Master of Science in Engineering Management (MSEM)

GRADUATE SCHOOL OF ENGINEERING

HOLY ANGEL UNIVERSITY

MANAGERIAL ECONOMICS

Course Description: GSMAFECO (Managerial Finance and Economics)

This course deals with foundation concepts in finance and economics as applicable to
managerial functions. It includes tools and concepts of managerial economics, accounting,
finance, human resources management, marketing and corporate strategy applied in an
integrative fashion. Specific topics include financial statement use and analysis, time value of
money, valuation of stocks and bonds, capital budgeting and risk/return analysis, business and
economic forecasting, cost and production functions and pricing techniques.

TEXTBOOK: Baye, M. R. (2010). Managerial Economics and Business Strategy. McGraw-Hill

International, New York

REFERENCES:

Gitman, L. J. (2003). Principles of Managerial Finance, 10th ed. Pearson Education, Inc.,
Addison Wesley Higher Education

Lasher, W. R. (2014). Practical Financial Management, 7th ed. Cengage Learning Asia Pte Ltd,
Singapore

Kretlow, W. J., McGuigan, J. R., Moyer, R. C., and Rao, R. P. (2014). Financial Management
(2013-2015 ed). Cengage Learning Asia Pte Ltd, Singapore

McGuigan, J. R., Moyer, R. C., and deB. Harris, F. H. (2014). Managerial Economics:
Applications, Strategy, and Tactics, 13th ed. Cengage Learning, USA

Froeb, L. M., McCann, B. T., Shor, M., and Ward, M. R. (2016). Managerial Economics: A
Problem Solving Approach, 4th ed. Cengage Learning, USA

Course Learning Outcomes

At the end of the course, the student should be able to:

1. Understand and appreciate the economic and financial concepts, principles and models that
underlie managerial decision making in the modern business enterprise.

2. Apply these concepts, principles and models in making operational and strategic decisions in
a work environment that has become increasingly complex and unpredictable.

Requirements
Students will be required to submit three (3) short essays during the trimester, each focused on
a major area of application of economic and financial theory in management. Four or five group
presentations will be made during the trimester on the various topics covered by the course.
Students are expected to participate actively in class discussions, including those that will be
conducted online, if any.

WEEK 1 ORIENTATION

LECTURE/DISCUSSION:

FUNDAMENTALS OF MANAGERIAL ECONOMICS

 Managerial Economics Defined

 The Economics of Effective Management
 Identify Goals and Constraints
 Recognize the Nature and Importance of Profits
 Understand Incentives
 Understand Markets
 Recognize the Time Value of Money
 Use Marginal Analysis

THE ROLE AND ENVIRONMENT OF MANAGERIAL FINANCE

 The Study of Managerial Finance

 The Managerial Finance Function
 Goal of the Firm
 Financial Institutions and Markets

WEEK 2 REPORTING (REPORTER/S: Judgie and Mark)

TOPIC 1: QUANTITATIVE DEMAND ANALYSIS

DEMAND ANALYSIS AND OPTIMAL PRICING

 DETERMINANTS OF DEMAND
 ELASTICITY CONCEPT
 OWN PRICE ELASTICITY OF DEMAND
 Elasticity and Total Revenue
 Factors affecting the own price elasticity
 Marginal Revenue and the Own Price Elasticity of Demand
 CROSS-PRICE ELASTICITY
 INCOME ELASTICITIES
 OTHER ELASTICITIES
TOPIC 2: BUSINESS AND ECONOMIC FORECASTING
 The Significance of Forecasting
 Selecting a Forecasting Technique
 Alternative Forecasting Techniques
  Deterministic Trend Analysis
 Smoothing Techniques
 Barometric Techniques
 Survey and Opinion-Polling Techniques
 Econometric Models
 Stochastic Time-Series Analysis
 Forecasting with Input-Output Tables

DIGRESSION 1: Digression1: Inclusive business in an non-inclusive developing

economy

WEEK 3 REPORTING (REPORTERS: Adier and Ica)

TOPIC 3: PRODUCTION AND COST ANALYSIS

 THE PRODUCTION FUNCTION

- Production in the Short- Run versus Long-Run Decisions
- Measures of Productivity
- Total Product
- Average Product
- Marginal Product
- The Role of the Manager in the Production Process
- Produce on the Production Function
- Use the Right Level of Inputs
- Isoquants
- Isocosts
- Cost Minimization
- Optimal Input Substitution
 THE COST FUNCTION
 Short-Run Costs
 Average and Marginal Costs
 Relations among Costs
 Fixed and Sunk Costs
 Long-Run Costs
 Economies of Scale
 MULTIPLE-OUTPUT COST FUNCTIONS
 Economies of Scope
 Cost Complementarity
TOPIC 4: FINANCIAL STATEMENTS AND ANALYSIS

 The Four Key Financial Statements

 Using Financial Ratios
 Liquidity Ratios
 Activity Ratios
 Debt Ratios
 Profitability Ratios
 Market Ratios

RE PORTERS: Russel and Leo

TOPIC 5: MANAGING IN COMPETITIVE, MONOPOLISTIC, AND
MONOPOLISTICALLY COMPETITIVE MARKETS

 PERFECT COMPETITION
 Demand at the Market and Firm Levels
 Short-Run Output Decisions
- Maximizing Profits
- Minimizing Losses
- The Short-Run Firm and Industry Supply Curves
 Long-Run Decisions
 MONOPOLY
 Monopoly Power
 Sources of Monopoly Power
- Economies of Scale
- Economies of Scope
- Cost Complementarity
- Patents and Other Legal Barriers
- Maximizing Profits
- Marginal Revenue
- The Output Decision
- The Absence of a Supply Curve
- Multiplant Decisions
- Implications of Entry Barriers
 MONOPOLISTIC COMPETITION
 Conditions for Monopolistic Competition
 Profit Maximization
 Long-Run Equilibrium
 Implications of Product Differentiation
 OPTIMAL ADVERTISING DECISIONS
 TOPIC 6: MANAGING IN THE GLOBAL ECONOMY

 Import-Export Sales and Exchange Rates

 Foreign Exchange Risk
 Import-Export Flows and Transaction Demand for a Currency

 Outsourcing
 Purchasing Power Parity
 International Trade
 Comparative Advantage and Free Trade
 Import Controls and Protective Tariffs
 Strategic Trade Policy
 Optimal Currency Areas
 Intraregional Trade
 Mobility of Labor
 Correlated Macroeconomic Shocks

Digression2: Shifting industrial boundaries (Special case: the convergence between

Silicon Valley and Detroit)
The vertical boundaries of the firm
o The pros and cons of outsourcing

WEEK 4 REPORTING (REPORTERS: Cristine, Christian, and Jerome)

TOPIC 7: BASIC OLIGOPOLY MODELS AND GAME THEORY: INSIDE

OLIGOPOLY

 Conditions for Oligopoly

 Profit Maximization in Four Oligopoly Settings
 Sweezy Oligopoly
 Cournot Oligopoly
 Stackelberg Oligopoly
 Bertrand Oligopoly
 Contestable Markets
 Overview of Games and Strategic Thinking
 Simultaneous-Move, One-Shot Games
 Theory and Application of One-Shot Games
 Pricing Decisions
 Advertising and Quality Decisions
 Coordination Decisions
 Monitoring Employees
 Nash Bargaining
 Infinitely Repeated Games
 Theory
- Supporting Collusion with Trigger Strategies
 - Factors Affecting Collusion in Pricing Games
- Number of Firms
- Firm Size
- Punishment Mechanisms

TOPIC 8: PRICING TECHNIQUES AND ANALYSIS

 A Conceptual Framework for Proactive, Systematic-Analytical, Value-Based Pricing

 Optimal Differential Price Levels
 Multiple-Product Pricing Decision
 Differential Pricing in Target Market Segments
 Direct Segmentation with “Fences”
 Optimal Two-Part Tariffs
 Couponing
 Bundling
 Price Discrimination
 Pricing in Practice
 Product Life Cycle Pricing
 Full-Cost Pricing vs. Incremental Contribution Analysis
 Pricing on the Internet

REPORTERS: Abel,

TOPIC 9: THE ECONOMICS OF INFORMATION AND A MANAGER’S GUIDE TO

GOVERNMENT IN THE MARKETPLACE

 The Mean and the Variance

 Uncertainty and Consumer Behavior
- Risk Aversion
- Managerial Decisions with Risk-Averse Consumers
- Consumer Search
 Uncertainty and the Firm
- Risk Aversion
- Producer Search
- Profit Maximization
 Uncertainty and the Market
- Asymmetric Information
- Adverse Selection
- Moral Hazard
- Signaling and Screening
 Auctions
- Types of Auctions
- English Auction
- First-Price, Sealed-Bid Auction
 - Second-Price, Sealed-Bid Auction
- Dutch Auction
- Information Structures
- Optimal Bidding Strategies for Risk-Neutral Bidders
- Strategies for Independent Private Values Auctions
- Strategies for Correlated Values Auctions
- Expected Revenues in Alternative Types of Auctions
 MANAGER’S GUIDE
 Market Failure
- Market Power
- Antitrust Policy
- Price Regulation
- Externalities
- The Clean Air Act
- Public Goods
- Incomplete Information
- Rules Against Insider Trading
- Certification
- Truth in Lending
- Truth in Advertising
- Enforcing Contracts
- Rent Seeking
- Government Policy and International Markets
- Quotas
- Tariffs

Topic 10: LONG-TERM INVESTMENT AND FINANCING DECISIONS

 Foreign Direct Investment

 Investment Cash Flows and Decisions
 Capital Structure
 Long-Term Debt
 Equity Capital

SHORT-TERM FINANCIAL DECISIONS

 Cash Management
 Credit and Inventory Management

Digression 3: The impact of ICT on the scope of operations of the firm

WEEK 5: WRAP-UP SESSIONS AND FINAL EXAMINATION