Widener University School of Business Administration

WIDENER UNIVERSITY SCHOOL OF BUSINESS ADMINISTRATION Microeconomic Theory (EC 311) Syllabus – Spring 2017 E-mail: [email protected] Professor Karen Leppel Web Page: http://muse.widener.edu/~kleppel/index.html Office: 221 Quick Center Office hours: MTWThF 11:00 a.m. - 12:00 noon Office Phone: 610- 499-1170 ------PREREQUISITES: EC202 and MATH118 or equivalent. CLASSROOM RULES: The School of Business Administration of Widener University seeks to prepare students for successful careers. In your career, you will be judged both on your competence and on your professionalism, which includes showing respect for others and taking responsibility for your actions. This course is a training ground for analytical thinking and professionalism. Consequently, you are expected to act according to the following rules. Do:  Attend class regularly and punctually.  Remain in the classroom for the duration of the class.  Remain awake and attentive throughout the class.  Bring to class appropriate materials and tools, such as notes and writing utensils.  Come to class prepared, having completed readings and other assignments.

During class meetings, do NOT:  engage in extraneous and distracting conversation.  talk on cell phones or send text messages.  do work pertaining to other courses.  Send/read e-mail, surf the internet, play computer games, etc.

Students who behave inappropriately will be asked to promptly discontinue the behavior or leave the classroom. Habitual violators will be required to meet with the Assistant Dean of the School of Business Administration to discuss the situation. If no acceptable resolution is achieved, the matter will be forwarded to the campus judicial system.

SBA LEARNING GOALS AND OBJECTIVES: The SBA faculty has outlined goals and objectives for the Bachelor of Science in Business Administration. This course supports the following goals and objectives:  Goal 1: SBA students will demonstrate the knowledge, skills and scholarship that are appropriate to the business discipline.  Goal 2: SBA students will apply leadership skills in the development of business decisions. o Collaboration: Through teamwork, students will demonstrate the ability to collaborate with others to accomplish tasks that lead to decisions.  Goal 3: SBA students will be competent in the application of core business concepts and technologies. 2

o Critical Thinking: Through course assignments, students will demonstrate the ability to effectively incorporate both qualitative and quantitative methods in the development of business solutions. COURSE OBJECTIVE: This course is devoted to furthering student understanding of decision-making processes, and the economic behavior of households and business firms under various market conditions. Special emphasis is placed on developing advanced tools of economic analysis and quantitative problem solving. LEARNING OBJECTIVES: At the completion of this course, the student should be able to: 1. Determine equilibrium price and quantity using a graph or supply and demand equations. 2. Use differential calculus to determine utility-maximizing consumption levels. 3. Explain income and substitution effects. 4. Interpret the coefficients of a regression demand equation and determine elasticity of demand with respect to price or income. 5. Determine and interpret marginal product and average product for a specified production function. 6. Determine the profit-maximizing output level subject to a given cost level. 7. Given the demand function and cost function, use differential calculus to determine the firm’s profit-maximizing price and output levels. 8. Using the perfectly competitive model, show the effects on consumer and producer surplus of policies such as price ceilings and floors, sales taxes, and trade tariffs and quotas. 9. Given revenue and cost information, determine the welfare loss of monopoly relative to perfect competition. 10. Determine optimal output levels for a multiplant firm. 11. Determine and interpret the Lerner index. 12. Use game theory to determine an oligopolistic firm’s optimal strategy. 13. Examine a market and determine which of the four market structures (perfect competition, monopolistic competition, oligopoly, monopoly) it best fits. 14. Determine appropriate prices using strategies including price discrimination, two-part tariff pricing, and peak-load pricing. 15. Show how a minimum wage or a union-bargained wage affects the employment level in a monopsonistic labor market. 16. Analyze decision-making under uncertainty and under alternative criteria. 17. Determine the optimal level of a public good. TEXTBOOK: Microeconomics: Theory & Applications, 12th ed., by E. K. Browning & M.A. Zupan. John Wiley & Sons, Inc. ISBN: 978-1-118-75887-8 (paperback) or 978-1-118-92007-7 (e-text). The e-text can be purchased online at: http://www.wiley.com/WileyCDA/WileyTitle/productCd- EHEP003217.html . [Alternatively, you may use the 11th edition of this textbook, the ISBN for which is 978-1-1180-6554-9 (hard cover) or 978-1-1181-2937-1 (binder-ready).] Why read the textbook? We learn better if we see/hear material multiple times in multiple ways. Reading the textbook helps to reinforce and clarify what is presented in the lecture. LECTURE NOTES: 3

Notes are provided at my website: http://muse.widener.edu/~kleppel/index.html . In order to perform activities, students are required to bring the notes to class in either printed form (six- slides to a page is recommended) or in digital form on an electronic device. LEARNING TECHNIQUES: (1) Lectures (2) Group problem-solving (3) Group paper COURSE GRADE DETERMINATION (Pluses & minuses are not used for course grades): 3 exams each worth 20% 60% final exam 30% group paper 10% 100%

Exams: There will be three exams plus a final exam. The three exams will follow sections III, VI, and IX on the syllabus. Dates for exams will be announced in advance. The final exam covers the material from the entire course. Depending on the performance of the class, exam grades may be curved. Adjusted grades will be determined based on the relative position in the appropriate grade ranges. (For example, a middle B will be adjusted to equal an 85.) Make up exams will not be given without a written excuse from a physician or other appropriate authority.

Group Paper: Student groups prepare a paper in which they answer questions requiring application of course concepts. An individual student’s project grade will be adjusted for the contribution of that student to the group. The project counts for 10% of the course grade.

SKILLS OUTCOMES: Skills in: (1) Knowledge of Microeconomic Principles and Differential Calculus. (2) Basic communication skills. Skills out: (1) Ability to work both alone and in a group to solve economic problems at an intermediate level. (2) Ability to present and explain an economic problem and its solution at an intermediate level, using words and graphs.

ACADEMIC ASSISTANCE: Students who could use assistance with study skills or time management are encouraged to contact the office of Academic Support Services at the Pineapple House, 522 E. 14th Street (610-499-1267).

LEARNING ACCOMMODATIONS: In accordance with the Americans with Disabilities Act, any student has the right to request reasonable accommodation of a disability. Accommodations can be requested at Disabilities Services (520 E. 14th Street, 610-499-1266). Disabilities Services is the office that authorizes all accommodations on campus. Please note that you will need to present documentation of your disability to Disabilities Services. It is important to make this request as soon as possible so that we will have time to make any necessary arrangements. 4

COURSE OUTLINE: I. Introduction and Review of Supply and Demand Topics: markets; circular flow; demand versus quantity demanded; supply versus quantity supplied; equilibrium Practice Problems: Supply and Demand Determining equilibrium price and quantity from supply and demand equations Reading: Chapters 1 and 2 II. Demand and Utility Topics: cardinal versus ordinal utility; total utility; marginal utility; indifference curves; income consumption curve; Engel curve; price consumption curve; income and substitution effects; Giffen good; market demand curve; total, average, and marginal revenue; arc elasticity versus point elasticity; price elasticity of demand; income elasticity of demand; cross elasticity of demand; price elasticity of supply Practice Problems: Utility Maximization Substitution and Income Effects Regression Interpretation Reading: Chapters 3 and 4 III. Production Topics: production function; discrete and continuous marginal products; average product; isoquant; marginal rate of technical substitution (MRTS); constant, increasing, and decreasing returns to scale Practice Problems: Cobb-Douglas Production Function Problem Reading: Chapter 7 EXAM 1 – covering syllabus sections I through III.

IV. Cost of Production Topics: isocost; total cost, total variable cost, and total fixed cost; average total cost, average variable cost, and average fixed cost; discrete and continuous marginal cost; maximizing profit using differential calculus; economies of scale and diseconomies of scale; expansion path; economies of scope; maximizing profit in a two-product firm; firm goals other than profit maximization Practice Problems: Maximizing Output Subject to a Given Cost Level Profit Maximization Reading: Chapter 8

V. Perfect Competition Topics: assumptions of perfect competition; graph of five profit situations relative to the ATC and AVC curves; firm and industry short run supply curves; constant cost, increasing cost, and decreasing cost industries Practice Problems: Breakeven and Shutdown Points Problem Reading: Chapter 9 5

VI. Policy and the Perfectly Competitive Model: Consumer & Producer Surplus Topics: consumer surplus and producer surplus; total consumer and producer surplus is maximized at the perfectly competitive equilibrium; deadweight loss; effects on consumer and producer surplus of price ceilings and floors (including agricultural price supports), sales taxes, tariffs and quotas Practice Problems: Sales Tax Problem Reading: Chapter 10

EXAM 2 – covering syllabus sections IV through VI.

VII. Monopoly Topics: definition of monopoly; reasons for monopoly; Lerner index; multi-plant profit maximization; welfare loss of monopoly compared to perfect competition; using differential calculus to maximize monopoly profit; average cost pricing regulation of monopoly Practice Problems: Welfare Loss from Monopoly Profit Maximization – Downward-Sloping Demand Multiplant Firm Lerner Index Problem Reading: Chapter 11

VIII. Monopolistic Competition and Oligopoly Topics: assumptions of monopolistic competition; advertising, prices, and profits; characteristics of oligopoly; kinked demand curve model; dominant firm and barometric price leadership models; game theory and dominant strategies Practice Problems: Game Theory Problem Market Structure Case - restaurant Market Structure Game Reading: Chapter 13

IX. Pricing Strategies Topics: price discrimination; two-part tariff pricing; bundling; advertising; cost-plus markup pricing; product lines; peak-load pricing; transfer pricing Practice Problems: Price Discrimination (first, second, and third degree) Two-Part Tariff Bundling Transfer Pricing Reading: Chapter 12

EXAM 3 – covering syllabus sections VII through IX. 6

X. Resource Markets Topics: monopsony, oligopsony, monopsonistic competition, and perfect competition in input markets; derived demand; total resource cost, average resource cost, and marginal resource cost; marginal physical product, marginal revenue product, value of the marginal product; profit-maximizing condition for input usage: MRP=MRC; substitution and output effects of a wage change; determinants of elasticity of demand for labor; market demand for labor; monopsony employment and wage level; minimum wage effects in perfectly competitive labor markets and monopsonistic labor markets; union effects in monopsonistic labor markets; income and substitution effects of wage change on labor supply; present value and rate of return on capital investment; marginal productivity of capital Practice Problems: Monopsony Problem Reading: Chapters 16 and 17 XI. Information Topics: risk averse, risk loving, and risk neutral; optimal search; moral hazard; adverse selection; diversification Practice Problems: Decision-Making under Uncertainty Decision-making under Alternative Criteria Reading: Chapter 14 XII. Public Goods and Externalities Topics: public goods properties; free rider problem; efficient provision of public goods; external benefits and costs; social benefits and costs; Coase theorem; subsidizing goods with external benefits; taxing goods with external costs; per unit pollution taxes versus fixed pollution level policies Practice Problems: Public Goods Reading: Chapter 20

FINAL EXAM – includes all syllabus sections covered during the semester.