SHIV NADAR UNIVERSITY

COURSE OUTLINE: MICROECONOMICS FOR MANAGERS

COURSE TITLE: MICROECONOMICS FOR MANAGERS

COURSE CODE: MEC 501

COURSE CREDITS: 2

COURSE TYPE: CORE COURSE

COURSE INSTRUCTOR: SIMANTI BANDYOPADHYAY

CONTACT HOURS: TBD

OFFICE: D 236F

COURSE CONTENT

This course is the first course in Economics for the MBA students. It introduces the essentials of
Microeconomics with an emphasis on managerial relevance for decision-making. The focus is on
understanding of economic concepts and tools to facilitate decision-making in business
management as well as public policy contexts. A special emphasis is given on conceptual
application in Indian contexts. The course is self-contained; no prior knowledge of economics is
necessary. The course is divided into five modules.

COURSE OBJECTIVE

The course aims to equip participants with basic economic concepts and tools of analysis to
develop critical thinking and analytical skills to apply under different business situations. The
main objective of this course is to bring economic theory and actual business practices together.
The idea is to help students become adept at understanding the basic principles involved in
designing and developing business strategy at the firm level. Students should gain a rigorous
understanding of competitive markets as well as alternative market structures such as
monopoly, oligopoly, and monopolistic competition. Concepts of this course can further be
applied in Industrial Regulation, Strategic Competition, International Business, Marketing,
Managerial Accounting, Public Policy, etc.

PEDAGOGY/TEACHING METHOD

All sessions are lecture based. Applications and case studies are analysed as illustrations for
clearer understanding of concepts and tools.
TEXTBOOK

D. Besanko and R. Braeutigam (2011) Microeconomics, 5th Edition, Wiley India. (Hereafter B-B).

REFERENCES

1. R Lipsey and A Chrystal: Economics, 12th edition, OUP, ISBN 0199563381, 978-01-
995-6338-8.
2. Robert S Pindyck, Daniel L Rubinfeld, Prem L Mehta: Microeconomics, 7thedition
(Paperback), Prentice Hall, ISBN 978-81-317-2599-3.

ASSESSMENT SCHEME

a) Class participation- 10%

b) Quizzes/Assignments- 25%
c) Group Projects- 25 %
d) End Term Exam- 40%

MAKE-UP EXAM POLICY

There is no makeup provision for the quizzes or projects; whereas makeup for end-term exams
will be given only if the participant was on medical leave with approval from MBA PROGRAM
CO-ORDINATOR. The nature of such make up exams will be on the discretion of the instructor.

COURSE TOPICS AND READINGS

MODULE 1: BASIC ECONOMIC CONCEPTS

Module Objective: Why a manager needs to know the basic principles of Economics? How the
thought process evolve in economics: The foundations.

Lecture 1: Introduction: Relevance of the Course, Scarcity and Allocation of Resources

Objective: How economists think to make sense of the world

Reading: B-B, Chap-1
Case: The Toughest Ticket in Sports, B-B, pg 15.
Comparative Statics – example of wheat price – contrast movement along the curves and
shift of curves; Positive and Normative Analysis – example of minimum wage debate; Problem
Set 1.17 and 1.19 from B-B.

Lecture 2: Demand and Supply

Objectives: How consumption and production forces interact in the market? How do markets
work and what factors influence the outcomes? Who are the participants in markets and what
motivates them? What are the main factors that influence how much of a product consumers
wish to buy? What are the main factors that influence how much producers wish to sell? How
do we derive the demand curve of a particular product or service?
Reading: B-B, Chap- 2, pg 26-41 and Chap 5, pg 150-159
Case: A Computer on Every Desk and in Every Home, B-B, pg 41.
Example 2.3 Strawberry prices, B B pg 43;
Example 4.1 Rising Price of Gasoline pg 111.

Lecture 3: Elasticities of Demand and Supply

Objective: How the sensitivity of quantity demanded to a change in price is measured by the
elasticity of demand and what factors influence it? How elasticity is measured at a point or over
a range? How income elasticity is measured and how it varies with different types of goods?
How elasticity of supply is measured and what it tells us about conditions of production. What
are the difficulties that arise in trying to estimate various elasticities from sales data?
Readings: Reading: B-B, Chap-2, pg 43-54
Case: Coke versus Pepsi, B -B, pg 55.
Application 2.4 How people buy cars B-B page 55; Application 2.7 Crude Oil price and
demand, B-B page 58.

MODULE 2: CONSUMER THEORY

Module Objective: To understand the behavior patterns of consumers under different

conditions. How consumers match scarce resources with unlimited wants

Lectures 4-5: Consumer Behavior and Consumer Choice

Objective: The perspective of the buyers in the commodity market: how do they optimize?
Consumers will maximize their overall satisfaction subject to their budget constraints.
Reading: B-B, Chap -3, pg 75-89 and Chap-4, pg 105-112
Cases: The Marginal Utility of ‘Home Cooking’ versus ‘Eating out’, B -B, pg 115.
Application 3.3 How people buy car, B-B page 92

Lectures 6-7: Impact of Taxes and Subsidies

Objective: How government's policy decisions enter the map of consumer behavior
Reading: B-B, Chap-10
Cases: Gallons and Dollars: Gasoline Taxes, B-B, pg 394;
A Bailout of the King of Cheeses, B-B, pg 425.
Application 10.4 Shortage in Venezuela; Application 10.5 Quotas Taxicabs; Application
10.8 Dumping.
MODULE 3: THEORY OF PRODUCTION AND COST

Module Objective: The perspective of the sellers in the commodity market: How do they
optimize? There is a difference between economists’ measure of profit and accountants’
measure of profit. For economists, profit is the difference between total cost and total revenue,
where total cost includes the cost of capital. The production function relates physical quantities
of inputs to the quantity of output. Cost curves show the money cost of producing various levels
of output.

Lectures 8: Theory of Production

Objective: What are the basic concepts related to production methods and choices.
Reading: B-B, Chap -6, pg 204-229 and 230-233
Case: High-Tech Workers versus Low-Tech Workers, B-B, pg 224.

Lecture 9: Theory of Cost

Objective: What are the relevant costs and ensuing implications?

Reading: B-B, Chap-7, pg 249-261 and Chap -8, pg 287-304
Case: Self-Checkout or Cashier?, B-B, pg 261; The Costs of Higher Education, B-B, pg 299.
Application 8.4 Output Elasticity of Total Cost

Lecture 10: Labor Supply Decision

Objective: How much to work and when to stop

Reading: B-B, Chap -5, pg 191-197
Case: Substitution Bias in Price Indexes, B -B, pg 197.
Application 5.7 Supply of Nursing Service;
Application 5.8 Income and Substitution Effects in Tax Reform.

MODULE 4: MARKET STRUCTURES

Module Objective: The impact of the product market on firms’ prices and output choices is
determined by the nature of the product and the market structure in which they operate.

Lecture 11: Perfect Competition

Objective: A benchmark model: in perfect competition firms produce a homogeneous product

and are price-takers in their output markets. Perfect competition maximizes benefits that
consumers receive from the output of the product in question.
Reading: B-B, Chap-9, pg 331-341 and 368-379.
Case: The ambiguous economics of Net neutrality; Available at:
http://www.livemint.com/Industry/hz8BtbDLFnLkV69HU2EWUP/The-ambiguouseconomics-
of-Net-neutrality.html (Suggestion : Add Application 9.4 Corn Quantity and Price page 348 B-B)
Lecture 12: Monopoly
Objective: A benchmark model: Single seller in the market. A monopolist sets marginal cost
equal to marginal revenue, but marginal cost is less than price. Output is lower under monopoly
than under perfect competition. Profit can be increased for a monopolist if it is possible to
charge different prices to different customers or in separate markets. Pure profits exist in the
long run under monopoly, so long as there are entry barriers.
Reading: B-B, Chap-11, pg 442-461 and 469-474
Case: Market Power in the Breakfast Cereal Industry, B-B, pg 461.
Application 11.5 Cigarette Industry page 467 B-B

Lectures 13-14 : Pricing with Market Power

Objective: How to price the product when cost is not the only parameter. How price
discrimination can extract more surplus to the producers.
Reading: B-B, Chap-12, pg 489-521
Case: Education in the First Degree, B-B, pg 498; Bundling Cable, B-B, pg 521.
Application 12.8 : Advertising on Google pg 525

Lecture 15: Monopolistic Competition

Objective: In the theory of large-group monopolistic competition, many firms compete to sell
differentiated products. Each may make pure profits in the short run. In the long run, freedom
of entry shifts its demand curve leading to excess capacity and production at average costs
above the minimum possible level. In industries where there are many producers but of
different products, free entry will tend to eliminate profits in the long run.
Readings: B-B, Chap-13, pg 532-549 and 562-566
Case: When a Good Doctor is Hard to Find, B-B, pg 566.

Lectures 16-17: Competitive Strategy: Oligopoly and Games

Objective: How market structures make decision-making a strategic and competitive process.
Where there is a small group of dominant producers (oligopoly), strategic interaction is
important because the market form of one is affected by what its rivals do. Insights into the
choices available and the nature of outcomes can be achieved using game theory. Oligopoly can
be associated with pure profits in the long run if there are barriers to entry. How Basic Oligopoly
models can be formulated in game theoretic framework. Some interesting cases: dynamics of
oligopolistic industries. Analysis of prisoner’s dilemma as a game.
Reading: B-B, Chap -14, pg 575-593.
Case: Everyone Loses Except Lawyers, B-B, pg 520.
Application 13.3 US Steel Price Dominance page 554 B-B;
Application 13.4 Smartphone Wars B-B page 556 ; Application 13.7 Wine or Roses B-B page 565.

MODULE 5 : MARKET FAILURES

Module Objective: To explore situations and remedies when markets fail. Markets can fail in
many situations. There can be a failure in the presence of externalities. Market failure can be an
outcome of information asymmetry.

Lecture 18: Externalities

Objective: Are there situations where markets fail due to externalities
Reading: B-B, Chap-17, pg 703-724
Case: London’s Congestion Charge, B -B, pg 721.
Application 17.3 Emission Trading Markets B-B page 717;
Application 17.4 California Congestion B-B page 720.

Lecture 19: Public Goods

Objective: What are the problems in provision of public goods
Reading: B-B, Chap 17, pg 726-733.
Case: Is Market Failure a Sufficient Condition for Government intervention? Available at:
http://www.econlib.org/library/Columns/y2013/CardenHorwitzmarkets.html
(This article be recommended in the context of all kinds of market failure instead of only in the
case of public good)
Application 17.7 Free Riding on Public Airwaves B-B page 732.

Lecture 20: Economics of Information

Objective: Information plays an important role in shaping transactions of economic resources.
What are the cost, benefits, and implications of information?
Reading: B-B, Chap -15, pg 627-633.