Tribhuvan University
Faculty of Management
Office of the Dean
Bachelor of Business Management (BBM)
Course Objective
:This module aims to develop students’ understanding of the microeconomic concepts and theories in order to enhance their skill in analyzing business opportunities, market and risks. Contents Microeconomics: concepts and uses. Theory of demand and supply: demand function, change in quantity demanded and change in demand, supply function: change in quantity supplied and change in supply, elasticity of demand and supply – concepts, degrees and me asurements. Utility Analysis: cardinal vs ordinal utility and indifference curve analysis. Theory of production: Production function, laws of production. Cost and revenue curves. Pricing: Price and output determination under perfect competition, monopoly and monopolistic competition, concept of oligopoly. Factor pricing: rent (modern theory of rent)
Course Contents:
Lecture hours show the approximate classroom time allocated to each unit.
Unit 1.Fundamentals of Microeconomics
Meaning, Scope, Types, Uses
Unit 2.Analysis of Demand, Supply and Market Efficiency
Demand function
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Meaning and types
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Movement along a demand curve and shifts in demand curve
Supply Function
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Meaning and types
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Movement along a supply curve and shifts in supply curve
Concept of Elasticity of demand and supply
- Price elasticity of demand: degrees, measurement (percentage, total outlay, point and arc
methods), uses in business decision making.
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Income elasticity of demand: degrees, measurement (percentage, arc and point methods)
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Cross elasticity of demand:types, measurement (percentageand arc methods)
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Price elasticity of supply: degrees, measurement (percentage, point and arc methods)
Measurement of elasticity
Unit 3.Theory of Consumer’s Behavior
Cardinal vs ordinal utility
Indifference curve analysis
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Meaning, assumptions and properties
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Principle of MRS
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Consumer’s equilibrium
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Price effect – derivation of PCC and demand curves for normal goods (substitutes and
complements)
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Income effect – derivation of ICC and Engel curves for normal goods and inferior goods
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Substitution effect – Hicksian approach
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Decomposition of price effect into income and substitution effects – Hicksian approach
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Applications – tax and subsidy, income leisure choice of workers
Computations and Numerical assignments
Unit 4.Production and Cost Analysis
Concept of total, average and marginal product
Production function – meaning, types (short run and long run production function, Cobb-Douglas
production function.
Law of variable proportions (explanation of three stages of production with reasons)
Isoquants
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Meaning, assumptions and properties
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Principle of marginal rate of technical substitution
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Optimal employment of two inputs (or least cost combination of two inputs)
Laws of returns to scale
- Explanation with table and diagram (using IQ)
Computations and Numerical assignments
Unit 5.Pricing Theory and Practices
Cost function
Various concepts of costs: opportunity cost, explicit and implicitcosts, accounting and economic costs
Short run costs
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Behaviour of short run total costs
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Behaviour of average and marginal cost curves
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Relation between AC and MC, TVC and MC and AC and AFC and AVC
Long run costs
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Meaning
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Derivation of U-shaped and L-shaped LAC with reasons
Revenue
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Revenue under perfect competition
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Revenue under imperfect competition
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Relationship of Revenues (TR, AR and MR) with price elasticity of demand
Computations and Numerical assignments
Unit 6.Markets for Resources
Profit maximisation and equilibrium of a firm
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TR-TC approach (table and diagram)
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MR-MC approach (table and diagram)
Equilibrium price and output determination under perfect competition
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Meaning and characteristics
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Derivation of short run supply curve of a firm
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Short run equilibrium (firm and industry)
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Long run equilibrium (firm and industry)
Equilibrium price and output determination under monopoly
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Meaning and characteristics
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Short run equilibrium
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Long run equilibrium
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Meaning and conditions of price discrimination
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Degrees of price discrimination
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Equilibrium of firm under third degree discrimination
Equilibrium price and output determination under monopolistic competition
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Meaning and characteristics
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Short run equilibrium
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Long run equilibrium of a firm
Oligopoly
- Meaning and characteristics
Computations and Numerical assignments
Unit 7.Theory of Factor Pricing
Rent
- Concept of economic rent and its determination: modern theory of rent.
Wages
- Marginal productivity theory of wages
Interest
- Loanable funds theory of interest
References:
profit (dynamic theory and innovation theory). Profits
- Dynamic theory of profits
- Innovation theory of profits Computations and Numerical assignments Ahuja, H.C. Advanced Economic Theory – Micro Economic Analysis, New Delhi – S. Chand (Latest ed.) Browning and Browning (1994), Microeconomic Theory and Applications, New Delhi, Kalyani Publishers Case, Karl E. and Ray C. Fair, (2002), Principles of Economics, Singapore, Pearson Education Dwibedi DN (2003), Microeconomics Theory and Applications, Delhi, Pearson Education Pvt. Ltd. Dwibedi DN (2010), Microeconomics Theory and Practice, New Delhi, Tata McGraw Hill. Koutsoyianis, A (1979), Modern Microeconomics, London, Macmillan McConnell CR and S. Brue, (2002), Economics : Principles, Problems and Policies, New York, McGraw Hill. Shrestha, R. G. and Adhikari, G. M. Microeconomics, KEC Publication, 1st edition.