UNIVERSITY OF ST. THOMAS
Department of Economics
ECON 401: Managerial Economics, Spring 2012
Professor: Dr. Monica E. Hartmann
Office: OEC 402
Office Hours: M 3-4 p.m., TH 3:30-4:30 p.m., and by appointment
Office Phone: (651) 962-5681
Email: mehartmann@stthomas.edu (note the second “n” in my last name)
Lecture: MWF 1:35-2:40 p.m.
Classroom: OEC 310
Course Description: Managerial Economics applies microeconomic theory to business problems
managers face. Boundaries of the firm, price discrimination, Just-in-Time production, and strategic
positioning of products are few of the topics we will discuss.
A prominent economist, John Maynard Keynes, once wrote: "The theory of economics does not
furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a
doctrine, an apparatus of the mind, a technique of thinking which helps its possessor to draw correct
conclusions." In this course, I will teach you how “the apparatus of the mind” called economic way
of thinking can be used to address business problems.
Course Objective: The objectives of this course are for students to understand both the economic
principles underlying business activity and to be able to apply these principles to 'real world'
situations where many economic theoretical assumptions do not hold. This would allow you to grasp
the advantages and limitations of using economics to analyze problems facing managers today.
Prerequisite: ECON 352 and STAT 220 or MATH 333 Although econometrics is not a formal
prerequisite, comfort with statistical concepts will be helpful during discussion of demand.
Textbook:
 Economics of Strategy, 5th ed., by Besanko, Dranove, Shanley, and Schaefer
 Harvard Business Case Packet – Econ 401, Hartmann Spring 2011
 Supplemental readings will be assigned during the semester & made available online.
Important Dates:
Midterm Examination - Wednesday, April 4th
Final Examination - Wednesday, May 16th at 10:30 a.m.
Upon completion of the course, you should be able to:
Explain the importance of economic models to help understand complex management situations.
Define and give examples of various cost concepts and measures (sunk cost, opportunity cost,
marginal and average cost, fixed cost, economies of scale, scope, and learning), and explain their
relevance in managerial decision making.
Employ concepts of transactions costs and contracts to explain why firms exist and to explain
interaction within firms.
Apply basic game theory to explain and predict strategic behavior in various types of business
interactions.
Identify determinants of demand for a product and give a basic evaluation of a statistically
estimated demand function.
Calculate elasticities of demand and use the concept to inform pricing decisions.
Perform a regression analysis to determine the relationship among relevant economic variables
and use the analysis to make an informed business decision.
Use an economic approach to evaluate the costs and benefits of popular managerial practices,
including outsourcing, just-in-time production management, and strategic positioning of products.
Describe examples of price discrimination and explain why they may be profitable.
Perform an industry analysis using a "five-forces" approach.
Describe and give examples of links between incentive conflicts, agency problems, and the
effectiveness of organizations.
Solve a resource allocation problem that requires you to take into account various types of
constraints, such as capital, labor, and legal constraints.
Grading:
Final
Midterm
Homework
Effective Class Participation and Preparation
Writing Assignment
25%
20%
20%
15%
20%
If you have any questions concerning the grading of your work, please come see me. You have two
weeks from the date I return homework or exams to the class to ask me to reexamine the grade. After
the two weeks, all grades are final.
Exam Policy: Make up examinations only will be given in the event of a severe illness, death in the
family, or a University sponsored activity. You must speak directly to me at least 24 hours prior to
the exam. Leaving a message on my voice mail or sending me email is not sufficient. If approved,
we will reschedule the exam at a mutually convenient time. If no arrangements have been made prior
to the scheduled exam time, no make-up exam will be given without a medical excuse. You will
receive a zero for that grade. Also note that possessing a refundable plane/train/bus ticket is not a
valid excuse for a make-up exam.
You are responsible for all material or announcements given in lecture regardless if present.
Homework: Homework assignments are given to prepare you for the exams and to provide an
opportunity to practice applying economic concepts to business matters. Some of the questions will
be computational and others will require written analysis. You will be assigned to a group of 4
students for the purpose of completing homework assignments. Each group should turn in one
assignment with the names of each group member; individual papers will not be accepted.
Your homework grade will comprise of the cumulative score on homework assignments plus your
participation that is in part determined by your fellow group members.
Answers written on notebook paper (without cutting off the frayed edges) will be docked points (i.e.,
10%). Also staple your assignment together; it is extremely easy for assignments to get separated.
Finally, illegible work will not be accepted and will be given no credit. I do not foresee this to be
a problem in an upper level economics class, but I wanted to be clear about my expectations.
Late Assignments: The policy of this course is that late assignments will be penalized 1/3 of a letter
grade each day the assignment is late. But once the key has been distributed to the class no late work
will be accepted. No exceptions.
Office Hours: If you need to talk with me, you can speak with me just before and after class, or come
to my office hours. You also may stop by my office during other times. If I am not available to talk
with you at that time, we can set an appointment for another time.
Disability Services: Qualified students with documented disabilities who may need classroom
accommodations should make an appointment with the Enhancement Program – Disability Services
office during the first two weeks of the term. Telephone appointments are available to students as
needed. Appointments can be made by calling 651-962-6315 or 800-328-6819, extension 6315.You
may also make an appointment in person in OEC 119. For further information, you can locate the
Enhancement Program on the web at http://www.stthomas.edu/enhancementprog/.
Writing Assignment: Your task is to find a (relatively) current real-world business issue and apply
the tools from this course to answer some interesting question(s) about it. The paper will be graded
on quality of writing and economic analysis with more weight on the second criterion. More details
on this assignment will be given later in the semester.
Classroom Sessions and Expectations:
Classroom sessions will be a mix of lecture,
demonstrations, large group discussions, and small group work. Everyone will be responsible for
reading the textbook before each class and actively participating in classroom discussions. Your
class participation grade will be a combination of my analysis of your preparation for class,
contribution to class discussion, and fulfillment of in-class assignments.
The textbook assigned for this course is used in many MBA programs (e.g., Northwestern, Chicago,
University of Toronto) for their strategy course. While the chapters are long, the readings are
essential to give you the necessary background on business related issues. This is particularly relevant
for an undergraduate course like this. I highly advise that you do not get behind in the readings. Not
only because of the amount of material, but also because your ability to understand the lecture and
participate in class will depend on the reading material assigned before class. Furthermore, you
should read the textbook to see the illustrations of how economic theory is used in practice. This
should aid your final preparations for applying economic theory on the final exam and ultimately in
the work place.
If you are not prepared for lecture this is equivalent to missing a class. It is expected that there may
be a class (on a rare occasion) that you cannot be prepared for because of some unforeseen
circumstances. Thus, you are allowed to "miss" three lectures without a drop in your grade. If you
never miss lecture, are always prepared, and participate in discussions on a regular basis, I will take
this into consideration for borderline grades.
In the next section, I explain why participating in class discussion in addition to being prepared is
essential to student learning and retention of the material. Learning is joint effort by all participants
in the course. It is done through dialogue, sharing of knowledge, and not just copying down notes.
Class Participation: Class participation is an important component of learning in this course. I
encourage active discussion during class sessions and may call on some quieter participants to enrich
the discussion. You always have the option to pass if called upon, but if you continuously pass when
called upon this will result in a lower participation grade. Also I expect frequent participation over
the semester, but you should note that monopolization of class discussions generates negative
externalities, which reduce overall class welfare and will not be appreciated.
Why is class participation important? First of all, participation enables students to learn from each
other. As intelligent individuals with diverse academic and personal backgrounds, you bring
different perspectives on an issue. Through an exchange of ideas we can all learn more. Second,
studies show that students who are actively involved in learning are more likely to remember and to
assimilate the material and to apply concepts learned in the classroom to other situations. Because
the ability to apply the course material to everyday situations is a primary goal of the course,
participation in class discussions is an essential part of learning.
As economists, we also can look at the importance of classroom participation in a different way.
When a student decides to participate – to share information with the class or ask a question, the
student is providing a public good. Other students benefit from the information presented and the
answers given to the questions. Unfortunately, the student makes his/her decision only with respect
to his/her own benefit and do not take into account the impact on others. Rewarding classroom
participation can help alleviate this market failure in the classroom. Finally, when students are
prepared for class, are actively engaged in assignments, and are actively involved in the discussion
with the professor and other students, everyone benefits and learning is enhanced.
Miscellaneous: As a courtesy to me and your classmates, please turn off cell phones and do not bring
elaborate meals. A snack or drink is fine.
Class Website: https://courseweb.stthomas.edu/mehartmann/mngrl/mngrl_econ.html
Assignments, answer keys, and supplemental readings will be posted on this website.
Course Outline:
1. Introduction to Managerial Economics–Besanko, Chapter 1 (particular emphasis on pg 20-22)
2. Industry Structure and Performance - Besanko, Chapter 2
3. Vertical Boundaries of the Firm - Besanko, Chapter 5
4. Organizing Vertical Boundaries: Vertical Integration & its Alternatives - Besanko, Chp 6
Case: Nucleon Harvard Business Case
5. Estimation of Demand/ Demand Analysis/Regression Analysis - Thomas, Chapter 5*
6. Quality Competition
Case: Health Savings Accounts
Experiment: Quality Provision
7. Strategic Commitments - Besanko, Chapter 9
8. Pricing – Pindyck, Chapter 11 Appendix**
Experiment: Double Marginalization
9. Strategic Position for Competitive Advantage - Besanko, Chapter 13
10. Sustaining Competitive Advantage - Besanko, Chapter 14
Case: Facebook
11. Industry Analysis - Besanko, Chapter 12
Case: The Pub: Survive, Thrive or Die? Harvard Business Case
12. Agency and Performance Measurement/ Incentives in Firms- Besanko, Chapter 3 and 16
Case: Safelite Auto Glass
Experiment: Agency Effects
13. Strategy and Structure, Besanko, Chapter 17
14. Linear Programming – McGuigan, Chapter 11**
15. If time permits: Auctions or Entry and Exit Decisions - Besanko, Chapter 11
These handouts will be available on the toolkit webpage later in the semester:
* Thomas Managerial Economics (8th Edition). Boston: McGraw-Hill., 2004.
** Pindyck and Rubinfield Microeconomics (6th Edition). Boston: Prentice Hall, 2004.
*** McGuigan, Moyer, & Harris. Managerial Economic (10th Edition). Boston: Southwestern, 2004