Strategy & Managerial Decision Making

Managerial Economics - Content Outline

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Introduction and Basic Concepts
- The firm
- Froeb and McCain
  - Making decisions at the margin
  - Ignoring sunk costs
- Nature of costs and measuring costs
  - Explicit versus implicit costs
- Accounting profit vs. economic profit.
  - Computing economic profit
- Compute present value of a future amount
- Optimizing techniques
- Adhere to the NABE Code of Ethics
Supply and Production
- Organization of production
- The role of transaction costs in determining the vertical boundaries of the firm
  - Boundaries of the firm and transaction costs,
  - Getting the make vs. buy decision wrong
  - Topics in the supply chain
    - Domestic vs. foreign: trade vs. FDI
    - Vertical vs. horizontal international choice
- Long run average costs
- Minimum Efficient Scale
- Economies of scope and the factors that contribute to it
Estimating Cost Functions and Production Functions
- Short run costs
- Functional Forms
- Estimating cost functions
- Estimating the efficient plant size in an industry
- Learning Curve
- Break-even analysis
  - Principles of break-even analysis
  - Resolving measuring issues
  - Contribution margin
  - Operating leverage
Financing the Firm
- Long run investment decision and capital budgeting
  - Measuring the cost of capital
  - Capital structure of the firm – WACC
  - Project finance – cash flows, cost of capital, NPV, IRR, and payback criteria
- Risk and Uncertainty in Decision-Making
  - Defining and measuring risk
  - Utility theory and risk aversion
  - Adjusting asset valuations for risk
  - Making investment decisions under uncertainty
Analysis of Demand
- Price elasticity of demand
  - Using direct estimation
  - Using a linear demand function
  - Using a log-linear demand function
  - Using a logit model
  - Using the mltinomial logit model
- Individual estimates and aggregating demand
- Other elasticities
  - Cross-price
  - Income
- Advertising elasticity of demand
- Measuring key demand factors/data sources
  - Internal price data collection/tracking promotions
  - Competitor price/volume data
  - Survey data/consumer research
  - Seasonality and “events”
- Demand forecasting – quantitative techniques
  - Regression models – single equation
- Demand forecasting – qualitative techniques
Pricing
- Pricing basics
  - Price-taking in perfect competition
  - Price-setting in less than perfectly competitive markets
  - Cost-plus pricing
- Complex pricing issues
  - Commonly-owned substitutes
  - Commonly-owned complements
  - Yield management
  - Promotional pricing
- Efficient pricing: assumptions and examples
  - Fundamentals
  - Perfect price discrimination
  - Customer segmentation pricing
  - Two-part tariff/multi-part pricing
- Legal issues around pricing
  - Resale price maintenance
  - Predatory pricing/dumping
- Pricing within the firm: transfer pricing
Market Structure and Strategic Behavior
- Defining the relevant product and geographical markets for good or service
- Assessing a market’s structure and competitiveness of an industry
  - Concepts and measurements
    - Concentration measures
    - Scale economies and entry conditions
- Decision Tree
  - Analyzing choices through decision trees
- Applying game theory models to business situations
  - Technical concepts
    - dominant strategy
Regulation

Externality and the difference between private and social benefits and costs
Correcting the misallocation of resources that comes from externalities.
Antitrust
Regulatory review process of a proposed merger
Restraints of trade
Other Regulation
- Public utility regulation
Executive Order 12866
Analyzing regulation

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