Professor:Susan Athey, E52-252C, x3-6407, Office hours: M 4-5; TH11-12
TA:Stuti Khemani, E52-201, Office hours: TBA
TA:Robert Marquez, E52-243g, Office hours: TBA
Assistants:Michael Kreutz, Cubicle in E52-251/252

Where? When?

Lecture: MW10:30-12 (4-370)

Recitation: F10 (13-5101) or F11 (13-3101, 13-5101)

Midterm: March 18 at 7:30 p.m. in E51-345.

14.03 Online Information

Instructions for printing postscript files.

Note: You can use the helper application Ghostview to view the postscript files on-line.

Email list: the class list is You may add yourself to the list or remove yourself from it using “listmaint.”

Course Information



Nicholson, Walter, Microeconomic Theory: Basic Principles and Extensions, New York: Dryden Press, 1995.

Course Reader:

A packet of reading materials is available at Graphic Arts. Readings (in addition to the text) will be assigned every week. The reading is important for the course, but some of the articles have more technical sections which are not required. Reading assignments will described given in class, and problem sets will provide further guidance as to what is important.

Problem Sets:

This course will require approximately nine problem sets, which will generally be due on Monday in class. The problem sets will be discussed in section every Friday. The problems sets will have two parts: one part will include more technical problems out of the text book and based on class lectures, and the second part will cover the assigned reading from the course reader. Problem sets will not be accepted after 5 p.m. on the stated due date (after class, they should be taken to Michael KreutzÕ cubicle in E52-251); after that time, you will receive no credit for your assignment. There will be no exceptions. In order to accomodate unanticipated events or conflicts in your schedule, we will drop the lowest score on your problem sets when computing your problem set grades. Questions on problem sets should be directed to TAs first when possible.


Problem sets 25%, midterm 30%, final 45%. The exams will be based on the textbook, the problem sets, and the assigned readings. Performance on problem sets is highly correlated with performance on the exams.

World Wide Web:

The world wide web address for the class is Problem sets, the syllabus, reading assignments, and the reading list will be available there, either in text form, postscript form, or both. This will be updated regularly.


1. Introduction, Overview, and Tools

1.1. Overview of the Course
1.2. Review of Supply and Demand
1.3. Microeconomic Models, Comparative Statics, and Optimization

2. Choice and the Theory of Demand

2.1. Rationality Axioms, Utility, and Indifference Curves
2.2. Constrained Utility Maximization
2.3. Individual Demand, Income and Substitution Effects
2.4. Market Demand, Substitutes and Complements, and Elasticities

3. Production and Supply

3.1. Production Functions
3.2. Production Costs and Cost Minimization
3.3. Comparative Statics on Input Prices; Substitutes and Complements
3.4. Non-standard Inputs
3.5. Short and Long Run Costs; Fixed Costs and Sunk Costs
3.6. Profit Maximization, Short and Long Run Supply
3.7. Alternative Models of the Firm

4. Prices and Perfect Competition

4.1. Partial Equilibrium Price Determination
4.2. Long-Run Equilibrium
4.3. Applied Competitive Analysis
4.4. Exchange
4.5. General Equilibrium
4.6. Economic Efficiency and Welfare

5. Imperfect Competition and Market Power

5.1. Monopoly Pricing
5.2. Pricing in Imperfectly Competitive Markets
5.3. Strategy and Game Theory
5.4. Entry Deterrence
5.5. Oligopoly and Collusion

6. Choice Under Uncertainty

6.1. Expected Utility
6.2. Risk and Risk Aversion
6.3. Insurance

7. Limits of the Market

7.1. Externalities
7.2. Public Goods


Problem Sets and Solutions

  • Problem Sets
    Postscript files have .ps suffix, Html files have .html suffix.
    ·  Problem Set 1:, Html:ps1.html, Due 2/18/97.
    ·  Problem Set 2: Html:ps2.html,, Due 2/26/97.
    ·  Problem Set 3: Html:ps3.html, Due 3/10/97.
    ·  Problem Set 4: Html:ps4.html, Due 3/17/97 IN CLASS!!
    ·  Problem Set 5: Html:ps5.html, Due 4/7/97.
    ·  Problem Set 6: Html:ps6.html, Due 4/14/97.
    ·  Problem Set 7: Html:ps7.html, Due 4/23/97.
    ·  Problem Set 8: Html:ps8.html, Due 5/5/97.
    ·  Problem Set 9: Html:ps9.html, NOT FOR CREDIT!!
  • Grading Information: Final and Course
  • This Year’s Final
  • This Year’s Midterm.
  • Last Year’s Midterm (in postscript) and Solution (in pdf format)
  • Last Year’s Final (in postscript)
  • Solutions are not available online because we don’t have an easy way to scan them in and put up the postscript files. Solutions are available outside of Stuti Khemani’s Office (E52-201).
  • Graded problem sets and solutions will be handed out in section; after section, they will be available outside of Stuti’s office.

Reading Assignments

  • Weeks 1-2 (2/5,10,12): Kennan and Freeman articles in reader; Chps. 1-3 of Nicholson.
  • Week 3 (2/18,19): Dwyer and Lindsay in reader; Chps. 4-5 of Nicholson.
  • Weeks 4-5 (2/24,26, 3/3,5): Boskin article in reader; 5 articles on CPI (available at Michael Kreutz cubicle in E52-251); Chp. 5 in Nicholson.
  • Week 6 (3/10,12): Chp. 6 Nicholson (pp. 173-181 only), Chp. 7 Nicholson; Kane and Staiger, Phelps articles in reader.
  • Week 7 (3/17,19): Chps. 11-13 Nicholson.
  • Week 8 (3/31,4/2): Chp. 15, 9 (through 269), Milgrom and Roberts, “Does Organization Matter.”
  • Week 9 (4/7,9): Class notes (Incentives, Complementarity); Milgrom and Roberts, “Modern Manufacturing.”
  • Week 10 (4/14, 16): Chp. 16; Fischel and Lazear article.
  • Week 11 (4/23): Chp. 17 (505-526); Krugman Foreign Affairs article.
  • Week 12 (4/28, 4/30): Chp. 18; Krugman AER.
  • Week 13 (5/5, 5/7): Chp. 20; Disneyland Handout; McAfee and Deneckre (optional).
  • Week 14 (5/12, 5/14): Class notes (Externalities).

Other Handouts

Handout on price indices (postscript):

Handouts on modern manufacturing, formal theory of complementarity (both in postscript format).

Handout on Disneyland (postscript).

Detailed outline of lectures & themes of course (postscript).