Indian Institute of Foreign Trade, Delhi

Business Economics, EPGDIB (2019-20)

Course Co-ordinator : Dr. Sunitha Raju

Email: sraju@iift.edu
Term: I Credits: 3

Course Introduction

Conceptually, the course on Business Economics is about understanding firm’s

market behavior under a given set of objectives and constraints. A firm’s
performance in the market depends not only in taking the ‘right’ decisions but also
in understanding and adapting to the changes in business environment. How a firm
takes appropriate decisions depends on a proper market analysis. By using basic
principles of Microeconomics, the course aims to develop conceptual skills for
analyzing markets and market trends.

Course Objectives

 to understand the basic concepts of Demand, Supply and Market;

 to relate these economic concepts to firm’s decisions/behavior; and
 to understand the role of government and its implications for managerial
decision making.

Programme Learning Goals covered through this Course

LG 1 : International Perspective in Decision making

 Be able to identify key “social/political/economic and other factors” in the

international environment which can impact business decisions in a given context
 Be able to analyse how identified “social /political /economic and other factors” in
the international environment can impact business decisions

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LG 2: Innovative and Creative Thinking with Critical Analysis

 Be able to apply appropriate theories, models and tools to critically analyse the
problems/issues in international business situations
 Be able to develop innovative and creative approaches towards solving of given
problems/issues in international business situations

LG 3: Managing complex, uncertain business situations

 Be able to analyze uncertain business situations using information provided and

making informed assumptions.
 Be able to develop a business strategy based on consumer insight and business
objectives after taking into account multiple dimensions in the internal as well as
external environment
 Be able to demonstrate how their strategy can lead to achievement of business
goals

Pedagogy

The course is divided into 5 modules which together provide various dimensions of
decision making at the firm level. The teaching methodology is aimed at active
class participation. Case analysis is an important pedagogical tool used for this
course. Four cases will be discussed as indicated in the course outline. The
duration of each session is 2 hrs.

Linkages with Other Courses

This is a basic course in Economics and as such linkages to all Business

Environment and International Economic Policies courses in the subsequent terms.

Evaluation Components

(i) Quizzes: There will be 4 quizzes out of which best 3 will be considered
for final grading. There will be no repeat quiz. The weightage for quizzes
is 45%.

(ii) One group case analysis need to be submitted. The weightage is 15%.

(iii) End-term Examination: The exam will cover all the modules of the
course. The weightage is 40%.

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Text Book / Reference Text

Text Book
Mark Hirschey, Managerial Economics : An Integrative Approach, Cengage
Learning, 2012.

Session Plan:

Session Topics Reading

Reference/Cases

Business Firm’s Performance: An Introduction

1. Understanding Business Firm’s Performance: An Readings:

Introduction Chapters 1 & 3

(i)Learning Objectives

 to understand how market dynamics influence

business decision making
 to develop a framework for decision making

(ii) Session Content

 Conceptualizing Business Activity
 Introduction to the theories of Firm
 Defining business objectives & Private goods
 Basic concepts of market analysis
 Decision making framework of a firm

Module 1: Demand and Firm’s Decision Making

2&3 Demand Analysis I Readings:

Chapter 4
(i) Learning Objectives

 to identify demand factors for various

products
 to differentiate between exogenous and
endogenous demand factors
 to derive the market demand curve/function
(ii) Session Content

 deriving a consumer demand curve

 deriving demand function
 demand relationships
 Normal vs Inferior goods
 Substitutes vs Complementary goods
 Firm’s influence on consumer demand
 Firm vs Industry demand function

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4. Demand Analysis II Readings:
Chapter 4
(i) Learning Objectives
Case Analysis:
 to quantify the impact of changes in demand No Frill Airfare
factors on quantity demanded
 to understand demand-revenue relationships
at the firm level
 to relate pricing decisions of the firm to
demand factors

(ii) Session Content

 Define measure & interpret price elasticity of

determinants of price elasticity of demand
 Price elasticity & revenue relationships
 Define measure & interpret income elasticity
of demand
 Define measure & interpret cross price
elasticity of demand
 Using elasticities in managerial decisions
making

Module 2: Production Analysis

5. Production Analysis I Readings:

Chapter 7

(i) Learning Objectives

 to understand the organization of production

 to define parameters corresponding to
efficient production under one variable
 input case
 to define profit maximizing level of output
under are variable input case

(ii) Session Content

 understanding organization of production

 defining production function
 technically efficient vs economically
efficient production process
 long run vs short run production
function

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  short run production decisions (under one
variable input case)

 defining TP, APL and MPL

 diminish returns an stages of
production
 identifying technical efficient level of
output
 identifying economically efficient or
profit maximizing level of output

Readings:
6. Production Analysis II Chapter 7
(i) Learning Objectives

 to explore the dimensions of firm level short

run production decisions under
 varying demand conditions
 to understand efficient combination of inputs
 to explore the basis of firm’s decision on scale
of output/production

(ii) Session Content

 short run production decision framework with

more than 1 input

 Isoquants & Isocost

 MRTS and input use
 Optimum use of inputs

 Process developments: Implications for short

run production decisions

 Long run production decisions

 Constant returns to scale

 Increasing returns to scale
 Decreasing returns to scale

7. Case Analysis: The Early Bird – Electric Power

Load Dispatching

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 Module 3: Cost Analysis

8. Cost Analysis I Readings:

Chapter 8
(i) Learning Objectives
Case Analysis:
 to define and examine economic cost of Gopal Banerjee
inputs
& Company
 to develop cost – output relationship
framework for business decisions
 to derive firm’s supply curve in the short run

(ii) Session Content

 Basic Cost & Profit concepts

 Explicit vs Implicit cost
 Historical vs Economic cost
 Normal Profit vs Super normal profits
 Cost determinants in short run & long run
 Cost analysis in the short run
 TC, AC, AFC, AVC, MC
 Cost efficient level of output
 Excess capacity vs Reserve capacity

9. Cost Analysis II Readings:

Chapter 8
(i) Learning Objectives
Case: Tata-
 to understand how costs influence plant size Daewoo: The
decisions of business firms
Road to Gunsan
 to understand how costs influence the
location decisions of the business firms

 to understand competitive implications of

“Economies of Scope” and “Multiplant
Economies”

(ii) Session Content

 Deriving LRAC curve

 LRAC and SRAC: managerial decisions
under varying market demand conditions
 Understanding MES
 Market size & MES
 Transportation costs & MES
 Multiplant economies
 Transportation cost & plant location

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 Module 4: Market Structure Analysis I & II

10 & 11. Market Structure Analysis I: Perfect Competition Readings:

& Monopoly Chapter 10, 11
& 12
(i) Learning Objectives

 to understand the managerial implications of

profit maximization in a Competitive Market
 to highlight the effect of changes in demand
and supply conditions on profit
maximization in a Competitive Market
 to understand the managerial implications of
profit maximization in a Monopoly Market

(ii) Session Content

 Basic characteristics of various market

structures
 Perfect competition: Short run equilibrium
 Perfect competition: Long run equilibrium
 Pricing under competitive framework:
implications of changing demand and supply
conditions
 Price & Output determination in simple
monopoly
 Pricing under monopoly: implications of
changing demand & supply conditions
 Comparison of monopoly & competitive
market structures

12. Market Structure Analysis II: Monopoly & Readings:

Discrimination Monopoly Chapter 12

(i) Learning Objectives Case Analysis:

Kodak
 to understand the effect of demand and Antidumping
supply changes on the pricing behavior of a Disputes with
Monopolist
Fuji
 to analyse the price discrimination policies of
a Monopolist
 to understand the implications of
Competitors; actions on pricing in
Monopolistic markets

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 (ii) Session Content

 Defining and understanding price

discrimination
 Deriving combined demand and marginal
revenue curves across market segments
 Price-quantity determination in market
segments

Module 5: Market Structure Analysis III & IV

13. Market Structure Analysis III: Monopolistic & Readings:

Competitive Oligopoly Chapter 13

(i) Learning Objectives Case Analysis:

OPEC – A Case
 to understand the implications of competitors Study in Joint
action on pricing in monopolistic markets, with
Profit
short run
 to understand the pricing in monopolistic Maximization
markets in the long run
 to understand pricing behaviour under
competitive oligopoly

(ii) Session Content

 Monopolistic competition: short run

equilibrium
 Monopolistic competition: long run equilibrium
 Introduction to Oligopoly

14. Market Structure Analysis IV: Oligopoly Price Readings:

Models Chapter 13 & 15

(i) Learning Objectives

 to understand the pricing behaviour under

cartels
 to understand the pricing behaviour under
Price Leadership Model
 to understand the application of market
structure measures; Concentration ratios,
HHL

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 (ii) Session Content

 Colluding oligopoly: joint profit maximization

 Market sharing cartel vs centralized
cartel
 Price- Leadership Model
 Defining leader
 Defining followers
 Pricing Practices: A review

Course Recap: Session 15

AOL Evaluation (for Core Courses Only)

Learning Goal No. LG 2.1- Innovative Thinking with Critical Analysis

Evaluation Component to be used for AOL : One question in the End-term Exam.

Rubrics to be used for evaluation

Objectives Excellent Good Fair Unsatisfactory

2.1-Student Able to Able to Able to Able to
should be able demonstrate a demonstrate demonstrate demonstrate a
to apply comprehensive a good a partial very limited
appropriate analysis of the analysis of analysis of analysis of the
theories, problem, the problem the problem problem through
models and (incorporating through through application of
tools to critically multiple application of application of inappropriate
analyse the perspectives), appropriate appropriate theoretical
problems/issues through theoretical theoretical framework(s)
in international application of framework(s) framework(s)
business most appropriate
situations theoretical
framework(s)