Microeconomics II

The aim of the course is to familiarize students with intermediate microeconomic theory – module II concerns producer theory and is an introduction to industrial organization. The course is graded based on two components: tuition class grade (30%) and a final exam (70%). The final exam is a multiple choice test, which verifies theoretical knowledge and practical skills.

1. Technology 1 (factors of production, production function, the short run/the long run, factor productivity, isoquants, MRTS)

2. Technology 2 (returns to scale, the elasticity of substitution, isoclines, properties of production function)

3. Costs 1 (accounting costs, economic costs, sunk costs, alternative costs, cost function, the short run/the long run, returns to scale, returns to scope, the learning curve)

4. Costs 2 (optimal choice: cost minimization, isocost line, conditional factor demand, expansion path, optimal division of production)

5. Profit maximization (competitive firm, optimal choice: profit maximization, duality, shutdown condition in the short / long run)

6. Perfect competition (assumptions, the supply curve in the short / long run, the profit maximization problem, long run equilibrium, the elasticity of supply, producer surplus, efficiency)

7. Monopoly (assumptions, monopolistic markup pricing, monopolistic power, Lerner index, multiplant monopoly, social cost of monopoly, regulation of monopoly, natural monopoly)

8. Monopolistic behavior (first-degree, second-degree, third-degree price discrimination, multimarket monopoly, two-part tariff system, peak-load pricing, product bundling, product tying)

9. Game theory 1 (basic concepts, dominant strategies, dominated strategies, pure strategies, mixed strategies, Nash Equilibrium, the Prisoner’s Dilemma, repeated games, evolutionary games, sequential games, reaction functions)

10.Game theory 2 (credibility, Subgame Perfect Nash Equlibrium, auctions)

11. Oligopoly 1 (monopolistic competition, the kinked demand curve theory, Cournot model, Bertrand model)

12. Oligopoly 2 (Stackelberg model, price leadership model, competitive edge, cartel, cartel stability)

13. Oligopoly 3 (Cournot competition and Bertrand competition with differentiated products, entry deterrence in Stackelberg model)

14. Oligopoly 4 (localization models, Hotelling’s model)

15. Summary

base

• Varian, H. R., Intermediate Microeconomics with Calculus: A Modern Approach, Norton, 2014

supplementary

• Varian, H., Mikroekonomia, Kurs średni - ujęcie nowoczesne, Wydawnictwo Naukowe PWN, 2013, ed. 4

• Perloff, J. M., Microeconomics: Theory and Applications with Calculus, Prentice Hall, 2013

• Nicholson, W., Microeconomic Theory: Basic Principles and Extensions, Cengage Learning, 2011, ed. 11

• Besanko, D., R. R. Braeutigam, Microeconomics, Wiley, 2010, ed. 4

• Browning, E. K., Zupan M. A., Microeconomics: Theory and Applications, Wiley, 2011, ed. 11

supplementary (‘easy reading’)

• Pindyck, R., D. Rubinfeld, Microeconomics, Prentice Hall, 2012, ed. 8

• Mansfield, E., G. Yohe, Microeconomics: Theory and Applications, Norton, 2004, ed. 11

• Hubbard, G., A. O'Brien, Microeconomics, 2012, ed. 4

• O'Sullivan, A., S. Sheffrin, S. Perez, Microeconomics: Principles, Applications, and Tools, Prentice Hall, 2011, ed. 7

• McConnell, C., S. Brue, S. Flynn, Microeconomics, Irwin/McGraw-Hill, 2014, ed. 20

• Case, K., R. Fair, S. Oster, Principles of Microeconomics, Prentice Hall, 2011, ed. 9

supplementary (‘hardcore’)

• Mas-Colell, A., M. D. Whinston, J. R. Green, Microeconomic Theory, Oxford University Press, 1995

• Jehle, G. A., P. J. Reny, Advanced Microeconomic Theory, Addison Wesley, 2011, ed. 3

• Varian, H. R., Microeconomic Analysis, Norton., 1992, ed. 3

supplementary (‘for math problems’)

• Sydsater, K., P. Hammond, Essential Mathematics for Economic Analysis, Prentice Hall, 2012, ed. 4

• Sydsater, K., P. Hammond, A. Seierstad, A. Strom, Further Mathematics for Economic Analysis, Prentice Hall, 2008, ed. 2

exercises

• Bergstrom, T., H. Varian, Mikroekonomia, ćwiczenia, PWN 2003

• Varian, H., T. Bergstrom, Workouts in intermediate microeconomics: For intermediate microeconomics and intermediate microeconomics with calculus, ninth edition, Norton, 2014

The aim of the course is to familiarize students with intermediate microeconomic theory. Module II focuses on producer theory and serves as an introduction to Micro 3, industrial organization, and other more advanced courses. Following consumer theory in Micro 1, we turn our attention to firms – their production decisions, different market structures in which they operate, and how these structures shape firm behavior and competition. We also consider how firms' behavior and market conditions influence consumer welfare.

The course grade is based on two components: the tutorials grade (30%) and the final exam (70%). The final exam is a multiple-choice test that assesses both theoretical knowledge and practical skills.

Topics and concepts covered during the course:

● Technology 1 – factors of production, production function, short run vs. long run, factor productivity, isoquants, marginal rate of technical substitution (MRTS)

● Technology 2 – returns to scale, homogeneity, the elasticity of substitution, properties of production functions

● Costs 1 – accounting costs, economic costs, sunk costs, alternative costs, cost functions, short run vs. long run cost curves, costs and returns to scale, economies of scope

● Costs 2 – optimal choice: cost minimization, isocosts, conditional factor demand, expansion path, optimal division of production

● Profit maximization – profit function, profit maximization, duality

● Perfect competition – assumptions, optimal choice of a competitive firm (profit maximization, shutdown conditions (short and long run)), supply curve (short and long run), equilibrium and efficiency, producer surplus, elasticity of supply, industry supply, economic rent

● Imperfect competition – market power, markup pricing, Lerner index, downward-sloping demand curve

● Monopoly – assumptions, optimal choice of a monopolist, price elasticity of demand and marginal revenue of a monopolist, multiplant monopoly, social cost of monopoly, regulation, natural monopoly

● Monopolistic behavior – price discrimination: first-, second-, and third-degree, multimarket monopoly, peak-load pricing, two-part tariff, bundling, non-price strategies of capturing consumer surplus

● Factor markets – firm’s demand for inputs in competitive markets, labor supply, monopsony, economic rent (under monopsony or fixed input supply)

● Game theory 1 – basic concepts, simultaneous games, dominant and dominated strategies, pure and mixed strategies, Nash Equilibrium, Pareto efficiency, the Prisoner’s Dilemma, game variants

● Game theory 2 – sequential games, decision trees, information sets, sequential rationality, backward induction, subgame perfect Nash equilibrium (SPNE), reaction functions, auctions

● Oligopoly 1 – monopolistic competition, Cournot and Bertrand models (for homogeneous and heterogeneous goods)

● Oligopoly 2 – cartels and their stability, Stackelberg and price leadership models (for homogeneous and heterogeneous goods)

Estimated student workload: 6 ECTS × 25 h = 150 h

(K) - Contact hours (S) - Self-study hours

Lectures: 30 h (K) 0 h (S)

Tutorials: 30 h (K) 0 h (S)

Exam: 2 h (K) 0 h (S)

Consultations: 4 h (K) 0 h (S)

Preparation for tutorials: 0 h (K) 38 h (S)

Preparation for lectures: 0 h (K) 28 h (S)

Preparation for tutorials final test: 0 h (K) 9 h (S)

Preparation for final exam: 0 h (K) 9 h (S)

Total: 66 h (K) 84 h (S) = 150h

Literature/ Bibliography Obligatory textbook:

● Varian, H. R., Intermediate Microeconomics with Calculus: A Modern Approach, Norton, 2014 (or newer)

Practice problems:

● Varian, H., T. Bergstrom, “Workouts in intermediate microeconomics: For intermediate microeconomics and intermediate microeconomics with calculus”, Norton, 2014 (or newer)

● Bergstrom T., H.Varian, “Test bank for Intermediate Microeconomics: A Modern Approach”, Norton, 2009 (or newer)

Supplementary recommended resources:

● CORE Econ: An open-access platform (e-book) with a modern approach to the topics discussed at all levels of Micro. Book “The Economy” available at: https://www.core-econ.org/the-economy/book

● Cowen, T., & Tabarrok, A. Modern principles: Microeconomics, Macmillan International, 2024, 6th edition

Other relevant textbooks:

● Pindyck, R., D. Rubinfeld, Microeconomics, Prentice Hall, 2012, ed. 8

● Perloff, J. M., Microeconomics: Theory and Applications with Calculus, Prentice Hall, 2013

● Nicholson, W., Microeconomic Theory: Basic Principles and Extensions, Cengage Learning, 2011, ed. 11

Supplementary (more advanced):

● Mas-Colell, A., M. D. Whinston, J. R. Green, Microeconomic Theory, Oxford University Press, 1995

● Jehle, G. A., P. J. Reny, Advanced Microeconomic Theory, Addison Wesley, 2011, ed. 3

● Varian, H. R., Microeconomic Analysis, Norton., 1992, ed. 3

Mathematics:

● Sydsater, K., P. Hammond, Essential Mathematics for Economic Analysis, Prentice Hall, 2012, ed. 4

● Sydsater, K., P. Hammond, A. Seierstad, A. Strom, Further Mathematics for Economic Analysis, Prentice Hall, 2008, ed. 2