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2019/2020  BA-BHAAV3005U  Applied Microeconomics for Firms

English Title
Applied Microeconomics for Firms

Course information

Language English
Course ECTS 7.5 ECTS
Type Elective
Level Bachelor
Duration One Quarter
Start time of the course Third Quarter
Timetable Course schedule will be posted at calendar.cbs.dk
Max. participants 60
Study board
Study Board for BSc in Economics and Business Administration
Course coordinator
  • Marcus Asplund - Department of Economics (ECON)
Main academic disciplines
  • Statistics and quantitative methods
  • Economics
Teaching methods
  • Face-to-face teaching
Last updated on 11-02-2019

Relevant links

Learning objectives
  • Apply microeconomic principles to decision making within a firm
  • Analyze the cost structure of a firm and decide on costs factors that are relevant for economic decisions
  • Forecast both qualitatively and quantitatively the effects of changes in demand and cost conditions both for an industry and an individual firm
  • Decide on the optimal price for an individual product using available information about demand and cost conditions
  • Evaluate the possibilities and limitations of alternative pricing strategies such as group pricing, bundling, versioning, penetration pricing, and quantity discounts
  • Apply game theoretic models to analyze strategic situations including bidding for contracts and products
Course prerequisites
The course assumes familiarity with basic microeconomics and statistical concepts, as well as standard econometric estimation (e.g. least squares regression).
Examination
Applied Microeconomics for Firms:
Exam ECTS 7,5
Examination form Written sit-in exam on CBS' computers
Individual or group exam Individual exam
Assignment type Written assignment
Duration 4 hours
Grading scale 7-point grading scale
Examiner(s) One internal examiner
Exam period Spring
Aids Limited aids, see the list below:
The student is allowed to bring
  • Non-programmable, financial calculators: HP10bll+ or Texas BA II Plus
  • Language dictionaries in paper format
The student will have access to
  • basic IT application package
Make-up exam/re-exam
Same examination form as the ordinary exam
If the number of registered candidates for the make-up examination/re-take examination warrants that it may most appropriately be held as an oral examination, the programme office will inform the students that the make-up examination/re-take examination will be held as an oral examination instead.
Course content, structure and pedagogical approach

This is a course in applied microeconomics that that focuses on decision making within the firm. It shows how economic principles taught in introductory microeconomic courses can be applied to general problems that may face anyone in a management position. The course emphasizes real world cases and scenarios and aims at bridging the gap between theory and practice.
 
The main topics of the course are: putting the perfectly competitive market framework into use, cost and demand analysis, pricing strategy, price and non-price competition, make or buy decisions, and strategic issues in auctions and procurement.
 
One of the fundamental parts of an introductory microeconomics course is the analysis of perfectly competitive markets. In this course, it is illustrated how the insights from such exercise can be used even if the market in question is not “perfectly competitive”, how to estimate actual supply and demand functions, and how to use these to forecast the future development of prices and firm profits.
 
It is crucial for a firm to understand its cost structure, and assess the cost factors are relevant for a particular decision. In this course the aim is to learn how to classify costs and how to estimate cost functions, and to use these in actual production and pricing decisions.
 
Every product has a demand curve – it is just a question of finding, and making use of, it. The course covers methods of obtaining estimates of demand curves from various sources of data. Using estimates of demand and costs, the focus is on getting the pricing of the product right. Here we also cover pricing for firms that sell several different products, and examine the feasibility of changing the pricing structure to extract additional value. In particular, the focus is on how to apply various forms of price discrimination such as group pricing, bundling, versioning, penetration pricing, and quantity discounts. To understand the interactions of firms in oligopolistic markets we use game theory to study both price and non-price competition.

 
Over the last few decades there has been a general trend to outsource the production of various inputs to other firms. However, the “make or buy” decision is not straightforward and here we examine some of the trade-offs. Related to this is how a firm should deal contractually with its suppliers and buyers, and the course covers the use of business strategies such as licensing, exclusive contracts, and franchising.
 
As firms are relying more on markets and other firms in obtaining inputs and selling outputs, the use of bidding and “auctions” has become far more prevalent than it used to be. In this course, both the “sellers’” and “buyers’” strategies are discussed in both auction (where a seller wants to obtain a high price) and procurement (where a buyer wants to get a low price) settings.
 

Description of the teaching methods
Lectures and (voluntary) exercises using real world data.
Feedback during the teaching period
Office hours
Student workload
Preparation and exam 170 hours
Classes 36 hours
Expected literature

Michael Baye, Managerial Economics & Business Strategy, most recent edition. Mc-Graw Hill Higher Education.

Last updated on 11-02-2019