Module Identifier MBM1010  
Academic Year 2004/2005  
Co-ordinator Professor John R Cable  
Semester Semester 1  
Course delivery Lecture   Introduction plus 8 x 2 hour sessions  
  Other   Reading programme and group-based activities  
Assessment TypeAssessment Length/DetailsProportion
Semester Exam2 Hours  75%
Semester Assessment Group project  25%
Supplementary Exam2 Hours  100%

Learning outcomes

On successful completion of this module students should be able to:
understand how economics can be used to formulate and inform business and everyday problems, in particular those involving choice, and those arising when outcomes depend on the interplay of actions by market rivals.


The aim of the course is to introduce selected economic concepts and demonstrate their application in practical decision-making contexts.   It examines the role and operation of the market mechanism in the use of marginal analysis in optimising choice; and strategic considerations which arise when outcomes depend on others' choices as well as one's own.

Brief description

This module is designed for students without significant background in economics.



Resource allocation and markets; Decision making involving choice; Strategic interaction.

Demand, Supply and Market Equilibrium

Factors affecting demand. Elasticity. Anticipating revenue effects of price changes. Application: Cambrian Railways. Other elasticities. Example: Demand for cigarettes.

The firm and its objectives. Cost structure: fixed and variable costs; total, average and marginal costs; the cost of durable inputs; sunk costs; opportunity costs. Revenue structure: total, average and marginal revenue under competition and monopoly.

Market Equilibrium
Equilibrating mechanisms; Disturbances and Shifts in Equilibrium; Dynamically Unstable Markets; Asymmetric information.

Bidding, Contracting and Auctions
Bidding strategy. Auctions. The winner'r curse. Example: the UK 3G Mobile Licence Auctions.


Equating at the margin:   
(i) Output determination: profit maximization and break-even analysis.
(ii) Making the most of a budget. Spending alternatives. Preferences and returns. The budget constraint.
   Optimising choice.
(iii) Producing at Minimum Cost. Balancing input proportions. Factor Utilisation. Technical efficiency.
   Economic efficiency.

Strategic Behaviour

Market Rivalry
Alternative market structures. Oligopoly: the rivals? dilemma. Dominant strategies and Nash Equilibrium. Co-operation in repeated plays. Cartels. Entry and entry deterrence.

Principals and Agents
Principal-agent relationships within the firm: owners and managers. Hidden information and hidden action. Moral hazard. Incentive contracts. Alternative contracts: wage contract; rent contract; profit related pay. Incentive contracts in practice.

Revision Session

Reading Lists

** Recommended Text
Kreps, D Microeconomics for Managers
Hirschey, Mark and Pappas, James L (8e 1996) Managerial Economics, International Edition, Dryden
** Supplementary Text
Townsend, H. (1995) Foundations of Business Economics, Routledge
Dobbs, I. (2000) Managerial Economics, Oxford
Dixit, A. and Nalebuff (1991) Thinking Strategically, Norton
Axelrod, R. (1984) The Evolution of Co-operation, Basic Books
McMillan, J. (1995) Games, Strategies and Managers, Oxford
Campbell, D. (1995) Incentives: Motivation and the Economics of Information, Cambridge


This module is at CQFW Level 7