Sloan School of Management

Massachusetts Institute of Technology

15.011/15.016: ECONOMIC ANALYSIS FOR BUSINESS DECISIONS

Fall 2013
Course Coordinator:
Professor Joseph Doyle
E62-516 jjdoyle@mit.edu

Teaching Assistants:
Corrine Chia, c_chia@mit.edu
Sean Patrick Mahon, smahon@mit.edu
Michael Parker, mfp@mit.edu
Melek Pelen, mpelen@mit.edu
Gabriel Rodriguez-Garriga, gabrielr@mit.edu
Ozan Yalniz, oyalniz@mit.edu
Taylor Yates, tyates@mit.edu

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Faculty:
Professor Gonzalo Cisternas
E62-519 gcistern@mit.edu
Professor Joseph Doyle
E62-516 jjdoyle@mit.edu
Professor Erin Johnson
E62-523 erinmj@mit.edu
Professor Heikki Rantakari
E62-513 heikki@mit.edu

Class meets: Tuesday and Thursday, 4:05 - 5:25

Recitation: Thursday 5:30-6:30pm; Friday 12:00-1:00pm

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Overview

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15.011/016 is the Sloan School's core subject in microeconomics. Our objective is to give you a
working knowledge of the analytical tools to make better decisions and understand the decisions of
others. Economics provides a framework to understand the value proposition proposed by a
business decision, from investments in marketing to pricing decisions. The course introduces game
theory to understand the strategic interaction between firms. We will also explore the implications
of government policy, including taxation and regulation.
The assigned readings in this course have been selected to provide a balance of principles, tools, and
applications; they are detailed in the syllabus below. The basic text for the course is:
Robert Pindyck and Daniel Rubinfeld, Microeconomics, 8th edition (Upper
Saddle River, NJ: Prentice-Hall, 2009)
Text is available online from http://www.coursesmart.com
All other readings will be in a digital course pack found on Stellar under the Materials tab. Part of
the work requirement for this course will involve a careful study of these readings. Students will be
expected to have read the required material before class. Doing so will make the lectures much
more productive.
In addition to these readings, you should keep informed about current economic issues by reading
the Financial Times, Wall Street Journal or the Business section of the New York Times on a regular
basis. A magazine such as The Economist or Business Week is also useful for this purpose.

Grading will be based on the exams, problem sets, and classroom participation according to the
following weights:
Midterm exam
Final exam
Problem sets
Classroom participation

30 percent
40 percent
10 percent
20 percent

Key Dates Include:

September 19
September 23
October 1
October 10
October 17
November 12
December 6
December 18 (subject to MIT approval)

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Problem Set #1:

Alusaf Case Write-up
Problem Set #2:
Problem Set #3:
Midterm
Problem Set #4:
Problem Set #5:
Final Exam

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POLICY ON CLASSROOM BEHAVIOR

Students are expected to attend all classes, arrive promptly on time, and to stay for the
entire class.

Faculty are expected to begin and end class on time.

Laptops and ereaders may not be open in the classroom except on occasions when we
request that you bring them for simulations in class.

Cell phones are not to be used or permitted to ring in the classroom.

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POLICY ON PROBLEM SETS AND EXAMINATIONS

1. Problem sets are designed to help you learn how to apply the material presented in lectures and
recitations. You are encouraged to discuss course material, including problem sets, with other
students in the class. While problem sets will be evaluated for feedback purposes, the
performance will not count towards your final grade. With respect to your final grade, you
will get full credit as long as a good faith effort is made and the problem set is turned in on time.
The purpose of this policy is to ensure that the work is a risk-free learning opportunity, and to
signal our very strong belief that completing the problem sets on your own is an essential part of
the learning experience for this class.
2. Handwritten solutions are fine, as long as they are legible and neat. Please remember: if we
cannot read it, we cannot provide feedback.

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3. In fairness to students who complete assignments on time, late problem sets will not be
accepted. You may turn in assignments during class time on the day they are due. In addition,
assignments may be placed in designated boxes that will be set out on the 5th floor of E62. These
boxes will be emptied at 4:30 p.m. and their contents placed in sealed envelopes for delivery to
the TAs. Please note that assignments left anywhere other than the boxes may be discarded.

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4. Examinations: During exams, you may consult the proctor administering the exam if you need
clarification of exam questions. No discussion or other form of communication with anyone else
will be permitted after the exams have been handed out, until all students have turned in their
exam books. Students found to have cheated or engaged in any other unethical behavior will be
given a grade of F on the examinations involved, and will be turned over to the appropriate
disciplinary committees within MIT for further action. If applicable, students in one section
should not discuss an exam until students in all sections have completed the exam. Students may
not take an exam in another section and students arriving late will not be given extra time.

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5. Calculators in Examinations: Only basic or standard scientific calculators are permitted.

Graphing calculators are not permitted.
6. Regrade Policy. Requests for regrading an exam must be made within one week of the date
upon which the graded examination is returned to the student. To request a regrade, attach a
written explanation of the potential problem with the grading, and submit it to your TA.
Regrading may not be limited to the part of the exam which is discussed in the written
explanation. Regrades will be carried out by the 15.010/011 teaching faculty.
If you have any questions about these policies, please raise them with one of the faculty or teaching
assistants.

STUDENT SUPPORT SERVICES

If you are dealing with a personal or medical issue that is impacting your ability to attend class,
complete work, or take an exam, please discuss this with Student Support Services (S3). The deans
in S3 will verify your situation, and then discuss with you how to address the missed work. Students
will not be excused from coursework without verification from Student Support Services. You may
consult with Student Support Services in 5-104 or at 617-253-4861. Also, S3 has walk-in hours
Monday-Friday 9:00 -10:00am.

STUDENT DISABILITY SERVICES

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MIT is committed to the principle of equal access. Students who need disability accommodations
are encouraged to speak with Kathleen Monagle, Associate Dean, prior to or early in the semester
so that accommodation requests can be evaluated and addressed in a timely fashion. Even if you are
not planning to use accommodations, it is recommended that you meet with SDS staff to familiarize
yourself with the services and resources of the office. You may also consult with Student Disability
Services in 5-104 or at 617-253-1674. If you have already been approved for accommodations,
please contact your professor early in the semester so that we can work together to get your
accommodation logistics in place.

COURSE OUTLINE

Sept 5

Thurs Introduction to Markets I

Read: Pindyck & Rubinfeld, Sections 1.2, 2.1-2.3
Who Pays for Your Coffee from The Undercover Economist

Sept 6

Fri

Recitation: Math Primer on Graphing & Taking Derivatives

Sept 10

Tues

Introduction to Markets II
Read: Pindyck & Rubinfeld, Sections 2.4, 4.3-4.4, Chapter 9

Thurs Application: Surplus Analysis & the Environment

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Sept 12

Read: Pindyck & Rubinfeld, Sections 18.1-18.2

Saving the Planet from Nudge

Externality discussion, from SuperFreakonomics

Fri

Recitation

Sept 17

Tues

Supply I: Decision-Critical Costs

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Sept 13

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Read: Salem Telephone Company Case (Answer 15.010/011 questions posted

to Stellar, not those in the case.)
Pindyck & Rubinfeld, Sections 7.1-7.2, 8.1-8.3

Sept 19

Thurs Supply II: Cost Dynamics

Read: Pindyck & Rubinfeld, Sections 7.4-7.6, 15.1-15.2
Learning Curves in Manufacturing
Problem Set #1 due by 4:30 pm

Sept 20

Fri

No Recitation: Student Holiday

Sept 23

Mon

Alusaf Case due by 4:30 pm

Sept 24

Tues

Supply III: Application: International Investment Decision

Read: Alusaf Hillside Project
The Aluminum Industry in 1994

Sept 26

Thurs

Demand: Framework & Applications

Read: Pindyck & Rubinfeld, Sections 4.6, 5.1-5.2

Sept 27

Fri

Recitation

Oct 1

Tues

Market Power I: Introduction to Monopoly

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Read: Pindyck & Rubinfeld, 10.1-10.3

Problem Set #2 due by 4:30 pm

Oct 3

Thurs

Market Power II: Welfare Analysis

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Read: Pindyck & Rubinfeld, 10.4

Appendix to Chapter 11: Double Marginalization (p 439-442)

Fri

Recitation

Oct 8

Tues

No Class: Accounting Midterm

Oct 10

Thurs

Market Power III: Sources of Market Power

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Oct 4

Read: Case Reading: Microsoft Search

Pindyck & Rubinfeld, Section 4.5, 11.5
Problem Set #3 due by 4:30 pm

Oct 11

Fri

Special Recitation All Students 12-2: Midterm Review

Oct 15

Tues

No Class: Holiday

Oct 17

Thurs

MIDTERM EXAMINATION in class

Oct 18

Fri

No Recitation
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Oct 22

Tues

Application: Transfer Pricing

Read: Pindyck & Rubinfeld Appendix to Chapter 11: (p 443-450)

Oct 24

Thurs

Application: Music Industry

Read: Reading on the Music Industry posted to Stellar

Oct 25

Oct 29

Fri

Tues

NO RECITATION

Pricing I: Perfect Price Discrimination & Market Segmentation

Read: Pindyck & Rubinfeld, Sections 11.1-11.4

Oct 31

Thurs

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Harrahs Feels Your Pain from Supercrunchers

Pricing II: Consumer Self Selection

Read: What Supermarkets Dont Want you to Know from The Undercover
Economist
Fri

Recitation

Nov 5

Tues

Game Theory I: Introduction

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Nov 1

Nov 7

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Read: Pindyck & Rubinfeld, Sections 13.1-13.3

Thurs

Game Theory II: Duopoly Competition

Read: Pindyck & Rubinfeld, Sections 12.2-12.5, 13.4-13.7

Lesser Antilles Lines Case (no class preparation required, but you will need it
for Problem Set #5)

Nov 8

Fri

No Recitation: Career Friday

Nov 12

Tues

Game Theory III: Cartels & Anti-Trust

Read: Petroleum in Structure of American Industry
Executive Summary of the Antitrust Laws
Pindyck & Rubinfeld, Section 12.6
Problem Set #4 due by 4:30 pm
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Nov 14

Thurs

Game Theory IV: Price Competition Simulation

Ventures in Salt, including video instructions:
https://mitsloan.mit.edu/MSTIR/system-dynamics/salt/Pages/Video.aspx

Nov 15

Fri

Recitation

Nov 19

Tues

Application: Auctions
Read: Pindyck & Rubinfeld, Section 13.8

Nov 21

Thurs

Information & Incentives I: Principal-Agent Problem & Moral Hazard

Read: Pindyck & Rubinfeld, 17.3-17.4

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Freakonomics Introduction Excerpt

Fri

No Recitation

Nov 26

Tues

No Class: Thanksgiving Week

Nov 28

Thurs

No Class: Thanksgiving Week

Nov 29

Fri

No Recitation

Dec 3

Tues

Information & Incentives II: Adverse Selection

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Nov 22

Fa

Read: Pindyck & Rubinfeld, 17.1

Dec 5

Thurs

No Class

Dec 6

Fri

Special Recitation All Students 12-2: Final Review

Problem Set #5 due by 4:30 pm

Dec 10

Tues

No Class

Dec 18

Wed

Tentative Date (per MIT rules) for FINAL EXAMINATION