Applied Managerial Economics (Eco 693)
Applied Managerial Economics (Eco 693)
Course Description
Managerial Economics is the application of economic theory to decisions made by firms. Our focus is on three topics. We
start with production, where we think about what inputs to use. The typical applications are automation (machines or
labor) and teams (high skilled labor or low skilled labor). Next, we look at firm costs, where the application is how
much to produce. Finaly, we examine pricing, studying how consumers and competing firms respond to price changes and
thus how to decide what price to charge.
Economics is the study of the allocation of scarce resources. Because all decisions are essentially about the allocation
of scarce resources, economics is in fact the study of decision making and problem solving in general. Thus many of the
techniques we will study will be used in other business classes and disciplines. For example, CAP-M and Black-Scholes
from finance, executive compensation in organizational behavior, and price elasticities used in marketing are all derived
from economic theory. Because economics is so useful across a wide variety of business problems, many investment banks,
consulting firms, and tech firms such as Google and Microsoft now have in-house economics departments. Because in
general these very fundamental decisions are made by higher level executives, economics becomes critically important for
CEOs and other senior executives. This is one reason why economics is the most common major among Fortune 500 CEOs.
General Information
Professor: Professor David L. Kelly (Dave).
Course Meetings:
Section 37a: Mondays 3:30-5:30 pm in SB (Stubblefield) 302. Section 45: Monday 6-8 pm also in SB (Stubblefield) 302.
NOTE: there is no class on Labor Day 9/5/22. This class will be made up on Friday 9/16/22 at the
same times.
Office: Room 521H, Jenkins School of Business.
Office hours: Fridays ON ZOOM 11 am - 1 pm, IN PERSON
2-5 PM on the patio next to business school along the canal (Dave is almost always available to meet during
business hours, but try to come during office hours if you can). You can login to virtual office hours via Blackboard.
Contacts: Dave can be contacted via phone (8x3725) or email (dkelly@miami.edu).
Web Site/Blackboard:
At Blackboard, I will post notes, homeworks, quizzes, grades, solution sets, review sheets, and other materials, as well as a
continuously updated syllabus.
Final Exam:
Monday, October 3, section 37 is from 3:30-5 pm and section 45 is from 6-8 pm. The final takes place in the same room
(SB 302).
Prerequisites
This is a first semester course with no pre-requisites. Nonetheless, I will assume a working knowledge of basic economic
concepts such as supply and demand, and basic math. See me for some extra references if you feel your skills are lacking
in either area.
Textbooks
The textbook is:
Allen, W. Bruce, Keith Weigelt, Neil A. Doherty, and Edwin Mansfield, Managerial Economics (8th Edition).
W. W. Norton & Co., New York, 2012.
The 7th edition is also OK.
Allen, W. Bruce, Keith Weigelt, Neil A. Doherty, and Edwin Mansfield, Managerial Economics (7th Edition).
W. W. Norton & Co., New York, 2009.
The textbook is not required. In class I will give some advice as to whether or not to purchase the book.
Grades
- 3 Homeworks 30% (due dates: August 29, September 12, September 26)
- First Quiz (FRIDAY September 16) 35%
- Final Quiz (October 3) 35%
Additional Notes
- In person attendence is required and very important for this class. All quiz
material comes from class notes, and not all class notes are available in the book. Dave will provide detailed notes and
record solutions to some example problems, which include some in-class examples not in the notes. Smart students will
attend every class and take detailed notes on the in-class examples, and will therefore find that the homeworks and
quizzes are straightforward. Use the recorded problem solutions as a backup/supplement. Much of the learning takes
place in the Q&A in class, which is not recorded.
- There is a homework or quiz due every Monday, starting in week 2. Each homework is worth 10%, a letter grade. I
prefer homeworks to be submitted via email, but in person is OK too. If submitting by email, please submit a Word
Document or pdf, avoid huge jpeg/picture files. The homework email must be sent (or the homework placed on my desk in
class) by the time class starts. Showing up 20 minutes late because you didn't finish the homework on time is not
acceptable. Dave recognizes that sometimes emergencies occur, in which case a student can be excused from turning in a
homework. In this case, the final will be weighted more. Students must let Dave know in advance if they are unable to
turn in a homework on time. Finally, the homeworks sometimes demonstrate how the concepts used in class are applied in
the "real world." Because the real world is complicated, the homeworks can be long. Do not wait until the last minute
to start the homeworks.
- The two quizzes are September 16 and October 3. Now is the time to mark your calandars. As with the homeworks, if
there is an emergency or you are experiencing Covid symptoms and cannot take the quiz, the final will be weighted more.
Students must let me know in advance if there is an emergency.
- The class requires active participation and discussion to learn. You cannot learn while you are on you phone. This
also breaks Dave's mental flow. Please do not use phones in class. Computers are allowed, but not recommended. Most
definitions, etc. are in the notes Dave provides. The remaining is math and graphs, which are tough to copy on computer.
- With six week courses, it is important to keep up. Missing one class is equivalent to missing a month's worth of
undergraduate classes.
- What they say about Dave on Rate My Professor:
- "Can be an a-- if you procrastinate."
- "God help you if you don't go to class."
Course Outline
- Introduction (chapter 1, August 22).
- What is Economics and what is managerial economics?
- Thinking like an economist.
- Managerial decisions studied in this course.
- Principles of managerial economics.
- An overview of theory of the firm.
- Value of the firm.
- Economic and accounting Profits.
- Objective of the firm: profit maximization.
- Profit maximization, ethics, sustainability, and
welfare.
- HOMEWORK 1 DUE AUGUST 29.
- Production: What inputs to use. (Chapter 4:7th edition, chapter 5:8th edition, August 29 - September 12).
- The production function and it's properties.
- Optimal input use.
- HOMEWORK 2 DUE SEPTEMBER 12.
- Marginal rate of technical substitution.
- Optimal input use with multiple inputs.
- FIRST QUIZ, SEPTEMBER 16.
- Cost Analysis (Chapter 5:7th edition, chapter 6:8th edition, September 16-19).
- Fixed, average, and marginal costs: short run.
- Sunk costs.
- Optimal production in competitive markets.
- Pricing.
- Demand curves (Chapter 2, September 19).
- Price elasticity.
- Income elasticity.
- HOMEWORK 3, DUE SEPTEMBER 26.
- Setting the price to maximize profits (Chapter 6, September 26).
- Pricing Techniques (Chapters 7-9:7th edition, chapter 8-10:8th edition, September 26).
- Perfect Competition.
- Cost plus pricing.
- Monopoly pricing.
- Price discrimination.
- Upcharging.
Up to Dave Kelly's homepage
Interesting web sites for Eco 693 students.
National Association for Business Economists.
The Economist.
The Economist.com argues that economics
is valuable for MBAs since economics has more compelling and realistic theories business administration than other
disciplines.
Cool Economics