+Micro Franciscan College of the Immaculate Conception,

Baybay, Leyte, Incorporated

Baybay City 6521, Leyte
Philippines

COLLEGE OF BUSINESS MANAGEMENT AND

ADMINISTRATION MODULE

BA Core 11: 3
Basic Microeconomics
Management

ACADEMIC YEAR 2021-2022 l FIRST SEMESTER

 BA Core 11: Basic Microeconomics

Thank you for staying with us. We are now in

Module 3.

There was no hard in module 1 and 2, it is just a matter of reading and

understanding. We are trying our best to simplify everything for easy
interpretation. Read the module and freely answer all activities. You can
always and anytime message me.

Read the course outline and make it a part of your study habit to refer to your outline and
be guided with what’s next and most of all comply the activities in your module.

Please be reminded of the following module guidelines:

And

 Learning modules will be distributed on a quarterly basis – prelim, midterm, prefinals

and finals. Make sure your cp#s and email address are correct.
 Reading materials with references/links and other requirements will be downloaded to
your registered Gmail accounts via Google classroom;
 Class meeting will be done via Google meet, for discussions and presentations. Our class
will create a group chat account in the messenger where we can discuss our concerns, if
internet connections is unstable;
 Please always keep posted, and enjoy as we educate ourselves through virtual learning.

Let us make our study more fun.

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 BA Core 11: Basic Microeconomics

COLLEGE OF BUSINESS ADMINISTRATION AND MANAGEMENT

OBE COURSE OUTLINE

AY 2021 - 2022
Course Number : BA Core 11
Course Title : Basic Microeconomics
Learning Facilitator : Lolita M. Alba
Contact Hours : 3 hours/ week
Pre-requisite : General Economics
Course Description :

The course deals with the study of concepts, theories and principles in economics
as introductory part in the study of microeconomics. It shows graphically how consumers
behave and suppliers respond to changes in prices in different market structures. As a concluding
activity, the students will analyze case studies to enable them to experience different behavior of
demand and supply in a volatile business environment.

Course Outcomes

CO1 Understand the theories, principles and concepts in microeconomics;

C02 Explain and illustrate graphically consumers behavior and suppliers’ responses to
changes in prices in different market structures; and

C03 Analyze case studies

COURSE CONTENT

TIME
COURSE CONTENT/SUBJECT LEARNING OUTCOMES
FRAME
MATTER

Module 1. The Theory of Consumers At the end of module 1 delivery, the

FIRST Behavior
QUARTER
L1 Types of Theories of Consumers
Behavior, Utility Function
L 2 Consumption Function and
Indifference Curve
L 3 Budget Line and Optimum
Combination
Case: Demand for Big Mac.(New York
Times, May 12, 1991)
Module 2. The Theory of Production
Profit
learner is expected to;
Identify and discuss the types of theories
and how these influence the consumers
buying behavior; for maximum
satisfaction
Discuss the concept of indifference curve
and how it is used as a tool to analyze
consumption behavior on the utility
theory.
Explain the relationship between the
indifference curve which represents that
the consumer likes and the budget line
which limits affordability.
At the end of module 2 delivery, the
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 BA Core 11: Basic Microeconomics

learner is expected
SECOND L1 The Concept of the Theory of
Explain the concept of production
QUARTER Production
function, explain the law of diminishing
returns and identify lessons from it.
L2 Isoquant and Isocost: Concept and
Explain the concept, its properties and
Properties
the relationship between the lines of
isoquant and isocost curve;
L3 Productivity and Relative Resource
Efficiency
Identify and explain the basic ways to
improve efficiency and the reasons for
Review Exercises
return to scale and productivity
Module 3. The Theory of Cost and Profit At the end of module 3 delivery, the
learner is expected to;
THIRD
L1 The theory of Cost: Definition and Explain the theory of cost; identify and
QUARTER
Concept define the different types of cost
Explain profit theory; explain the effect
L2 Profit Theory: Definition and Concept of profit in the increase or decrease of
demand and supply.
Module 4. Market Structures At the end of module 4 delivery, the
FOURTH learner is expected
QUARTER L1 – Market Structure Analysis Identify the classification of market
Pure Competition structures and analyze the pricing and
Monopoly output relationship under each market
Oligopoly structure.
Course Requirements:
Attendance
Quizzes/ Performance Tasks
Quarterly Examinations
Major Learning Output
MIDTERM Problem Solving using graph

FINALS Case studies

References:

PAGOSO, DINIO & VILLASIS et al. INTROUCTORY MICROECONOMICS. 3rd Edition, Rex Bookstore,
2011
MARCELO, Danilo F.Jr. MICROECONOMICS: Theories and Applications. OBE Approach. ISBN: 978-
971-9654-35-3. Unlimited Books: Library Services and Publishing Inc., Intramuros Manila
h https://www.investopedia.com/terms/l/lawofdiminishingutility.asp
ttps://learn.saylor.org/course/ECON101
empforum.neas-seminars.com/Topic6400.aspx
https://www.google.com/search?
q=optimum+combination+microeconomics&oq=optimum+combination+microeconomics&aqs=chrome..
69i57.19699j0

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 BA Core 11: Basic Microeconomics

Module 3 : The Theory of Cost and Profit

Lesson 1. The Theory of Cost: Definition and Concept

Objetive: Explain the theory of cost; identify and define the different types of cost and how these
Changes in the short run and long run affect production of the firm

Analysis of Cost of Production

Economic cost are those payments a firm must make, to resource suppliers in order to
extract these resources away from alternative lines of production. These payments maybe either
explicit or implicit.
a. Explicit cost – these are payments made by the firm. These expenses with clear evidence
or proof of payment for resources bought outright or hired by the firm.
Ex. Payment of salaries/wages, payments of raw materials, payments of overhead cost.
These are cost that accountant records as expenses of the firm.

b. Implicit cost - implicit cost is a cost that exists without the exchange of cash and is not
recorded for accounting purposes. Implicit costs are also referred to as imputed, implied,
or notional costs.

Ex. Opportunity cost, labor of self employed, self owned resources. These costs are
frequently overlooked by accountants in computing the expenses of the firm because of
no evidence of payment.

Take this note:

Net profit as appeared in the Income Statement P 21,000

As reported by the accountant (Accounting Profit)
Less: Non cash payment of services rendered by
By the owner and water taken from the river
Estimated at (opportunity cost) 8,000
Net profit (Economic Profit) As interpreted by Economist P 13,000

Total cost = Fixed Cost and Variable Cost

The theory of the firm normally makes use of a number of different types of cost
All of which relaed expenditures incurred by the firm to the respective level of output or product
produced.

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 BA Core 11: Basic Microeconomics
Total cost (TC) are the total money expenses or outlay for a given level of output or produced. It
is the sum of two components – Total fixed cost (TFC) and Total variable cost (TVC).
Total Fixed Cost (TFC) are the payments of fixed resources. These cost does not change if the
level of produced or output increases or decreases. Ex. Are rent expenses, salaries of regular
employees, insurance.

Total Variable Cost (TVC) are those payments for variable resources. These costs changes if production
increases or decreases. Ex. Light, water, wages (daily earners) materials.

In economics, average total cost or unit cost is equal to total cost (TC) divided by the number
of units of a good produced (the output Q):
TC
ATC = Q

Average Fixed Cost (AFC) = is the money payments on the fixed inputs per unit of output at a
given level of output. AFE is quantitatively defined as:
TFC
AFC =
Q
It is also equal to the sum of average variable costs (total variable costs divided by Q) and average
fixed costs (total fixed costs divided by Q)Average costs may be dependent on the time period
considered (increasing production may be expensive or impossible number in the short term, for
example). Average costs affect the supply curve and are a fundamental component of supply and
demand.
Average Variable Cost (AVC) is the mony payments on the variable in;ts per unit of output at a given
level of output. AVC is quantitatively defined as

TVC
AVC =
Q

Marginal Cost (MC) is the change in TC as the level of output is increased by one unit; that is

ΔTC
MC =
ΔQ

Short-run costs are those that vary with almost no time lagging. Labor cost and the cost of raw
materials are short-run costs, but physical capital is not.
An average cost curve can be plotted with cost on the vertical axis and quantity on the horizontal
axis. Marginal costs are often also shown on these graphs, with marginal cost representing the cost
of the last unit produced at each point; marginal costs in the short run are the slope of the variable
cost curve (and hence the first derivative of variable cost).
A typical average cost curve has a U-shape, because fixed costs are all incurred before any
production takes place and marginal costs are typically increasing, because of diminishing marginal
productivity. In this "typical" case, for low levels of production marginal costs are below average
costs, so average costs are decreasing as quantity increases. An increasing marginal cost curve
intersects a U-shaped average cost curve at the latter's minimum, after which the average cost curve
begins to slope upward. For further increases in production beyond this minimum, marginal cost is
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 BA Core 11: Basic Microeconomics
above average costs, so average costs are increasing as quantity increases. For example: for a
factory designed to produce a specific quantity  per period—below a certain production level,
average cost is higher due to under-used equipment, and above that level,
production bottlenecks increase average cost.
“Marginal Cost”
The following are the marginal cost concepts with the equations that defines them
ΔTC ΔTVC
MC = = ( of additional unit of output)
ΔQ ΔQ
Δ TVC
MVC = ⋅ Therefore: MC = MVC
Δ Q
Where:
MC = Marginal cost or change in Total Cost
MVC =Marginal variable cost or change in total variable cost
Q = quantity of output
TC = Infinitisimal change or a unit change that is infinitely small
Why MC = MVC because TFC is constant and TVC is the only component that causes TC to change.
Table 1. Schedule of a firm’s short run cost of production in pesos

Q TC TFC TVC ATC AFC AVC MC

0 32 32 0
1 44 32 12
2 52 32 20
3 56 32 24
4 60 32 28
5 72 32 40
6 86 32 54
7 102 32 70
8 128 32 96
9 167 32 135
10 212 32 180

What is the most EFFICIENT RATE OF OUTPUT? THAT IS WHERE ATC = MC or MC = MVC
This ends lesson 1 of Module 3.

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Activity 1.
Let’s check what you have learned.
Instructions: Complete Table 1 on page 7. After completing table 1, Plot all the
variables in the schedule using graphing paper. Label your graph neatly and
completely. Picture your answer and send via messenger or gmail. Please write
your name, module no. lesson no. and activity no. We will use same rubrics in
lesson 2.
In a separate paper, answer the following questions
1. What is the most efficient rate of output and why?
2. What is the importance of the information found after graphing to a supplier
or firm.

Activity 2
Assume the following prices of Good Y and the quantities purchased at these prices. The total
fixed cost of the firm is P6,000 and the cost of direct materials is P0.80 per unit and that of direct
labor is P1.10 per unit. Complete the following table.
Price Quantity TR TVC TC MC
Puchased
P5.50 0
5.00 10,000
4.50 20,000
4.00 60,000
3.50 90,000
3.00 150,000
2.50 180,000
2.00 200,000

1. Determine the following:

a. What is lthe best price? Justify _______
b. Plot the TR and TC curve.
c. At what point that cost is at minimum.

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 BA Core 11: Basic Microeconomics

Activity 3
Read the case below and answer the questions.
“How Xerox Lost and Reained International Competitiveness”
The Xerox Corporation was the first to introduce a copying machine in 1959,
based on its patented xerographic technology. Until 1970, Xerox had no
competition and thus had little incentive to redue manufacturing costs, improve
quality, and increase customers’ satisfaction. Even when the Japanese firms enter
the low end of the market with better and cheaper copiers in 1970 and began to take
over the segments of the market, Xerox did not respond, concentrating instead on
the mid and high end of the market where profit margin is much higher. Xerox also
used the profit from its copier business to expand into computers and office
systems during the 1970’s. It was not until 1979 that Xerox finally awakened to the
seriousness of the Japanese threat. From the competitive benchmarking missions to
Japan to compare relative production efficiency and product quality, Xerox was
startled to find that Japanese competitors were producing copier of higher quality at
far lower costs and were positioning themselves to move up to a more profitable
mid and high end segments of the market.
Faced with this life threatening situations, Xerox, with the help of its
Japanese subsidiary (Fuji Xerox), mounted a very strong response which envolved
reorganization and integration of development and production and an ambitious
company wide quality control efforts. Employee envolvement was gretly increased,
suppliers were brought into the early stages of product design and inventories and
the number of suppliers were gr eatly reduced. Constant benchmarketing was then
used to test progress in the company wide quality control program and customer
satisfaction. By taking this drastic actions, Xerox was able to reverse the trend
toward loss of market, land it now has reinbented itself to become a digital
document company.
Source: The MIT Commission on Industrial Productivity. Made in America (Csmbridge Mass. The MIT Press, 1989) “Japan is
Tough, Bu Xerox Prevails,” Nw York Time, Sept. 3, 1991, andXerox: Well Documented,” The Economist, Oct. 1, 1994.

Questions:
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 BA Core 11: Basic Microeconomics
1. Explain and illustrate how Xerox improved efficiency and international competitiveness.

Write your answer in a separate sheet of paper and send via gmail.

\Lesson 2 – Profit Theory: Definition and Concept

Revenues and Profit of the Firm
Nature and Concept of Profit
Profit is the compensation whih the entrepreneur may received for his services as owner
and manaer of a business enterprise, The firms profit depends on two major factors: COST AND
REVENUE. Revenue is determined by the quantity of output sold and the prices of these output.
On the other hand, cost is determined by the amount of inputs used and the price of these inputs.
Total profit is just the difference between Total Revenue and Total Cost for each level of output.
Profit ( π ) = TR – TC; where TR = Total Revenue ; TC = Total Cost
= Selling Price x Q = Cost Price x Q
Total Revenue (TR) is the firm’s gross income from the sale of its product.
Marginal Revenue (MR) is the addition to total revenue resulting from the addition of one unit
to total output. It is equal to the ratio of the change in TR and the change in Q. It is an important
concept because it indicates the rate of change of total revenue with respect to changes in
output.Geometrically, it represents the slope of the toral revenue curve. Mathematically,
ΔTR
MR =
ΔQ
Average Revenue (AR) is a conventional measure of “efficiency” in sales. This tells us the
average income fron one unit of output produced. Mathematically,
TR
AR =
Q
Profi Maximization Using the TR and TC Curves
One way to identify the profit maximizing level of output is to examine how total cost and total
revenue respond to change in output. Table below shows the values of total cost and total revenue for
hyphotetically selected levels of output. The values for total revenue are deried under the assumption that
the firm faces an output price of 200 pesos.

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 BA Core 11: Basic Microeconomics

Table 2 shows the total cost and total revenue at different levels of output

Output Price (P) TR MR TC MC Profit

(Q)
0 200 - (500)
1 200 (391)
2 200 (268)
3 200 (137)
4 200 (4)
5 200 125
6 200 244
7 200 347
8 200 428
9 200 481
10 200 481
11 200 416
12 200 281
13 200 71
14 200 (219)
15 200 (599)

Instructions:Complete the table above and graph. This would be your first activity for this lesson. The formula in
getting the data is given in the previous pages.

1. Find the maximizing level of output. Indicate the TR and TC at the largest.

It is also important to note that marginal revenue and marginal cost are equal to each other at the profit
maximizing level of output. The equality between these two variables in a requirement for profit
maximization. Profit maximizing condition can be summarized as follows:
Price = Marginal Revenue = Marginal Cost
Note: As long as MR is greater than MC,

producing more is still profitable.

MR = MC (this is the maximum profit)
sales TC TR

Orange is the
profit region
Pi B
Blue loss region

loss

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 BA Core 11: Basic Microeconomics
TFC
pi A

0 loss Qo Q1 Q

derive the regions of profit and loss, respectively. At the top pane, we show the TR and
TC curves for a perfectly competitive firm. For quantities between Qo and Q1. The TR
curve is above the TC curve, For these levels of output, the firm’s profits are positive.
The TR and TC curves intersect at output levels Qo abd Q1. This means that the firm’s
profits at these levels of output are zero since TR = TC. For output levels to the left of
Qo and to the right of Q1, the TR curve is below the TC curve, which implies that profits
are negative.

We can measure profits or losses by getting the vertical distance etween TR and TC
curves. The larger the vertical distance, the larger the profis or losses. Using this, we
derive a “bell shaped” profit curve. The curve is below the horizontatl axis at levels of
output that are less than Qo and higher than Q1, thus reflecting negative profits. Since
the profit curve is above the horizontal axis at levels of output between Qo and Q1, then
profits are positive in this region. Moreover, we find that the firm’s profit are highest at
Q1 wgere tge slope of the TR cure and the slope of the TC curves are equal. Hence Q1
is the firm’s maximizing level of output.

This ends lesson 2 of Module 3.

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 BA Core 11: Basic Microeconomics

Activity 1.

Refer to page 11 and complete Table 2. PLOT all the data in the schedule in
one graph using graphing paper. Label your graph.

Rubrics
Substance/Content 15
Nicely drawn curve/graph with labels 15

Activity 2

Activity 2 THIS IS THE SAME PROBLEM IN LESSON ONE. BUT PROFIT

COLUMN IS ADDED
Assume the following prices of Good Y and the quantities purchased at these prices. The total
fixed cost of the firm is P6,000 and the cost of direct materials is P0.80 per unit and that of direct
labor is P1.10 per unit. Complete the following table.
Price Quantity TR TVC TC MC Profit
Puchased
P5.50 0
5.00 10,000
4.50 20,000
4.00 60,000
3.50 90,000
3.00 150,000
2.50 180,000
2.00 200,000

2. Determine the following:

a. What is the best price? Justify _______
b. Plot the TR and TC curve.
c. At what point that cost is at minimum.
d. At what point that the profit is maximum.

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Activity 3.

Values Integration

As CEO of a manufacturing firm, how would you apply the values of excellence in
1. creating a product for your customers; 2) improving employees productivity in the
workplace,

1 creating a product for your customers

2. improving employees productivity in the workplace.

Rubrics: Substance and content 10

Organization 05
Total 15 for each question.

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THIS ENDS MODULE 3.

CONGRATULATIONS. WE ARE
DONE.


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