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EC335: Managerial Economics

  • Andrew Harkins

    Module Leader
  • Chara Tzanetaki

    Module Lecturer
12/15 CATS - Department of Economics
Spring Module

Principal Aims

Aimed at business students of Economics (students who will, in general, not pursue careers as economists or graduate study in Economics) seeking to understand how the theory of markets, incentives and games work in practical managerial situations. The module illustrates the central decision problems managers face and provides the economic analysis needed to guide these decisions.

Principal Learning Outcomes

By the end of the module the student should be able to understand key concepts in Managerial Economics, such as market structures, game theory, imperfect information, principal-agent problems; demonstrate knowledge of economic trends, institutions and policies, especially in the context of business and industry-related problems and issues; abstract and simplify basic economic problems through the application of simple theoretical models.

Syllabus

12 CATS - The module will typically cover the following topics:

1. Review: Supply and Demand. A brief refresher course.

2. Market Structures. (a) Brief Recap, Review and Extension of theory and evidence relating to Perfect Competition, Monopoly and Natural Monopoly. (b) Oligopoly: Extension of EC229 including examples and empirical evidence; Regulation of Oligopolies; Do we ever want firms to collude?: The case of Non-Profits.

3. Game Theory: Theory and Applications. This part of the module introduces students to some of the key concepts in Game Theory to ensure students understand the power of even the simplest games to inform decisions while also acknowledging the limitations of microeconomics in the analysis of business and management. (a) Introduction to Game Theory: Development of Game Theory; Why is Game Theory different from Microeconomics?; What are games? Players, payoffs and rules; Applications. When is Game Theory useful? (b) Types of Games: Static or Simultaneous Games; Sequential Games. (c) Classic games and Applications. The idea of this section is to introduce students to some of the classic (and simpler) games with a focus, on how these games inform real managerial decisions the students might face: Nuclear Arms Race, The Prisoner’s Dilemma; We need each other! The Battle of the Sexes; Co-operation, The Deer Hunt; Deterring Competitors, The Lock Out Game; Two Firms, One Market, The Chicken Game.

4. Internal Organisation. This part of the module will introduce students to the Principal/Agent problem and the issues surrounding incentive based pay and contracts with a strong focus on the manager/employee relationship. (a) The Principal/Agent Problem. (b) Incentives: A fundamental “law” of Economics: People respond to incentives; How incentives work; Risk Aversion and Incentives. (c) Incomplete Contracts: Sub-optimal outcomes; Reasons for incomplete contracts; Solutions. (d) Transaction Costs and Vertical Integration: Coase and The Nature of the Firm; Three Concepts of Transaction Costs; Vertical Integration: To make or to buy.

5. Information: This part of the module will focus on issues surrounding the availability of information. It will introduce students to the concept of asymmetric information and issues such as moral hazard, adverse selection and signalling. (a). Asymmetric Information: Assumption of perfect information; Why asymmetric information is troublesome; Solutions.
15 CATS - The module will typically include discussion of:

• Demand

• Costs and Supply

• Competition and Monopoly

• Oligopoly

• Game Theory and Competitive Strategy

• Regulation, Public Goods and Benefit-Cost Analysis

• Decision Making under Uncertainty and the Value of Information

• Asymmetric Information and Organizational Design

• Bargaining and Negotiation

• Auctions and Competitive Bidding

Context

Pre or Co-requisites
EC131 and EC229
Restrictions
This module cannot be taken by L100, L116, LM1D/LLD2 and PPE students. 15 CATS for BA German & Business Studies students; 12 CATS for all other WBS students. Students who take this module must not be taking or have previously taken EC208 Industrial Economics 1.
Part-year Availability for Visiting Students
Available on a part-year basis at the discretion of the module leader

Assessment

Assessment Method
12 CATS - 2 hour exam (100%)
15 CATS - Coursework (10%) + 2 hour exam (90%)
Coursework Details
One assignment (1500-word case study) (10%)
Exam Timing
May/June

Exam Rubric

Time Allowed: 2 hours.

Answer TWO questions from Section A (60 marks) and TWO questions from Section B (40 marks). Answer Section A questions in one booklet and Section B questions in a separate booklet.

Approved pocket calculators are allowed.

Read carefully the instructions on the answer book provided and make sure that the particulars required are entered on each answer book. If you answer more questions than are required and do not indicate which answers should be ignored, we will mark the requisite number of answers in the order in which they appear in the answer book(s): answers beyond that number will not be considered.

Previous exam papers can be found in the University’s past papers archive. Please note that previous exam papers may not have operated under the same exam rubric or assessment weightings as those for the current academic year. The content of past papers may also be different.

Reading Lists