Intermediate Microeconomics Study Notes

BEC 2214: INTERMEDIATE MICROECONOMICS

COURSE OUTLINE

  • Chapter 1: Consumer Behavior

    • Consumer Preferences

    • Utility Functions

    • Optimal Choice/Consumer Equilibrium

    • Consumer Demand Functions

    • Expenditure Function

    • Slutsky Equation

  • Chapter 2: Theory of Production

    • Profit Maximization

    • Profit Function

    • Cost Minimization

    • Cost Function

    • Inverse Demand Functions

  • Chapter 3: Theory of Markets

    • Perfect Competition

    • Monopoly

    • Oligopoly

    • Quantity and Price Leadership

    • Simultaneous Quantity and Price Setting

  • Chapter 4: Game Theory

    • Introduction to Game Theory

    • Representation of a Game

    • Simultaneous-Move Game

    • Dominant & Dominated Strategy

    • Nash Equilibrium

    • Bayesian Nash Equilibrium

    • Dynamic Games

    • Sequential Rationality

LECTURE SCHEDULE

  • Week 1: Consumer Preferences, Utility Functions

  • Week 2: Optimal Choice/Consumer Equilibrium, Consumer Demand Functions

  • Week 3: Expenditure Function, Slutsky Equation

  • Week 4: Profit Maximization, Profit Function

  • Week 5: Cost Minimization, Cost Function, Inverse Demand Functions

  • Week 6: CAT 1

  • Week 7: Perfect Competition, Monopoly

  • Week 8: Oligopoly, Quantity and Price Leadership, Simultaneous Quantity and Price Setting

  • Week 9: Introduction to Game Theory, Representation of a Game, Simultaneous-Move Game

  • Week 10: Dominant & Dominated Strategy, Nash Equilibrium, Bayesian Nash Equilibrium, Dynamic Games, Sequential Rationality

  • Week 11: CAT 2

  • Week 12: MAIN EXAM

  • Week 13: MAIN EXAM

KEY CONCEPTS

Consumer Behavior

  • Consumer Preferences: Influenced by cultural, socioeconomic, psychological, and marketing factors.

  • Indifference Curves: Represent combinations of two goods yielding the same utility; characteristics include downward sloping, non-intersecting, and higher curves indicating higher utility.

  • Utility Functions: Mathematical representation of consumer preferences assigning numerical values to consumption bundles; variations include perfect substitutes, complementary goods, and Cobb-Douglas functions.

  • Marginal Utility: Change in total utility from consuming one additional unit of a good.

  • Optimal Choice/Consumer Equilibrium: Achieved when MRS equals the price ratio; includes concepts of boundary solution and interior solution.

Production Theory

  • Profit Maximization: Defined by output price times marginal product equals the price of inputs.

  • Profit Function: Difference between total revenue and total cost depending on output and input prices.

  • Cost Minimization: Identifies the least cost for producing a given output under given factor prices and production functions.

Market Theory

  • Perfect Competition: Features many buyers/sellers, homogeneous products, and no entry barriers; characterized by MR=MC.

  • Monopoly: Single seller with no close substitutes and significant barriers to entry; maximizes profit where MR=MC.

  • Oligopoly: Market structure with few firms; can involve collusion or competition.

Game Theory

  • Nash Equilibrium: Situations where players choose strategies such that no player can benefit by changing their strategy unilaterally. Includes concepts like dominant strategies and mixed strategies.

  • Bayesian Nash Equilibrium: Extends Nash equilibrium to games with incomplete information.

  • Dynamic Games: Involve sequential decisions; analyzed using backward induction to find optimal strategies.