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    1

    Welcome to MECN 430!

    MECN 430

    Microeconomic Analysis

    J akub Steiner

    The material is for the exclusive use in MECN 430 classes at the Kellogg School of Management, Northwestern University.

    No other use is allowed without my permission.

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    2

    How Does Microeconomics Fit Within a Business

    School Education?

    Marketing: frameworks and insights to discover opportunities for creatingsatisfied customers

    Finance: tools to evaluate investment projects and manage access to financialcapital

    Accounting: practicesto generate information about firm performance toexternal audiences and to improve internal control

    Operations: approaches to configuring internal activities to achieveoperational efficiency

    Management and Organizations:frameworks for getting the most out of thepeople within the organization

    Strategy: high-level logic to fit these functions together

    These functions enable businesses to fulfill their primary purpose: delivering and

    creating value. Is there anything left?

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    This course in relation to:

    -M&S 431: Core strategy course

    -MECN 441: Competitive strategy and Industrial Structures

    Management and Strategy MS 431 M&S 431 was about describing and classifyingcompetitive forces in

    an industry (e.g., Five Forces)

    M&S 431 relies on loose verbal applications of microeconomic ideas

    This course, MECN 430, is about understanding thefundamental economic drivers and mechanisms

    underlying these forces

    Competitive Strategy and Industrial Structures, MECN 441 Uses richer cases to develop deeper, more detailed understanding of

    forces shaping strategic interaction between firms in concentratedindustries

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    This course in relation to:

    -MECN 450: Macroeconomics

    MIcro-economics (this course) focuses on

    Individuals consumers: demand behavior of consumers in particular markets

    Individual firms: e.g. pricing by single firm

    Individual industries: how firms interact within an industry

    MAcro-economics (MECN 450) studies

    Economic aggregates: inflation, interest rate, unemployment, aggregate

    consumer spending..Fiscal policy: deficit, national debt, taxation policy, social programs

    Monetary policy: money supply, interest rate, bank regulation

    International trade and exchange: trade deficit/surplus, capital movement,

    exchange rate fluctuations, currency attacks

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    5

    Principles

    Opportunity costis what matters The Cost of Something is what you give up to get it!

    Rational individuals (should) think at the margin

    Individuals react to incentives And as a consequent changes in relative prices

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    What you will learn by the end of this course

    1. Commodity markets: You will be able to evaluate majorstrategic bets using fact-based logically-grounded predictionsabout costs and prices

    2. Cost: You will learn how to identify the categories of costs that

    are relevant for critical business decisions such as pricing, newmarket entry, and capacity abandonment

    3. Government interventions: You will be able to constructmodels of how govt policies shape market interactions and thedistribution of value

    4. Profit-maximizing pricing decisions: You will learn how optimalpricing should balance cost and demand fundamentals

    5. Concentrated markets: You will learn how to apply gametheory to analyze strategic interactions

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    Knowledge Prerequisites

    Microeconomics Knowledge of microeconomics at the level represented by On-Line

    Microeconomics Essentials

    Probability theory Probability theory at the level taught in DECS 433

    Decision trees

    Basic familiarity with Excel tools

    Mathematics and algebra Mathematics at the level represented by On-Line Mathematics

    Essentials

    Calculus: derivatives of simple functions (linear and quadratic)

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    Grade components

    Team and Individual homework exercises

    10%

    Final examination

    50%

    More information on

    exams will be provided

    as the date of exams

    approaches

    Kellogg Grading policy

    guidelines for core

    courses set by the

    Deans office:35-40% As

    5-10% Cs

    Optional Midterm

    40%

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    Class Participation Adjustment

    Class participation

    +/- 10%

    Final course score moves up or (but almost never) down by as much as

    10% to reflect class participation and attendance.

    What matters for class participation is quality. I am looking forrelevant, fact-based comments that move the class forward..

    I will cold call on students at random

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    10

    Weekly Class Preparation

    Class participation: Attendance: Greatly appreciated

    Participation: Quality, not quantity

    Preparation: Readings and exercises

    Course readings:

    Case packet with cases and additional readings Optional: Besanko and Braeutigam, Intermediate Microeconomics: An Integrated

    Approach (3rdedition recommended)

    Types of assignments: Cases

    Group homework assignments (to be turned in) Exercises for class preparation (not to be turned in)

    Drill problems (not to be turned in but its important that you do them!)

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    Important dates and times

    Office hours: Mon, Thursday, 4-5pm

    Midterm: 90 min, in class at the usual class timeand classroom, Mon Feb 6

    Final: in class in week 11 Final (GIM trip or valid work-related reason)

    organized by student affairs office

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    Classroom etiquette

    Please display your nameplate

    Do not leave then return except in an emergency

    Turn off your cell phone

    Please do not read ahead in the handouts

    Please do not use laptops in class

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    Student Liaison Responsibilities

    The objective of having Student Liaisons is to facilitate greater two-way communication

    between the faculty and students

    Responsibilities include:

    - Be a sounding board for the faculty member on student related issues

    -Communicating any scheduling conflicts regarding assignments, classes, or exams toprofessors

    - Organizing dates for lunches with professors and students

    - Collecting TCEs and turning them in to Student Affairs during the last class

    - Responsibilities will be very similar to Academic Rep responsibilities in 1st quarter core classes

    Time commitment for the student should be no more than an aggregate of 2-3 hours of

    the term

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    Microeconomic analysis

    There is no new economy; just the old

    economy with a new technology

    Jack Welch


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