Indian Institute of Management

Sambalpur

MICROECONOMICS (ME)
MBA-1 | Section A, B, C & D | 2024-25

Course Outline

Instructor:
Prof. Ashutosh K. Tripathi – ashutoshtripathi@iimsambalpur.ac.in

1. Course Objective:

Being one of the building block courses in management education, this course
attempts to provide the basic tools, concepts and insights to understand the
anatomy, behavior and functioning of all major microeconomic units from the
viewpoint of a business firm. Not only does the course purport to explain why a
firm exists and how it is evolving over time and space, but it also tries to
demonstrate how a firm does in its own interest and ought to read and handle its
customers, its rivals and above all, government policy. The course would deal with
demand, production, cost and pricing theories and practices.

2. Pedagogy:

This course is full of concepts and techniques and is in highly condensed form.
Accordingly, it would be largely lecture-cum discussion based, though an attempt
would be made to solve selected numerical examples in class. Student groups are
strongly advised to learn from solved exercises in text and also try to solve
exercises at the end of each chapter in the text . They may consult the course
instructor in case they face any problems in solving exercises. Students are also
advised to follow caselets given in the text to test their understanding.

3. Study material:

Main textbook: Microeconomics , by Jeffrey M. Perloff (JP), 7th Edition, Pearson:

Indian Edition

Readings: Managerial Economics: Theory, Applications and Cases by W. Bruce

Allen, Keith Weigelt, Neil Doherty and Edwin Mansfield (AWDM),8th Edition,
Viva-Norton Student Edition

Additional Technical Notes/Case Materials for Class Presentations by Student

Groups will be circulated as a separate booklet

4. Evaluation:

Mid Term Exam (covering sessions 1 – 10) 30%

End Term Exam (covering sessions 11 – 20) 30%
Quizzes 30%
Class Participation 10%

1
5. Session details:

Slot 1
Session 1 What is this course? Role of Prices, Important Distinctions
in Economics, Positive vs. Normative economics, Everyday
Basic Economic application of Economics
Concepts
Session 2 Overview of Demand and Supply; Movement on and shift of
demand and supply curve; Existence, Uniqueness, and
Stability of market equilibrium; Limitations of supply-
demand dichotomy
CASES & CASE-LETS
Ways to reduce cigarette demand?
Declining price of eggs & rising price of college education
Demand and Wage inequality in the US
Supply analysis Long-run behavior of natural resource prices (say, copper)
Supply & demand for New York office space following 9/11

Sessions 3 Concept of elasticity – Own price, Income & Cross-price;

Point & Arc concepts and its properties; Demand, Revenue
Elasticity of (AR & MR) and elasticity
Demand & Supply CASES & CASE-LETS
Pricing and cash flow: AT&T’s Case

Session 4 Why study consumer behavior, Preferences, Indifference

curves, different types of IC, Utility function, MU and MRS
CASES & CASE-LETS
Designing new automobiles
Consumer a. Case of Ford Mustang
Behavior – 1 b. Case of Ford Explorers
Consumer choice of health care

Sessions 5 Budget Constraints & Effects of Price & Income Changes,

Consumer Equilibrium – Interior and Corner Solutions with
Implications,
CASES & CASE-LETS
How managers can strategically influence consumer
choices:
a. Through advertising strategies
Consumer b. by influencing the budget line through pricing strategies
Behavior – 2 Why most individuals prefer a cash gift?
Gift cards instead of cash
College Trust Fund
Gasoline Rationing

Quiz 1 Exam
Sessions 6 Deriving demand curve, Effect of an increase in income,
Effect of a price increase – Income and Substitution effect
with normal and inferior good
CASES & CASE-LETS
Wages & Labour Supply : Labour-leisure trade-off
Consumer Interest Rates and Savings
Behavior – 3 Network externalities – bandwagon, snob & Veblen effects

2
Session 7 Existence and Objectives of a Firm, Production functions
and Returns to scale, total, average and marginal product,
diminishing marginal returns, substitution among inputs,
Isoquants and input substitution.
Production & CASES & CASE-LETS
Cost – 1 Malthus & Green Revolution
Slowdown in productivity growth

Session 8 & 9 Cost Concepts: Accounting and economic cost, opportunity

cost, fixed and sunk costs; Short and long run costs,
determinants of cost functions, cost minimizing input
choices, economies of scale and minimum efficient scale,
economies of scope, Break-even and Profit contribution
analysis.
Production & CASES & CASE-LETS
Cost – 2 The opportunity cost of an MBA
Computers, Software and Pizza: Opportunity, Fixed and
Variable costs
Reducing the use of energy
Co-existence of large and small units in the carpet industry

Session 10 Introduction to perfect competition; firm demand vs. market

demand; measuring cost in profit maximization; short-run
profit maximization in competitive market; short-run profit
Perfect maximization with taxation; short-run shut down decision
competition – 1
Midterm Exam
Slot 2
Session 11 Short-run market equilibrium; long-run market
equilibrium: firm entry and exit; long-run market supply
Perfect curve with perfect competition and long-run market supply
competition – 2 curve in real world

Session 12 Concept of consumer surplus, producer surplus; Why is a

competitive market efficient & looked upon as welfare
ideal? Incidence of taxes and subsidies with examples
(depending on relative elasticity); What are the welfare
implications of price controls – say, price ceiling or
minimum price? What happens when there are supply
restrictions – e.g., with acreage restriction, govt. purchase
of surplus, and decoupled transfer? Are tariffs & quota
equivalent? Under what circumstances? Why does WTO
then prefer tariffs over quota? Is government regulation
always welfare-reducing?
Market CASES & CASE-LETS
intervention Who Pays the Luxury Tax?
Market for Human Kidneys
The Bitter story of Sugar

Session 13 & 14 Managerial revenue for a monopolistic firm; Profit

maximization and shut-down decision, shifts in demand
curve, Market power, sources of monopoly formation;
Monopoly & Monopolistic competition, short and long run equilibrium,
Monopolistic monopolistic competition and efficiency

3
competition
Quiz 2 Exam
Session 15 Pricing strategy, Price discrimination, Capturing consumer
Pricing with surplus, peak load pricing.
market CASES & CASE-LETS
power – 1 The Economics of Coupons and Rebates
Airline Fares

Session 16 Advertising, Two part tariffs, pricing of joint products,

Bundling, Tying.
Pricing with CASES & CASE-LETS
market Pricing Cellular Phone Service
power – 2 The Complete Dinner Versus A LA CARTE

Session 17 Mark-up pricing, Limit pricing, transfer pricing.

Pricing with CASES & CASE-LETS
market Cost-plus pricing at Therma-Stent
Power – 3 Cost-plus pricing at Internet companies & Govt-regulated
industries.

Hand out from Managerial Economics: Theory,

Applications and Cases, Ch-7, pp. 209-213; Ch- 9, pp. 317-
327
Sessions 18 & 19 Policies to deal with externalities, property rights and
common property resources, public good.
Externalities and
Public Goods
Session 20: Adverse Selection; Principal-Agent Issues
Asymmetric
Information
End term Exam