**Instructor: Luca Panaccione**

E-mail address: lpanaccione@luiss.it

Office hours:

- during the teaching period: Tuesday or Thursday 11.00-12.00 (to be confirmed by email)
- from May 14, 2018 to February 8, 2019: please send an e-mail to schedule an appointment

**Teaching Assistant: Emanuele Brancati**

E-mail address: ebrancati@luiss.it

Office hours: Monday, 15.30-16.30 (fifth floor) or by appointment to be scheduled by e-mail

**Announcements**

- The webpage of the course is now available
- The book is available, among others, at this reseller (contacts: cristina@aab.it and riccardo@aab.it)
- Information regarding the Italian legislation on illegal photocopying of textbooks
- For your reference, the main proofs in the slides which are not included in the book and must be prepared for the final exam are listed below:
- the proof of how optimal choice of the profit maximizing firm changes when the price of output and inputs change (see the slides on profit maximization in week 5)
- the proof of how optimal choice of cost minimizing input combination changes when the price inputs changes (week 6)
- the proof of Walras’ Law (week 6)
- the proof of the First Welfare Theorem (week 7)

**In any case, please remember that,***in addition to the content of the book (relative to those parts which covers topics on the final program)*, all the content of the slides and of the practice classes is required for a suitable preparation of the final exam.- Regarding the chapters on Varian’s textbook, the material to be studied is the one that parallels the presentation in the slides; the sections which have not be discussed in class are not required. For the students’ convenience, the section which are required are listed below:
- “Buying and Selling”: section 1, 2, 3, 4
- “Profit maximization”: section 1, 4, 5, 6, 7
- “Exchange”: all sections except section 8 and the example on the monopoly in the Edgeworth box
- “Production”: section 1, 2, 3, 4, 5, 7, 8

**Class schedule**

- Monday, 17.00 – 18.30
- Tuesday, 17.00 – 18.30
- Thursday, 15.30- 17.00

**Exam Rules**

- The final exam consists of a written test only.
- The use of any electronic device such as cellphones/smartphones, tablets, laptops is strictly forbidden during the exam (it will be possible to use only a calculator).
- Students must register online for the exam. Each student is personally responsible for registering.
- Student will not be allowed to ask the course instructor to do the registration on their behalf after the deadline has expired.
- Students can withdraw during the written test at any time.
- Exam marks range from 0 (zero) to 30+ (trenta e lode).
- Students can register the mark of the final exam if it is at least equal to 18.
- Students can refuse to register the final exam. In this case they can resit in any scheduled exam date.
- Students who fail the final exam can retake it in any scheduled exam date.
- The exam simulation is available here (it has been updated to eliminate questions not related to the program of this year).

**Course material**

- Main textbook: D. Besanko and R. Braeutigam, Microeconomics (latest edition), Wiley
- Supplementary textbook: H. Varian, Microeconomics (latest edition), Norton
- Handouts

*For the mathematical requisites, students may consult:*

- the Mathematical Appendix in the main textbook;
- “Mathematics for Economists” by C.P. Simon and L. Blume (latest edition, Norton)

**Course contents**

*Topics in consumer theory*: Choice with price-dependent incomes. Inter-temporal choice and the discounted utility model. Choice under uncertainty and the expected utility model*The firm and its technology*: production function, marginal and average product; isoquants and isocosts; returns to scale; revenue curves, cost curves in short and long run: profit maximization, cost minimization, factor demands.*Market structure*: perfect competition, oligopoly theory (Bertrand, Cournot and Stackelberg).*Game theory*: simultaneous and sequential games, dominant strategies, Nash equilibrium, subgame perfect Nash equilibrium.*General equilibrium*: Edgeworth box and Pareto efficiency. General competitive equilibrium in pure exchange and production economies. The First Welfare Theorem and the Second Welfare Theorem.*Externalities. Public goods.*

**Detailed Syllabus **

(Numbered chapter are from Besanko & Braeutigam. Letters refers to the title of chapters in Varian)

*Topics in Consumer Theory*

A. Buying and Selling

4.3 Borrowing and Lending

5.5 The Choice of Labor and Leisure

*Inputs and Production Functions*

6.1 Introduction to Inputs and Production Functions

6.2 Production Functions with a Single Input

6.3 Production Functions with More Than One Input

6.4 Substitutability Among Inputs

6.5 Returns to Scale

6.6 Technological Progress

*Costs and Cost Minimization*

7.1 Cost Concepts for Decision Making

7.2 The Cost-Minimization Problem

7.3 Comparative Statics Analysis of the Cost-Minimization Problem

7.4 Short-Run Cost Minimization

*Cost Curves*

8.1 Long-Run Cost Curves

8.2 Short-Run Cost Curves

*Perfectly Competitive Markets*

A. Profit Maximization

9.2 Profit Maximization by a Price-Taking Firm (via the cost function)

9.3 How the Market Price Is Determined: Short-Run Equilibrium

9.4 How the Market Price Is Determined: Long-Run Equilibrium

*Market Structure and Competition*

13.1 Types of Market Structure

13.2 Oligopoly with Homogeneous Products

13.5 Monopolistic Competition

*Game Theory and Strategic Behavior*

14.1 The Concept of Nash Equilibrium

14.3 Sequential-Move Games and Strategic Moves

*Risk and Information*

15.1 Describing Risky Outcomes

15.2 Evaluating Risky Outcomes

15.3 Bearing and Eliminating Risk

*Externalities and Public Goods*

17.1 Introduction

17.2 Externalities *(not included in the final version of the exam program)*

17.3 Public Goods

*General Economic Equilibrium*

A. Buying and Selling

B. Profit Maximization

C. Exchange

D. Production

**Lectures**

*Week 1*

- Introduction to the course. Buying and Selling (12.02.2018)
- Income and Substitution Effects with income as value of initial endowment (13.02.2017)
- Labor-Leisure Choice (15.02.2017)

*Week 2*

- Practice class 1 (19.02.2018)
- Income and Substitution Effect in Labor-Leisure Choice.

Inter-temporal Choice: Present and Future Value (20.02.2018) - The Discounted Utility Model (22.02.2017)

*Week 3*

- Lecture cancelled to do weather conditions. To be rescheduled (26.02.2018)
- Lecture cancelled to do weather conditions. To be rescheduled (27.02.2018)
- Optimal Choice in the Discounted Utility Model. Choice Under Uncertainty: Lottery, Expected Value, Variance (01.03.2018)

*Week 4*

- Lecture cancelled to do elections. To be rescheduled (05.03.2018)
- Expected Utility. Risk Preferences. Certainty Equivalent. Applications (06.03.2018)
- Inputs. Production Function. Isoquants. Marginal Rate of Technical Substitution (08.03.2018)

*Week 5*

- Practice Class 2 (12.03.2018)
- Production Functions (perfect complement, fixed-coefficients, Cobb-Douglas) and Returns to Scale. Profit maximization problem in the short run: iso-profit lines, graphical solution and first-order conditions. Effects of change in prices on solution to profit maximization problem in the short run (13.03.2018)
- Profit maximization problem in the long rung. Effects of change in prices on solution to profit maximization problem in the long run. Cost minimization in the long run: iso-cost lines, graphical solution and first-order conditions (interior and corner solution). Effect of change in input price on total cost (15.03.2018)

*Week 6*

- Practice Class 3 (19.03.2018)
- Demand for Inputs. Labor Demand Curve. Fixed Costs: Sunk and Non-sunk. Cost Minimization in the Short run. Long run Cost Curve, Average Cost, Marginal Cost (20.03.2018)
- Practice Class 4 (21.03.2018)
- Short run Cost Curve, Average Cost, Marginal Cost. Profit Maximization in the long run (22.03.2018/A)
- General Equilibrium: Exchange Economies. Edgeworth Box. Feasible allocation. Gains from trade (22.03.2018/B)

*Week 7*

- Practice Class 4 (26.03.2018)
- Pareto Optimal Allocations. Contract Curve. Auctioneer. Walras’ Law (27.03.2018/A)
- Market Equilibrium. First and Second Theorem of Welfare Economics (27.03.2018/B)

*Week 8*

- General Equilibrium with Production: Robinson Crousoe Economy. Refresher on Partial Equilibrium Analysis/1 (12.04.2018)

*Week 9*

- Practice Class 5 (16.04.2018)
- Refresher on Partial Equilibrium Analysis/2: Short Run and Long Run Competitive Equilibrium (17.04.2018)
- Oligopoly models. Cournot Duopoly (19.04.2018)

*Week 10*

- Practice Class 6 (23.04.2018)
- Bertrand Duopoly. Stackelberg Duopoly. Game Theory: simultaneous, one shot games (24.04.2018)
- Dominant and dominated strategies. Nash equilibrium. Games with multiple equilibria (26.04.2018)

*Week 11*

- Practice Class 7 (02.05.2018)
- Mixed strategy Nash equilibrium. Sequential move game. Game tree (03.05.2018)

*Week 12*

- Practice Class 8 (07.05.2018)
- Ultimatum Game. Strategic Moves. Classroom Experiment on Public Goods (08.05.2018)
- Public Goods. The Voluntary Contribution Mechanism (10.05.2018)