Economics for Managers
Fall 2005

Supply and demand
This class provides an accelerated review of the key concepts of supply and demand and elasticity. There should not be anything here that you did not see in your principles of economics class, but since that was five years or more ago, many should find this material useful.
Lecture notes
Slides

Supply and demand applications
The concepts of producers surplus, consumers surplus and deadweight loss are introduced. These will be used throughout the course, especially consumer surplus. In this class they are used to measure the economic loss associated with interfering with the market system. We consider price controls, limits on free trade, taxes and subsidies.
Lecture notes
Slides
Answers to in-class problems

Productivity and incentives
Eccnomists typically view productivity as being determined by teh firm's choice of inputs, especially capital and different types of labor. Productivity also depends on what incentives have been created by how management. When will managers and employees be aligned with the interests of the shareholders and when will they follow their own agenda? This class looks at the principal-agent problem and examines the conditions in which high-powered incentives are effective. The tradeoff between efficient risk allocation and effective incentives is examined for a variety of forms of compensation.
Lecture notes
Slides

Cost
Opportunity cost is one of the most important concepts in economics. This class shows how it is different from standard measures of accounting cost and how it can be applied to business decisions. We also will examine how cost changes with output and with learning over time.
Lecture notes
Slides

Competitive markets
Imagine an industry with a large number of firms, complete information, easy entry and exit, and no brand loyalty. Sounds like the dot.com world of a few years ago! Even though many sectors of the economy do not fit into this framework, it still serves as the benchmark for understanding industry behavior.
Lecture notes
Slides

Social responsibility
This class examines when markets work most efficiently, followed by a careful discussion of the limitations of the market system. In this class we will pay particular attention to the challenges firms face in the area of environmental policy and examine possible conflicts between commitments to the environment and to shareholders.
Lecture notes
Slides

Monopoly
The case of monopoly is the polar opposite of perfect competition: domination by one firm with power over price, product, and entry. Monopolies are getting a lot of attention these days. This class looks at the sources of monopoly power, pricing and production decisions for monopolists, and government attempts to regulate monopoly.
Lecture notes
Slides

Pricing
Firms do not always charge every customer the same price. This class examines the conditions when it makes sense for firms to engage in price discrimination and shows that demand elasticity is the key factor behind pricing differences across consumers.
Lecture notes
Slides

Market power and pricing: applications
This class examines decisions about pricing and creating entry barriers in greater depth.
Lecture notes
Slides

Game theory and strategy
How do firms prevent themselves from falling into the trap of the prisoner's dilemma? Why is there an inherent advantage in moving first? Why did Cortes burn his ships after landing in Mexico? How can firms devise strategies to deter entry? This class examines these issues.
Lecture notes
Slides

Inside the firm
This class takes a careful look at the production process of firms. The key issue to be analyzed is what activities will be carried out inside the firm and what activities will be outsourced. The underlying economics of the classic "make-buy" decision deal with transactions costs and uncertainty. This section also goes through some basics on production technology and choice of inputs.
Lecture notes
Slides

Competition in High-Tech Industries
Are the rules of competition completely different for firms in high-tech industries? Or can we adjust the assumptions behind the tools we have already developed to understand what it takes to be successful in such markets? This class will examine the factors that make high-tech industries unique, and then will draw inferences for firm strategy and economic outcomes.
Lecture notes
Slides

Decision analysis (not covered fall 2005)
Firms often have to make decisions under conditions of uncertainty. In this class we examine how this uncertainty can be directly addressed, using some basic concepts from probability and a managerial tool known as a decision tree. These tools guarantee that you will make the best decision, even though there is obviously no guarantee concerning the outcome.
Lecture notes
Slides
Treeplan add-in for Excel
Guide to Treeplan