One Year Executive Programme in Business Management (EPBM)

Microeconomics Prof. Anindya Sen, IIMC

Microeconomics provides key concepts and tools for understanding many different aspects of management theory and practice. Even when Microeconomics is not sufficient to explain all the dimensions of a problem, it often provides a starting point for analyzing the problem. References The basic textbook for this course will be: Robert S. Pindyck, Daniel L. Rubinfeld and Prem L. Mehta, Microeconomics. Latest edition. Pearson Education (low-priced Indian edition). Prentice-Hall India also publishes an edition of Microeconomics by Pindyck and Rubinfeld (Mehta is not a co-author). Please note that the chapters mentioned by me refer to the edition published by Pearson Education and not to the edition published by Prentice-Hall India. Date December 12, 2011 December 19, 2011 December 26, 2011 January 2, 2012 January 9, 2012 January 16, 2012 January 30, 2012 February 6, 2012 Topics Demand-supply Analysis Elasticity , Opportunity Cost , Production Costs Perfect Competition Monopoly Pricing Strategies Game Theory Asymmetric Information, Externalities, Public Goods

Topics:
Demand-supply Analysis Microeconomics vs. Macroeconomics. Markets and market definition. Demand and supply. Market equilibrium and shifts in equilibrium. Government interventions in the marketplace. Elasticity Measures of elasticity. Price elasticity of demand point elasticity and arc elasticity measures. Special cases. Income and cross-price elasticity of demand, price elasticity of supply. Some applications. Opportunity Cost Scarcity and optimal choices. Opportunity cost. Two pitfalls in the calculation of opportunity costs. Concepts of economic profit and Economic Value Added (EVA). Production Costs Production and costs. Short run versus long run. Production function. The Law of Diminishing Returns. Different types of short run costs. Long run costs. Relationship between short run and long run costs. Economies of scale and scope. The learning curve. Perfect Competition Market structures. Perfect competition. Profit maximization under perfect competition. The shut-down condition. Derivation of the short run supply curve. Characteristics of long-run equilibrium. Monopoly Sources of monopoly power. Profit maximization under monopoly. Measure of market power the Lerner index. Perfect competition versus monopoly. Regulation of monopolies. Pricing Strategies Conditions for successful price discrimination. Three degrees of price discrimination. Durable goods. Bundling. Game Theory Normal form games. Prisoners Dilemma games and Dominant Strategy Equilibrium. Ways out of the Prisoners Dilemma trap. Nash equilibrium. Battle of sexes game and game of chicken. Extensive form games. Game trees. Subgame-perfect equilibrium. Commitment and credible threats. Asymmetric Information Basic theory of uncertainty. The principal-agent framework. Moral hazard and adverse selection. Solutions.

If we have time, we will cover: Externalities and Public Goods Positive and negative externalities. Solutions. Coase Theorem. Common property resources. Public goods non-rivalry and non-excludability. The free-rider problem. Chapters You should read the following sections. In some of the sections, you may find additional material not covered in the lectures. These may be ignored. Pindyck, Rubinfeld and Mehta: Microeconomics, (Pearson) Chapter 1 2 4 5 6 7 8 9 10 11 12 16 17 Sections 1.1, 1.2, 1.4 2.1 - 2.5, 2.7 4.3, 4.4 5.1, 5.2, 5.4 6.1, 6.2, 6.4, 6.5, 6.6 7.1, 7.2, 7.3, 7.4, 7.5, 7.6, 7.7 8.2-8.4 9.1, (exclude multiplant firm), 9.2, 9.3, 9.4, 9.7 10.1, 10.2, 10.3, 10.4 11.1 12.1 - 12.6 16.1, 16.2, 16.4, 16.5, 16.6 17.1, 17.2, 17.3, 17.4