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ECON 611 Managerial Economics Page 1

EMBA COURSE SYLLABUS

ECON 611

Course Title Managerial Economics:


Microeconomic Foundations of Competitiveness

Instructor Ingo BÖBEL, Dr. rer. pol., Dr. rer. pol. habil.
Professor of Economics at IUM, Monaco
Member of the MOC Network at Harvard Business
School (ISC, Professor Michael E. Porter)

Contact Information +377 97986987

ibobel@monaco.edu
For detailed readings and supplementary information
see the « Sidebar » on my personal website at
http://ibobel.pbwiki.com

Course Number ECON 611

Credits 3

Course Length May 1-3, 2009

Location Taipei, IUM On-Site Campus, Taiwan

Course Description Sound economic analysis has never been more important
- regardless whether the decision-making unit is an
individual, household, firm, non-profit organization, or
government. We use a modern treatment of economic
theory to help students both understand and improve the
managerial decision-making process whereby we
concentrate on microeconomic and macroeconomic
topics of particular importance. The integrative approach
used in this course demonstrates that important
managerial decisions are interdisciplinary as effective
management is seen to involve an integration of the
accounting, finance, marketing, personnel and production
functions. Therefore, the business firm is treated as a
unified whole, rather than a series of discrete, unrelated
parts.
We start out to cover basic microeconomic theories, i.e.,
the underlying economic behaviour of actors participating
in individual markets (theory of markets, especially the
theories of supply and demand), firms (production, cost
Professor Dr. Ingo Böbel IUM – EMBA Program May 2009
ECON 611 Managerial Economics Page 2

and pricing), and industries under different forms of


market structure (competition vs. monopoly). Then we
look at a practical case study-example (Intel case). Intel's
internet strategy can be used to introduce basic ideas on
corporate strategy and industry analysis and
transformation, competitive strategy, and competitive
dynamics. Finally, we shall broaden our knowledge of
economics by expanding the scope of inquiry to cover the
economics of the nation in a global economy. The case
study used (Finland and Nokia) will illustrate the success
of a nation, a cluster within a nation, and an individual
firm using the concepts of industry analysis (Porter’s Five
Forces), strategy and global strategy, the Diamond Model
and the Cluster Model.1

Objective Provide a solid foundation of economic understanding


and the “economic way of thinking” for use in strategy
and managerial decision making. It is our ultimate
objective to help you develop a framework for analyzing
both opportunities and risks in a global economic
environment. In the end you should be able to respond to
economic developments at local, national and
international levels.

Teaching Philosophy The course is taught through a combination of readings,


lectures, case discussions and exercises.
Attendance The participation grade is based on each student's class
preparation prior to class, active class participation during
class (added value contribution), and class attendance.
Attendance is compulsory. One percentage point may, at
the discretion of the professor, be deducted from the
student's final grade for each absence. It is ultimately the
student's responsibility to make sure all of the
work for each course is completed.

Grading • Class Participation


(attendance, punctuality,
added value, online
preparation) (50%)
• INDIVIDUAL Take-
Home Exam – Case
study (50%) (The
individual take-home
examination is due by
email/fax/mail. The due-
date will be announced
in class. There will be no
credit for work
submitted after this
deadline).

See my 2008 paper in the readings list.


1

Professor Dr. Ingo Böbel IUM – EMBA Program May 2009


ECON 611 Managerial Economics Page 3

Grades Grading Scale

Professor Dr. Ingo Böbel IUM – EMBA Program May 2009


ECON 611 Managerial Economics Page 4

Grades are reported at the end of each term.


Grade points are assigned to letter grades for each unit of
course credit:
.
Letter Percentage Grade
Quality of work
Grade Points Points
A 95-100% 4.0 Outstanding
performance, works
shows superior
command of the
subject.
A- 90-94% 3.7 Very good work
showing understanding
and mastery of all
concepts.
B+ 87-89% 3.3 Good work showing
understanding and
mastery of most
concepts.
B 83-86% 3.0 Fairly good work that
shows an
understanding of the
main concepts.
B- 80-82% 2.7 Fairly good work
showing understanding
of several important
concepts.
C+ 77-79% 2.3 Uneven understanding
of the concepts with
occasional lack of clarity
C 73-77% 2.0 Work that barely meets
modest expectations for
the class
C- 70-72% 1.7 Work that is below
modest expectations for
the class
D+ 67-69% 1.3 Poor performance with
lack of understanding of
several important
concepts
D 63-66% 1.0 Work that is marginally
above the minimum
expectations for the
class
D- 60-62% 0.7 Work that barely meets
the minimum
expectations for the
class
Professor Dr. Ingo Böbel IUM – EMBA Program May 2009
ECON 611 Managerial Economics Page 5

Course Material
Textbook:
1. Ivan Png and Dale Lehman, Managerial
Economics, 3rded, Malden, MA: Blackwell
Publ., 2007 (= PL)2

Additional Reading:
2. Ingo Bobel, Global Economic Strategy and
Competitive Analysis, (draft – work in
progress) Monaco 2009 (pdf file in English
language) (additional copies are available from
the author)

Recommended Reading:
3. You find an excellent collection of articles in:
“Competitive Strategy”, Harvard Business
Fundamentals Series, HBS Publ. 2002
(available from IUM library) Highly
recommended!

Course Outline Day 1

Read in PL: ch. 1

Basic Revision:
The Nature and Scope of Economics
Relevance of the subject for executives; the added value
of economic concepts; more specifically: the role of
market power. Fundamental economic principles. The
nature and scope of Managerial Economics: the
economic approach to business decisions and business
strategy.
The Decision Process: how to make the right choices?;
Cost, value and price as the major determinants for
creating economic profit. Remarks on costs, opportunity
cost, hidden costs, sunk costs. The application of cost-
value-price logic: The role of trade offs, efficiency,
inefficiency.

Demand and Supply Analysis


2
IMPORTANT HINT : There is an Asian-Pacific edition of the second edition of the textbook available – see
http://www.comp.nus.edu.sg/~ipng/ap.htm. For further information contact Pearson Education Asia.

Professor Dr. Ingo Böbel IUM – EMBA Program May 2009


ECON 611 Managerial Economics Page 6

Read: [(PL) ch. 2 and 4]


Law of demand; Demand Curve; Shifts in the Demand
Curve; Market Demand.
The Firm and the Supply Decision
Law of supply; Supply in the Short-Run; Supply in the
Long-Run: Entry and Exit; Market Supply.
Market equilibrium
Comparative static analysis

The concept of elasticity


Read: [(PL) ch. 3]
Price Elasticity of demand and supply, measurement of
elasticities; revenue and elasticity.
Cost, Value, and Price: The concepts of Consumer
Surplus and Producer Surplus.

Class activity (depending on the time constraint):


Discussion of cases (contained in the textbook
chapters), end-chapter textbook questions and
problems handed out in class

Day 2

Read: [(PL) ch 4, ch 5, ch. 8, ch 10]

Output and Costs


Read: [(PL) ch. 4]
Costs in the short-run vs. costs in the long-run: Total
cost, average cost, variable cost, fixed cost, sunk cost,
opportunity cost; Marginal costs
Short-run technology constraint: Total, marginal and
average product; Product curves

Monopoly
Monopoly, dominant firms, market (monopoly) power
revisited, market structure and the degree of competition,
characteristics of monopoly

Perfect Competition
The Basic Competitive Model: the firm’s decisions in
perfect competition; output, price and profit: entry and
exit in a competitive market

Class activity: Discussion of cases (contained in the


textbook chapters), end-chapter textbook questions
and problems handed out in class.

Prepare (in class activity): Read “Intel”-case and

Professor Dr. Ingo Böbel IUM – EMBA Program May 2009


ECON 611 Managerial Economics Page 7

work through the following assignment questions:


1. Why was Intel initially successful in
DRAMs?
2. How did Japanese companies come to be
the international leaders in this business?
Why couldn’t Intel (or other American
companies) recover?
3. How did Intel build a competitive
advantage in microprocessors? How has
the company managed to sustain the
advantage over time?
4. Why did U.S. companies dominate the
microprocessor business from the
beginning, with Japan unable to gain a
major position?
5. What explains the different outcomes in
the DRAM and microprocessor industries?
What are the lessons for government
economic policy?

Day 3:

Introduction to the Intel Case: Remarks on the


historical development of the computer industry.

Discussion of the “Intel case”

The case describes three stages in Intel's history: the


initial success and then collapse in DRAMs and
EPROMs, its transition to and dominance in
microprocessors, and its move to become the main
supplier of the building blocks for the Internet economy.
It allows a rich discussion of industry structure and
transformation in DRAMs and microprocessors, creation
of competitive advantage and value capture, as well as
sustainability.

Teaching Purpose: Intel's Internet strategy can be used


to introduce basic ideas on corporate strategy and
industry analysis and transformation, competitive
strategy, and competitive dynamics.

Class activity: Discussion of assignment questions

Prepare (in class activity): Read “Nokia”-case and

Professor Dr. Ingo Böbel IUM – EMBA Program May 2009


ECON 611 Managerial Economics Page 8

work through the following assignment questions:

1. How was Finland as a nation able to move


from a sleepy economy to one of the most
competitive nations in the world by the
end of the 1990s?
2. Why was Finland able to become a world-
leading nation in the mobile
communications cluster? Why did this
cluster develop in Finland rather than
others?
3. How did the Finnish firm Nokia become
the world leader in mobile handsets? How
did its home base in Finland influence its
success?
4. What are the most important challenges
for Finland in 2001? For participants in the
Finnish mobile communications cluster?
For Nokia?
5. Given the telecom downturn, what
economic policy priorities should the
government set? What steps should the
private sector take?
Suggested additional reading: M. E. Porter, “Competing
Across Locations: Enhancing Competitive Advantage
through a Global Strategy”, in: M. E. Porter, On
Competition, Boston: Harvard University Publ. 1998

Discussion of the “Finland and Nokia” case

We extend our knowledge of economics by expanding the


scope of inquiry to cover the economics of the nation in a
global economy. The case study used (Finland and Nokia)
will illustrate the success of a nation, a cluster within a
nation, and an individual firm using the concepts of
industry analysis (Porter’s Five Forces), Strategy and
global strategy, the Diamond model and the Cluster
model.3

In addition to the assignment questions that you find


above, it might help to ponder the following set of
questions:

What were the primary characteristics of Finland that


allowed Nokia to build a global leadership position in
mobile phones?

Which of these were the result of explicit policy choices?


To what extent were these advantages unique to Finland,
See my 2009 booklet in the readings list above.
3

Professor Dr. Ingo Böbel IUM – EMBA Program May 2009


ECON 611 Managerial Economics Page 9

compared to Germany or other countries in Western


Europe, the U.S. or Japan?

To what extent did Nokia “reach beyond” these “home-


base” characteristics in establishing its leading position?

Do you think the same cycle of establishing advantage


(and the associated business model) in an advanced
country and diffusing it to other markets (including
emerging markets) is still relevant in this industry?
Why or why not?

Discussion of individual take-home final


project (case study project)

Additional Readings I recommend to consult a number of reference books


which might be of valuable help:

Microeconomics:
L.M.B. Cabral, Industrial Organization, Cambridge,
Mass.: MIT Press, 2002

M. Neumann, Competition Policy: History, Theory and


Practice, Cheltenham: E. Elgar 2001

M. E. Porter, Competitive Strategy, 2nd. ed., New York:


The Free Press 2000

M. E. Porter, On Competition, Boston: Harvard


University Publ. 1998

Revision Date February 2009

Disclaimer: This outline is a guideline and subject to change at the professor’s discretion.

Professor Dr. Ingo Böbel IUM – EMBA Program May 2009