ECN5402, Advanced Microeconomic Theory

Dr. Ali R. Moshtagh

2371 Coleman Hall

(217) 581 - 2916

OFFICE HOURS: 11:00 - 11:50 am MWF, 8:30 - 9:20 am TR

**Course
Description:**

A development of value and distribution theories. Detailed analysis of the reactions of consuming and producing units.

**LEARNING OBJECTIVES:**

The following outlines learning goals primarily acquired in this course. Students learn to

- participate in class discussions dealing with the development, application, and verification of economics models describing human behavior using sophisticated intuitive and mathematical procedures;
- demonstrate the ability to state, criticize, and defend the standard assumptions of the economic theory of consumer choice and be able to conceptualize consumer equilibrium in a mathematical way;
- demonstrate the ability to use the model of utility maximization to investigate how individuals will respond to changes in circumstances;
- demonstrate the ability to state, criticize, and defend the standard assumptions of the economic theory of production and be able to conceptualize profit maximization/cost minimization choices in a mathematical way;
- demonstrate the ability to investigate a business firm's supply decision;
- demonstrate the ability to use the basic economic model of supply and demand to determine market equilibrium under four different market structures;
- identify the gains from free trade and analyze the effects of protectionist policies on economic well-being; and
- describe the determination of employment and wages in the market for labor.

**Course Outline**

1. Introduction:

**Theoratical Models****The Mathematics of Optimization**

2. Choice and Demand:

**Preferences and Utility****Examples of Utility Functions**- Cobb-Douglas Utility
- Perfect Substitutes
- Perfect Complements
- Constant Elasticity of Substitution (CES)

**Utility Maximization**- Demand Functions
- Changes in Income
- Engel's Law
- Changes in a Good's Price
- The Individual's Demand Curve
- Compensated Demand Curves
- Shephard's Lemma
- Consumer Surplus
- Sample Exam 1 Questions

**Demand Relationships Among Goods**- The Two-Good Case
- Substitutes and Complements
- Net Substitutes and Complements
- Composite Commodities

**Market Demand and Elasticity**- Market Demand Curve
- Price Elasticity of Demand
- Price Elasticity and Total Expenditure
- Income Elasticity of Demand
- Cross-Price Elasticity of Demand

3. Production and Supply:

**Production Functions**- A Two-Input Production Function
- Marginal Productivity
- Average Physical Productivity
- Isoquant Maps
- Returns to Scale
- The Elasticity of Substitution
- Some Common Production Functions

**Cost Functions**- Definitions of Costs
- Cost-Minimizing Input Choices
- Total Cost Function
- Average and Marginal Cost Functions
- Shifts in Cost Curves
- Short-Run, Long-Run Distinction

**Profit Maximization and Supply**- The Nature and Behavior of Firms
- Marginal Revenue
- Short-Run Supply by a Price-Taking Firm
- Profit Maximization and Input Demand
- Producer Surplus
- Manager and the Principle-Agent Problem

4. Perfect Competition:

**The Partial Equilibrium Competitive Model**- Pricing in the Very Short-Run
- Short-Run Price Determination
- Long-Run Analysis
- Comparative Static Analysis of Long-Run Equilibrium

**Applied Competitive Analysis****General Competitive Equilibrium**- Perfectly Competitive Price System
- A Simple Graphical Model of General Equilibrium
- The Edgeworth Box
- General Equilibrium Modeling
- Money in General Equilibrium Model

**The Efficiency of Perfect Competition**- Pareto Efficiency
- Efficiency in Production
- The Theory of Comparative Advantage
- Efficiency in Product Mix
- Competitive Prices and Efficiency
- Imperfect Competition
- Externalities
- Public Goods

5. Models of Imperfect Competition:

**Models of Monopoly**- Barriers to Entry
- Profit Maximization and Output Choice
- Monopoly and Resource Allocation
- Monopoly and Product Quality
- Price Discrimination

**Models of Oligopoly**- Pricing Under Homogeneous Oilgopoly
- Product Differentiation
- Contestable Markets and Industry Structure

6. Pricing in Input Markets:

**Firm's Demands for Inputs**- Profit Maximization and Derived Demand
- Comparative Statics of Input Demand
- Marginal Productivity Analysis and the Determinants of Factor Shares
- Monopoly in the Input Market

**Labor Supply**- Allocation of Time
- A Mathematical Analysis of Labor Supply
- Market Supply Curve for Labor
- Wage Variation

**Capital**- Capital and the Rate of Return
- Determination of the Rate of Return
- The Firm's Demand for Capital
- Present Discounted Value Approach to Investment Decisions
- Optimal Resource Allocation Over Time

**Grade Policy:****
**

Your grades will be based on the accumulated total of your scores on the following:

Mid-Term Exam 100 Points, Thursday, March 5, 2015

Final Exam 100 Points, Monday, May 4, 2015, 10:15 am - 12:15 pm

Assignments 50 Points

Total 300 Points

**NOTE 1**:

No exam grades will be eliminated. No exams will be made up unless arrangements
have been made **PRIOR TO THE SCHEDULED EXAM DATE**.
Messages left on my voice mail will not be considered as proper arrangements.

**NOTE 2**:

Academic integrity - Students are expected to maintain principles of academic integrity and conduct as defined in EIU's Code of Conduct (http://www.eiu.edu/judicial/studentconductcode.hph). Violations will be reported to the Office of Student Standards.

**NOTE 3**:

Students with disabilities - If you are a student with a documented disability in need of accommodations to fully participate in this class, please contact the Office of Student Disability Services (OSDS). All accommodations must be approved through OSDS. Please stop by Ninth Street Hall, Room 2006, or call 217-581-6583.

**NOTE 4**:

The Student Success Center - Students who are having difficulty achieving their academic goals are encouraged to contact the Student Success Center (http;//www.eiu.edu/~success) for assistance with time management, test taking, note taking, avoiding procrastination, setting goals, and other skills to support academic achievement. The Student Success Center provides individualized consultations. To make an appointment, call 217-581-6696, or go to 9th Street Hall, Room 1302.

**NOTE 5**:

"Each faculty member has the authority to establish the conditions for student cell phone use in his/her classroom. These conditions are at the discretion of the faculty member, but will provide that a university-initiated campus security text message can be received and disseminated to those in the classroom in a timly manner." Eastern position on cell phones in classrooms.

My position on cell phones: there is absolutely **NO
TEXTING **allowed in class, you may** NOT **hold
your cell phones in your hands in class, and you may** NOT** use your cell phones as calculators during exams.

**Reference and Text Book:**

Walter Nicholson, ** MICROECONOMIC THEORY,
BASIC PRINCIPLES AND EXTENSIONS,** Eighth Edition, South-Western Thompson
Learning, Inc., 2002.

**YOU
MUST BRING YOUR BOOKS TO CLASS. PLEASE!**

**SPECIAL DATES IN THE SPRING TERM 2015
CALENDAR**

Classes Begin: January 12, 2015

M.L. King's Brithday Observance-No Classes: January 19

Last Day to Drop a Course With No Grade: January 26

W for Course Withdrawal Beings: January 27

Lincoln's Birthday Observance-No Classes: February 13

Mid Term: March 5

Spring Recess: March 16 - 20

Last Day to Withdraw from a Course or University with W: April 3

Final Examinations: May 4 - 8

Deadline to Return Books/TRS/No Fine 3 p.m. May 8