Managerial Economics Professor Changqi Wu

IntroductionSlide 2 Oil Reserves

IntroductionSlide 3 Oil Crisis? The proven crude oil reserves: 1,028,500,000,000 barrels. International Energy Agency estimates the global crude oil production in 2005 is 84,700,000 barrels a day. Question 1: How many barrels of crude oil will be produced in the year of 2005? Question 2: How many years does the crude oil reserve on earth can last?

IntroductionSlide 4 Topics Introduction to managerial economics Course organization

IntroductionSlide 5 1. Introduction Methodology of economic analysis Scope of managerial economics Major themes

IntroductionSlide Economic Analysis How to allocate scarce resources to achieve desirable outcome Economic agents are rational able to make decisions (choices) to advance their own interests responsive to incentives Assumption or reality?

IntroductionSlide 7 Microeconomics is... To study the behavior of individual economic agents Examples pricing mobile phone services investment decision of internet startups decision to falling asleep

IntroductionSlide 8 Why Going to Sleep?

IntroductionSlide 9 Macroeconomics is... To study the structure and fluctuation of an economy and government policies that influence the performance of the economy Macroeconomic issues Why do some nations grow faster than others? Should China revalue its currency? Does government’s stimulate package help economic growth?

IntroductionSlide 10 Economic Growth in the Long Run

IntroductionSlide 11 Predicting the Future Economic Power

IntroductionSlide Methodology Economists use economic models to define relationship between the actions of economic agents and the outcomes. Harvard school versus Chicago school Analysis of an economic model can reveal relationship between two factors otherwise difficult to see. Partial analysis assumes all other things remain unchanged

IntroductionSlide 13 Economics in Action Predicting the closing level of Hang Seng Stock Index Hemline index Investing by the moon Economic analysis reveals the causal relationship between actions and outcomes.

IntroductionSlide 14 Hem-line Index

IntroductionSlide 15 The Marketplace Many buyers and sellers transact their goods and services All transactions are voluntary Price reflects both demand and supply conditions The invisible hand

IntroductionSlide 16 The Market Mechanism Quantity D S The curves intersect at equilibrium, or market- clearing, price. At P 0 the quantity supplied is equal to the quantity demanded at Q 0. P0P0 Q0Q0 Price ($ per unit)

IntroductionSlide Managerial Economics Managerial economics applies the tools of microeconomic analysis to managerial and business issues How to assess the market potential? Which market to enter? How to compete in marketplace? How to motivate employees to do or not to do certain things?

IntroductionSlide 18 Major Themes of the Course Market mechanism Demand and supply analysis Market structure and imperfect competition Managing in imperfect markets

IntroductionSlide Course Organization Objectives Classroom protocol Grading Textbook

IntroductionSlide Course Objectives Conceptual knowledge Skills Analytical techniques

IntroductionSlide 21 Course Objectives: Conceptual Knowledge be able to understand the key concepts useful in analyzing the factors that shape the outcome of the market competition. be able to diagnose sources of economies of scale and scope, and to understand how they shape the structure of a market. be able to assess, how much of the value a business unit creates and how the owners will be able to capture it in the form of economic profitability. be able to characterize a business unit’s competitive position and to formulate intelligent options for improving that position. By the time you finish the course, you will...

IntroductionSlide 22 Course Objectives: Skills identifying managerial issues. formulating options to deal with those issues. forming robust and sensible intuitions about what issues are likely to be important in different business situations. By the time you finish this course, you will have developed skills in...

IntroductionSlide 23 Course Objectives: Analytical Techniques marginal analysis estimation and forecasting value-added analysis During the course, you will learn several specific analytical techniques including...

IntroductionSlide Classroom Protocol: Responsibilities and Expectations The classroom environment should approximate that of a professional meeting. This imposes responsibilities on me and on you Punctuality Preparation Listening Attendance

IntroductionSlide 25 Punctuality My responsibility: I will always be on time for class and will be ready to begin teaching on time. My expectation: I expect you to show the same punctuality by being in your seats by the beginning of the class and returning to your seats after break.

IntroductionSlide 26 Preparation My responsibility: I will always be prepared to teach the material I assign for the day and will have spent many hours thoroughly preparing for lectures. My expectation: I expect that you will prepare seriously for the class and will participate in a serious, constructive way in class discussion.

IntroductionSlide 27 Listening My responsibility: I will listen carefully when you participate, and I will make every effort to call on students who wish to participate. My expectation: I expect that you will refrain from side conversations during class and turn off your mobile phones which disrupt and distract others who are trying to learn.

IntroductionSlide 28 Grading Class Participation Attendance is compulsory. Absence from class without good reason is subject to punishment. PointsAction 2Raise right questions and help the class moving. Make comments with supporting evidence and with well-argued logic. 1Attend but not active in participating class discussion. 0Not attend class

IntroductionSlide 29 Teams Teams are working units for assignments and case projects Team size should be limited to 4-5 members

IntroductionSlide Grading Homework and case studies: 30% Class attendance and participation: 20% Final exam: 50%

IntroductionSlide 31 Textbook Ivan Png: Managerial Economics Other available managerial economics/microeconomics textbooks, for instance: Robert Pindyck and Daniel Rubinfeld: Microeconomics A package of readings and cases.

IntroductionSlide 32 Key Dates The start of the class: September 3, 2005 The national day, October 1: regular class. The written test: October 22.