5014 - MICROECONOMICS

The course is designed to allow participants to reach an understanding of key economic concepts and principles. The focus will be on individual agents' (mainly consumers and producers) behaviour and on their interactions.
The first part of the course will be devoted to explaining the work of perfectly competitive markets. This provides a benchmark against which it is possible to assess other (more realistic) market structures. The second part of the course will focus on departures from perfectly competitive markets, such as monopoly, monopolistic competition, and oligopoly. Basic notions of game theory will be introduced and used to address issues of business strategy.

The following topics will be covered:

• The methodology of microeconomics. Microeconomics and managerial economics. The market: definition, boundaries and mechanics. Shifts in demand and supply. Elasticities of supply and demand. Short-run and long-run. Government policies and their effects.
• Priors to choice. Budget constraints. Individual demand. Substitutes and complements. Consumer's surplus as a measure of welfare change. Revealed preferece indices. Market demand. Elasticity. Network externalities.
• Choice under uncertainty. Risk. Demand for insurance.
• Production functions. Isoquants. Substitutability among inputs. Returns to scale. Measures of scale economies. Reasons for economies of scale.
• Economic costs, opportunity costs, accounting costs, sunk costs. Short-run costs: average and marginal costs, shape of cost curves. Long-run costs: cost minimization, long-run average cost, shape of cost curves. Joint production and economies of scope. Empirical studies of cost curves.
• The behavior of a single firm. The competitive industry. Price-taking among competitive firms and the residual demand curve. Zero profit conditions. Entry and exit. Restrictions on entry. Contestable markets.
• Monopoly behavior. Market power and its determinants. Pricing and market power. Price discrimination and bundling. Natural monopoly. Monopsony.
• Monopolistic competition. Price and quality competition. Product differentiation. Preferences for characteristics of a product.
• Oligopoly and strategic decisions. Cooperative and non-cooperative strategic behavior. Dominant strategies. Nash equilibrium. Repeated games. Sequential games. First-mover advantages. Threats, credibility and entry deterrence.
• Introduction to auctions. First price auctions and second price auctions.
• General equilibrium and economic efficiency. Efficiency of free markets. Potential reasons for market failure.

• R. PINDYCK, D. RUBINFELD, Microeconomics, 5th Edition, Prentice Hall, 2001.
• A. DIXIT, S. SKEATH, Games of Strategy, W.W. Norton, New York, 1999, that will be used in a related seminar held by prof. A. Dixit.

Written examination.
Student may take the exam in two written parts: a mid-term exam and a final exam which will cover the first half and the second half of the course respectively. In this case the exam will be considered as passed only if both tests are sufficient.