MGT 207: Microeconomics for Business
Level: Bachelor's Full Marks:100
Nature of the Course: Compulsory Pass Marks: 35
Program: BBS Lecture Hours: 150
Course Objectives
This course aims to enhance the understanding of microeconomic theories and their practical
applications by developing students’ skill in the application of theories in business decisions making.
Course Description
This course comprises introduction to microeconomics, market equilibrium and efficiency, elasticity
of demand and supply, analysis of consumer’s behaviour, theory of production, cost and revenue
curves, product pricing theories and practices and factor pricing.
Learning Outcomes By the completion of the course students will be able to:
Explain the nature and scope of the microeconomics and business economics.
Explain the concept of market equilibrium and efficiency and to analyze effect of change in
market demand market supply to the market equilibrium and efficiency.
Define and measure elasticity of demand and supply, their applications and uses in business
decision making.
Analyze the consumer's behaviour, derivation of the demand curve for normal goods by using
both cardinal and ordinal approach.
Explain the single variable and the multi-variable production functions and determination of
the optimal combination of two inputs.
Acquire the knowledge about the concept and nature of cost and revenue and to derive costs
and revenue curves.
Explain pricing of the products and the inputs under different market structures.
Course Details
Unit 1: Introduction --------------------------------------------------------------------- 15LHs
Microeconomics: meaning, scope, uses and limitations of microeconomics; Business economics:
nature and scope; Basic concepts: production possibility curve, marginal analysis, incremental
analysis, static and dynamic equilibrium analysis in microeconomics; and Ten principles of
economics.
Unit 2: Market Equilibrium and Efficiency -------------------------------------- 20 LHs
Demand function: types, determinants of demand, movement and shift in demand curve; Supply
function: types, determinants of supply, movement and shift in supply curve; Market equilibrium;
Effect of changes in demand and supply on market equilibrium; Effect of government policy (Tax,
subsidy and price control) in market equilibrium; Concept of market efficiency; and Measuring
market efficiency by consumer's surplus and producer's surplus.
Unit 3: Elasticity of Demand and Supply ----------------------------------------- 20 LHs
Price elasticity of demand: concept, degree and calculation (percentage/proportionate and average
method); Point price elasticity of demand; Price elasticity and total expenditure; Income elasticity of
demand: concept, degree and calculation (percentage/proportionate and average method); Cross
elasticity of demand: concept, degree and calculation (percentage/proportionate and average
method);; Concept of advertisement elasticity of demand; and Uses of price, income, cross and
advertisement elasticity of demand; and Price elasticity of supply: concept, degree and calculation
(percentage/proportionate and average method)
Unit 4: Analysis of Consumer's Behavior ----------------------------------------- 20 LHs
Cardinal approach: assumptions, consumer's equilibrium, criticisms and derivation of demand curve;
Ordinal approach: assumptions and properties of Indifference curve; Marginal rate of substitution;
Price line; Consumer's equilibrium; Price effect and derivation of price consumption curve (normal
goods and Giffen goods); Income effect and derivation of income consumption curve (normal and
inferior goods); Substitution effect; Decomposition of price effect into income and substitution
effect; and Derivation of demand curve for normal goods.
Unit 5: Theory of Production -------------------------------------------------------- 15 LHs
Production function: Short-run and Long run production functions; concept of Cobb-Douglas
production function; Law of variable proportions; Isoquant: assumptions, marginal rate of technical
substitution and properties; Iso-cost curve; Optimal employment of inputs; and Laws of return to
scale.
Unit 6: Cost and Revenue Curves -------------------------------------------------- 20 LHs
Cost function; Concept of costs: Implicit cost and explicit cost, accounting cost and economic cost,
historical cost and replacement cost, separable cost and common cost, opportunity cost; Short-run
costs: cost-output relationship; derivation of short run total cost curves and their relationship;
derivation of short-run average and marginal cost curves and their relationship; Reason for the Ushaped of short run average cost curve; Relationship between AC and MC curves; Long-run costs:
derivation of long run average and marginal cost curves; Reason for the U- shaped, L- shaped and
continuously falling long run average cost curve; Economies of scale; and Concept of economies of
scope. Revenue: revenue function; Revenue curves under perfect and imperfect competition market;
Relation between average and marginal revenue curves; and Relationship between price elasticity of
demand and revenue.
Unit 7: Product Pricing Theories and Practices --------------------------------- 25 LHs
Market structure: concept and characteristics; Profit maximization goal of firm;
Price and output determination under perfect competition: short-run and long-run equilibrium;
Derivation of short run supply curve of a firm and industry; Price and output determination under
monopoly: short-run and long-run equilibrium; economic effects of monopoly. Price and output
determination under monopolistic competition: short-run and long-run equilibrium, monopolistic
firm's equilibrium under product variation and selling expenses. Concept and types of cartel; Pricing
under joint profit maximization cartel; and Pricing practices: price discrimination, cost plus pricing,
incremental cost pricing, administered pricing, export pricing, predatory pricing, skimming pricing
and penetration pricing.
Unit 8: Theory of Factor Pricing ---------------------------------------------------- 15 LHs
Rent: modern theory of rent; Wages: marginal productivity theory of wages; Concept of collective
bargaining; Minimum wages fixation; Wage differentials; Interest: Nominal and real interest rates;
Interest rate differentials; Theories of interest: loanable funds theory of interest and liquidity
preference theory of interest; Profit: economic profit and business profit; and Theories of profit:
a dynamic theory of profit and innovation theory of profit.
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