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E-Tutorial #1 January 17th 2014 Managerial Economics: The Economics of Strategy Guide notes from Patrick McNutt www.patrickmcnutt.com __________________________________________________________________________
Materials: Besanko’s book and Coloured-coded Storybook and McNutt’s Decoding Strategy

Where should I be today in my studies?
1. 2. 3. 4. 5. Visited Blackboard and watch the video….. Yes/No Participate in the Blackboard discussions….. Yes/No Reading Unit 1 in Colour—coded Storybook…. Yes/No Cursory read of Chapter 1 in Besanko pp41 ..Yes/No Chapter 1 and 2 in McNutt… Yes/No

Key points to note..discussion in the E-Tutorial
Point 1..first time introduced to economics? 1. Early focus on the economics of management models in order to understand management behaviour as observed. Baumol model is about revenue maximisation, so we look at prices and revenues; elasticity of demand. Check Chapter 3 p48 in McNutt and pp20-27 Besanko. 2. We introduce a game theory approach in the materials. Management have a type: for example, a Baumol type signals price. Also price is related to consumer demand. 3. We talk about the player – the decision maker. So could be senior management team of a pricing manager. Point 2..first time introduced to game theory? When we ascribe a management type, then we imply that management are in a game, so we refer to the market-as-a-game. Question: how would a Baumol type play the game? In other words, what is their strategy? Answer [to be tested by observations] is a pricing strategy.

Point 3..first time introduced to transaction cost economics [TCE]? Coase and the Coasian question: Why do we need a firm? Answer to be found in Unit 1 and Chapter 3 Besanko: Williamson and TCE wherein the firm is presented as a ‘nexus of contracts’ in a vertical chain. The Assignment No 1 will focus on the economics of the vertical chain. Separate E-tutorial

Point 4..first time you were asked: are you a rational player? Finally, you will meet the indifference relationship; it is a trade-off line: p18 Fig1.1 in McNutt Video No 2. Also ‘willingness to pay’ in Besanko pp297-298 Figure 9.4 price and quality: value map and trade-off. Read Chapters 3 and 4 in Besanko and Chapters 1-5 in McNutt = Units 1 and 2

Future events… Next E-Tutorial on Assignment No 1 Friday 14th February at 10am and 5pm GMT
Read Units 1 and 2 and prepare for Assignment No 1. Chapter 3 in Besanko

Continue to participate on BB’s Discussion Forum Follow on Twitter @tuncnunc Watch the videos on BB Workshops beginning end February to mid-April

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