m




, IIT Kharagpur, India
  , GRIPS Tokyo, Japan
  
 , Vienna University of
Economics and Business (WU-Wien), Austria
 ë
 

y ver 11 years of teaching experiences after Ph.D.
y Recipient of 
prestigious postdoctoral fellowships:
1) JSPS Fellowship by the Ministry of Education, Japan
2) Lise Meitner Fellowship by the Board of Austrian
Science Fund, Austria
3) Postdoctoral Fellowship by the FRCT,
Government of Portugal
y 
 
for AIMS International Young
Management Researcher Award in 2008
y Qualified @
for Lectureship in Economics
y Credited with 24  in various scholarly
journals of repute

3/11/2011 2
y Co-authored with J.K. Sengupta a

 titled
EFFICIENCY MDELS IN DATA ENVELPMENT
ANALYSIS (Palgrave Macmillan, London, 2006)
y Member of the  
m
of two international
journals:
1) AIMS Int. J. of Management
2) Int. J. of Information Systems and Social Change
y Serving as  
for several scholarly journals

For my detailed academic activities, please visit me at:

http://www.ximb.ac.in

3/11/2011 3
 O



 



 
y The objective of this course is to acquaint the students
with the basic concepts and techniques of
microeconomic analysis and their applications to
managerial decision-making. The emphasis is on
elucidating how the tools of standard price theory can
be employed to formulate:
a. a decision problem,
b. establish a decision criterion, and
c. generate some of the information required to evaluate
the alternative courses of action, and, finally,
d. choose among the alternatives.

3/11/2011 4

O



 
y Microeconomics deals with the study of how
households and firms make decisions and
how they interact in markets.
That is,
D we study how people make decisions: w

ww


ww w
ww
w
ww 
D we also study how people interact with one
another in the market.

3/11/2011 5
m
  


   
  
 




   

 
  
  


 


 




  





  


y People face trade-offs in their in their decisions

y The cost of something is what you give up to get it, i.e.,
opportunity cost
y Rational people think at the margin
y People respond to incentives
y Markets are usually a good way to organize economic
activity
y Governments can sometimes improve market
outcomes
3/11/2011 6
Õ

 


 


1. Is free market good?
2. How price ceilings/floors affect market outcomes?
3. How taxes on buyers affect market outcomes?
4. Can good news for farming be bad news for farmers?
5. Does drug interdiction increase or decrease drug
related crimes?
6. Why do some tennis clubs have an annual membership
charge in addition to their hourly court fees?
7. How does the change in prices affect the social
welfare/wellbeing of people?
8. How could one assess credit risk/audit risk of
company/ people?
9. How could one assess the performance of employees of
an organization?
3/11/2011 7
 a 
 
y Õ
    

    
 
 
  

 
   
   
  
      
         

        
    
  

      
        
3/11/2011 8
  







O
? X 



 

 
 
M



? u
where
 represents the utility associated with the consumption
basket (1, 2, ǥ, n),
1, 2, ǥ, n represent the various goods that the consumer
wish to buy from the market,
1, 2, ǥ, n represent the unit prices of the respective goods,
 represents the income of the consumer
 









y Consumer pportunities
y The possible goods and services that a
consumer can afford to consume with his
(her) given money income.
y Consumer Preferences
y The goods and services a consumer actually
consumes.
y Utility and Marginal Utility (MU)
 



 

 
y Completeness
y The consumer is capable of expressing a preference for
all the bundles of goods that are available in his/her
consumption basket .
y More is Better (monotonicity)
y Transitivity
y Given 3 bundles of goods: A, B & C.
y If A „ B and B „ C, then A „ C.
y If A ‘ B and B ‘ C, then A ‘ C.
y Convexity
An average bundle is preferred to extreme bundles.
 Ê 
 
ë


Good (y)

Ê 


!Ê

A curve that defines the
combinations of two or
more goods that give a
consumer the same level
of utility/satisfaction.
u0

0
Good (x)
Income (Rs./day)

Better
than A W
170
A
160
B
120 C
100 Worse
than A
Z IC
50

Leisure (hr/day)
 6 8 12 14 20

 

 
Good (y)
Movement from A to B involves
a Ǯlossǯ in utility in terms of y,
i.e., -!y MUy = (y2-y1) MUy and A (x1,y1)
Ǯgainǯ in utility in terms of x, i.e., y1
!x MUx = (x2-x1) MUx; and the -!y
sum of these Ǯlossǯ and Ǯgainǯ
adds up to zero, i.e., B (x2,y2)
y2 !x
-!y MUy + !x MUx = 0
u0
ǻy MU x 0 x1 x2 Good (x)
MRS  - 
ǻx MU y


    !The rate at which a

consumer is willing to substitute one good for another and stay at
the same satisfaction level.
[ 


 

 

1. ICs are downward slopping.

2. No two ICs for a particular consumer can
intersect with each other. That is, there is a
bundle, only one IC can pass through it.
3. Higher is the IC, higher the level of
satisfaction, and vice versa
Good (y) Good (y)
Proof of Proof of
Case 2 Case 3

A
C B
y2 y2
B u1 A
y1 y1
u1
u0 u0
0 x1 x2 0 x1 x2 Good (x)
Good (x)

Since A ‘ B and A ‘ C,
therefore B ‘ C. However, C
„ B since C contains more of
both goods. Therefore, no
two ICs can intersect.
u

 
ë ÊÊ
y 0     

   !
  
    
  
 0     
   0    "
   
  
  #    

         
  
   
y Õ
  0     

  
          
  #  

         

   
3/11/2011 17
 Ice cream

u2

u1
u0

I1
Io !I
!C
Cake
10 C1

3/11/2011 18
 Ice cream

u2
u1
I1 u0
!C
Cake
10 C1

3/11/2011 19
u

 
ë ÊÊÊ
y # Õ    
$  % 
    
   
     
 
  
 &  
'   
(   
      )    
  
y #  
   
     &  

½ X)!½
X*!
y ë   
 
   &  
½
X+!½
X+!
3/11/2011 20
 90

80
x2 (20,70)
70
60
(60,60) u = 70
50

40
u = 60
30

20

10

0 10 20 30 40 50 60 70 80 90
3/11/2011 x1 21
u

 
ë ÊÊÊÊ
y &  
   # Õ
ë# ë     
     
   

y #  
   
      
 &   ½ X)!½

X*!
y ë   
 
   &   ½
X+!½
X,!
3/11/2011 22
 90

80
x2 u = 50
70 (20,70) u = 20
60
(60,50)
50
(50,50)
40

30

20
(20,20)
10

0 10 20 30 40 50 60 70 80 90
3/11/2011 x1 23
u

 
ë ÊÊ 
y       -  

  
"
       
    0&Õ(

.
/ ,-   Õ 



ë-0 $.
 )123 %
-. .
 +,23 $  
0-. %-4  *)23 (

#     

  5 - 5
      5 - 5   
3/11/2011 24
 Return

7.29 C u(A) > u(B) > u(C)

.59 B

2.89 A
u(A)
u(B)
u(C)

0 Safety
Low Medium High

Safety Choosing Consumer

3/11/2011 25
 Return

C u(C) > u(B) > u(A)

7.29

6.59 B u(C)
u(B)

2.89 A
u(A)

0 Safety
Low Medium High

Risk Choosing Consumer

3/11/2011 26
3/11/2011 27