraw Hill).
V. STUDENT LEARNING OUTCOMES
The objective of this course is to give you an introductory survey of the concepts,
issues, problems, and ideas of economics as they relate to managerial decisions.
The course will cover a variety of issues—along the way we will consider such
diverse topics as the basics of supply and demand, market structure, economic
strategy, organizational structure and architecture of firms, incentives and
compensation, and corporate governance.
Managerial Economics deals with the application of microeconomic theory and
methodology to decision-making problems faced by private, public, and non-profit
institutions. Managerial Economics assists managers in allocating scarce resources
efficiently, planning corporate strategy and executing effective tactics. In summary,
Managerial Economics involves identifying alternative means of achieving given
objective(s).
Starting out with the traditional 'supply and demand' diagrams, the course will show
you how a few relatively simple analytical tools can be used to obtain new and often
counter-intuitive insights that may affect your perspective and understanding of
economic situations. After taking this course, you should be able to discuss and
explain a variety of issues related to the structure of firms and the incentives the
structure creates for its stakeholders. For example, you should be able to:
 Explain how and why a given corporate structure may yield very different results
in different contexts.
 Explain under what circumstances markets are likely to be efficient and when
they are likely to fail to yield efficient outcomes.
 Explain how the organizational architecture of a firm (Enron, for example) can
generate corruption and eventual collapse.
 Explain under what circumstances will a firm would charge different customers
different prices for the same product or service?
 Explain how firms can deal with incentive conflicts that create problems within
the firm.
 Explain and discuss why outsourcing affects different firms (General Motors and
Microsoft, for example) in different ways.
 Explain how the advent of HDTV, DVR's, etc. has affected the organizational
structure of the Hollywood movie studios, etc.
1. You should know and be able to explain and use the basic economic terms that you
encounter in the course and that are also listed amongthe key terms and concepts at
the end of each covered chapter.. The following short list gives a few examples of terms
you will encounter in this course:
Accounting Cost
Diseconomies of Scale
Marginal Cost
Transaction Cost
etc.
Oligopoly
Economic Profit
Sunk Cost
Horizontal Merger
Elastic Demand
Shortage
Inferior Good
Market Structure
To reiterate, you should be able to:
1.1 Understand and explain the definitions of these concepts.
1.2 Use these terms correctly in explaining and discussing specific problems.
2. You should be able to use the ideas and methods presented in this course and
apply them to new situations.
In particular, you should be able to:
2.1 Identify economic issues and arguments when you encounter them.
2.2 Describe economic issues and ideas in your own terms.
2.3 Explain new and changing situations in terms of the relevant economic
concepts and principles.
3. The course should also help you to improve your problem solving ability, and
your ability to manipulate and use basic economic diagrams.
In particular, you should learn how to:
3.1 Represent, manipulate, and interpret the relationship between two
economic variables in a diagram.
3.2 Interpret the significance and importance of the intersection points of
different curves, as well as the significance of the horizontal and the vertical
distance between different curves at different points, in any given economic
diagram.
3.3 Solve basic conceptual problems by using a diagrammatic representation of
the arguments in question.
4. The course should help you to develop critical thinking about economic issues.
In particular, what you learn in this course should help you to:
4.1 Evaluate the costs and benefits of different managerial decisions.
4.2 Identify those who benefit and those who bear the costs of different
decisions.
4.3 Predict the likely outcomes of well defined economic situations.
VI. COURSE REQUIREMENTS AND EVALUATION CRITERIA
Every Student Must:
1. Obtain an individual copy of the textbook
2. Complete all reading assignments in time
3. Have an FSU email account.
4. Complete class assignments on schedule.
Exams: There are two exams scheduled for the semester. These exams will be given in
class or else proctored off-site (details on proctoring will be made later in the
semester).
The Structure of the Exams: Each exam will yield a maximum of 100 total points and
consist of four essay and/or problem type questions, based on the material covered
during the relevant segment of the course.
Comprehensive Final Exam Option: Any student who requests it will be given the
option of taking a specially designed comprehensive final exam in lieu of the regularly
scheduled final (on December 10th). If you choose to take this exam, then it alone will
determine your total exam score—it will replace the other two exams. This special
exam will consist two parts. The first part will require you to choose and answer eight
essay and/or problem type questions (this part of the exam will represent 240 of a
maximum of 300 total points). The second part of this exam will then consist of
definitions and explanations of terms. Note: this exam is primarily intended to give
those who are in danger of failing the course a second chance, I do not recommend that
you take it unless you have to.
Assignments: The course will also have some assignments that you must complete.
Some of the assignments will be advance chapter summaries that you must post in
BlackBoard and some assignments will call for the use of Excel. In particular, you need
to be able to create and edit scatterplots in Excel and then paste these into word to
complete some of these assignments. We will review what you need to do in class, and
we will also hold some practice sessions on Saturdays for students who need help with
Excel. In addition, I will post some instructions on using Excel scatterplots in Blackboard.
The value of each assignment will depend on the amount of work it calls for, ranging
from 10 to 30 points. Missed assignments will yield a score of zero, and there will be no
make-ups for these. Your cumulative score on these assignments will then be converted
to percentages to yield an overall assignment score that ranges from 0-100.
Term Paper Assignment: There are a number of illustrative examples in the text that
we will use for class discussion (see section VII of this syllabus for a list of these). Your
term paper assignment is to either take a closer look at one of these specific examples
or else find a similar example based on current events. For this you will need to consult
some additional sources and you will also need to take a much closer look at the issues
at stake in the specific example that you choose. You must turn your paper in to
BlackBoard. As you write your paper keep in mind that all the term papers will be
reviewed in turnitin.com for plagiarism, so you will need to make sure that you give
proper attribution to all sources, etc. We will have some more detailed instructions on
the term paper posted in BlackBoard. The term paper will yield a maximum score of 100
points.
Letter Grades: Adding the total exam, assignment, and term paper scores yields a total
overall score on a scale from 0-400. This score will then be transformed into letter
grades as follows:
A = 360-400 Points
C =280-319 Points
B = 320-359 Points
F = < 279 Points
Your letter grade represents the quality of your work in the course. Accordingly, the
letter grades A, B, C, and D represent respectively excellent, above average, average,
and below average performance. A grade of F represents failure in the course.
VII.
COURSE OUTLINE AND ASSIGNMENT SCHEDULE
Dates
Aug. 20
Reading Assignments, Topics, and Activities
An Introduction and an Overview of the Course
 Rules of the Game  Exams, Assignments and Grades  A Brief Overview of the Course
 Economic Issues and Problems  Some Basic Definitions  The Scope & Method of Economics 
Economics as Applied Ethics
Aug. 27
Chapters 1-2: Economic Reasoning and Economic Behavior
 Models and Marginal Analysis  Rational Behavior & Incentives  Organizational Architecture  The
Enron Scandal  Choice and Opportunity Cost  Marginal Analysis  Choice and Creativity 
Indifference Curve Analysis  Budget Constraints  Optimal Choice  Changes in Choice  Merrill
Lynch Money vs. Integrity Example  Alternative Models of Behavior  Shape of Indifference Curves
Illustrative examples for class discussion:
 Executive Turnover and Investment for the Future (p. 6)
 Fraud and the Subprime Mortgage Crisis (p. 7)
 Software bug detection & the Dilbert Principle (p. 7)
 Economic Darwinism and the Auto Industry (p. 9)
 Société Générale trading scandal (pp. 13-14)
Dilbert Principle (see also http://en.wikipedia.org/wiki/The_Dilbert_principle) :
 First Union Einstein Program (p. 19)
 Computer Purchase Example (p. 21)
 Crime and Incentives (p. 37)
 Happiness and Productivity (p. 38 + http://www.voxeu.org/article/does-happiness-affectproductivity
Sept. 3
Chapter 3: Economic Systems, Markets and Organizations
 Economic Systems  Property Rights and Exchange in a Market Economy  Review of Supply and
Demand  Prices and Coordination  Price Controls  Markets vs. Central Planning  Transaction
Costs (a.k.a. Contracting Costs) and the Theory of the Firm
Illustrative examples for class discussion:
 The Priceline Patent on Naming Your Own Price (p. 63)
 Property Rigths Insecurity (p. 63 + http://www.cato.org/publications/economicdevelopment-bulletin/how-loss-property-rights-caused-zimbabwes-collapse?print)
 Trade Restrictions and the Political Climate: the Case of Venezuela (p. 64)
 Supply of Resumes (p. 73 and p. 155)
 Minimum Wage and Labor Unions (p. 77 and p. 153)
Tin Shortages and the Economic System (p. 87, p. 157 +
http://en.wikipedia.org/wiki/Simon%E2%80%93Ehrlich_wager)
Sept. 10
Chapter 4: Understanding Demand
 The Concept of Demand: Functions, Formulas, Curves, etc.  Price Elasticity and Market Revenue 
Linear Demand Curves  Determinants of Demand  Industry vs. Firm Demand  Network Effects 
Product Life Cycle Issues  First Mover Advantages and Disadvantages
Illustrative examples for class discussion:
 Demand for Free Goods (p. 109)
 Tuition and Demand for College (p. 110)
 Airline Ticket Pricing (p. 114)
 Tightening the Alligator Belt (p. 120)
 9/11 and Shifts in Demand (p. 122)
 Store Layout and Demand (p. 123)
Sept. 17
Chapter 5: Production and Cost
 Production Functions: Returns to Scale and Factor Returns, etc.  Production Isoquants  Isocost
Lines  Cost Minimization  Input Prices and the Input Mix  Cost and Production  Cost Curves 
Short Run vs. Long Run  Economies of Scale, Learning Effects, and Economies of Scope  Profit
Maximization
Illustrative examples for class discussion:
 CPA Exam Study Time and Diminishing Returns (p. 146)
 Minimum Wage Laws and Production Cost (p. 153 and p. 77)
 Job Seekers and Internet Resumes (p. 155 and p. 73)
 Metal Prices (p. 157 and p. 87)
 The DeLorean Story (p. 159)
 Economies of Scale for Hair and Beauty Salons (p. 161)
 Plant Location and Steel Production in China (p. 167)
Sept. 24
Chapter 6: Market Structure
 Competitive Markets and the Firm  Profits and Competition  Entry Barriers  Monopoly 
Monopolistic Competition  Oligopoly  Game Theory and Nash Equilibrium Prisoner’s Dilemma
 Cournot Equilibrium  Competition and Price
Illustrative examples for class discussion:
 Plywood Pricing and the Courts (p. 184)
 Government Exit Restrictions (p. 188)
Airline Price Wars (p. 196)
Oct. 1
Chapter 7: Pricing with Market Power
 Profit Maximization and Pricing  Markup Pricing  Price Discrimination
Illustrative examples for class discussion:
 Profit Increases at Parker Hannifin (p. 213)
 Microsoft Pricing Strategies (p. 214)
 Cigarette Pricing (p. 214 … also movement across state lines)
Pricing of Books (p. 220 … + textbooks)
Oct. 8
Oct. 15
Oct. 22
Oct. 29
Review for Mid-Term Exam
Mid-Term Break
Mid-Term Exam
Chapter 8: Market Strategy
 Creating vs. Capturing Value  Value and Cost Drivers  Transaction Costs  Complements 
Diversification  Resources and Capabilities and Organizational Architecture
Illustrative examples for class discussion:
 Razors and Blades (p. 246 + new products such as disposable razors, etc.)
 Airlines and Cell Phone Use (p. 249)
 Eli Whitney and the Cotton Gin (p. 254)
 Wal-Mart (p. 266, p. 264, p. 274)
 Polaroid (p. 265)
 Microsoft Upgrade Strategies (p. 272)
Nov. 5
Chapter 9: Strategic Interactions and Game Theory
 Basic Concepts of Game Theory  Dominant Strategies and Nash Equilibrium  Competition vs.
Coordination  Mixed Strategies  Sequential Interactions  Managerial Implications
Illustrative examples for class discussion:
 Stocklifting (p. 255?)
 Mixed Strategies in Sports (p. 262?)
 Strikes in Professional Sports (p. 267?)
 Random Audits (p. 269?)
Nov. 12
Chapter 10: Incentive Conflicts and Contracts
 Contracts and the Firm  Incentive Conflicts within the Firm  Contracting Costs  Asymmetric
Information and Contracts  Agency Problems  Adverse Selection
Illustrative examples for class discussion:
 Rope Pulling Experiment (p. 319)
 Managerial Perks (p. 322)
 Monitoring Employee Phone Calls (p. 325)
 Law Firm Billing (p. 328)
eBay Feedback (p. 334)
Nov. 19
Chapter 11: Organizational Architecture
 Architecture of Markets  Architecture of Firms  Decision Rights and Controls  Corporate Culture
 Inappropriate Architecture and Corporate Failure
Illustrative examples for class discussion:
 Spontaneous Order in Markets (p. 343)
 Decentralization at Century 21 (p. 344)
 Container Traffic and Monitoring Technology (p. 348)
 J.C. Penney Purchasing Decisions (p. 348)
 Airplane Maintenance Decisions (p. 351)
Nov. 26
Chapter 12: Decision Rights and Empowerment
 Assigning Tasks and Decision Rights  Centralization vs. Decentralization  Decision Rights and
Teams  Management and Control  Knowledge Issues  Influence Costs
Illustrative examples for class discussion:
 Kodak and Decentralization (p. 368)
 Union Pacific and Decentralization (p. 369)
 Centralization in Financial Services (p. 370)
 Empowerment and Team Responsibility at Eaton Corp. (p. 374)
 Global Supply Chain Issues and Decentralization (p. 375)
Dec. 5
Dec. 10
Review for Final Exam
Final Exam
VIII. TEACHING STRATEGIES
Most class sessions will consist of a short lecture reviewing the issues at hand, followed
by class discussion that focuses on specific examples identified in the reading list. The
course will rely heavily on student input. In this course, even though there is a given list
of topics to be covered, the students will have some say in how each of these topics is
handled.
IX. BIBLIOGRAPHY & SUGGESTED READINGS
D. Ariely. The Honest Truth About Dishonesty: How We Lie to Everyone---Especially
Ourselves. New York: Harper, 2012
D. Besanko, et al., Economics of Strategy (5th Edition). Hoboken: John Wiley & Sons,
2009.
Cowen, Tyler, and Tabarrok, Alex. Modern Principles of Economics (2nd Edition).
Worth Publishers.
S. D. Levitt and S. J. Dubner. Freakonomics: A Rogue Economist Explores the Hidden
Side of Everything (P.S.) William Morrow Paperbacks, 2009.