Aim
The aim of the course is to give the student deeper knowledge of microeconomic theory regarding the choices of individuals and firms in perfect competition and in imperfect competition using non-cooperative game theory and applying it to economic models and problems.

Knowledge and understanding
For a passing grade the student must

• be able to understand and account for the duality between a technology and cost and profit functions.

• be able to understand and account for models for individual choice under certainty and uncertainty.

• be able to understand and account for the dual approach to consumption theory.

• be able to understand and account for the concepts static and dynamic games; perfect, complete and incomplete information; strategic and extensive form; strategic complements and substitutes.

• be able to understand and account for the solution concepts dominance (strong and weak), repeated strict dominance, rationalisationness, Nash equilibrium, subgame perfect equilibrium, perfect Bayesian equilibrium and their mutual relations.

• be able to formalize competitive situations and other economic and social interaction problems as games.

Skills and abilities
For a passing grade the student must

• apply the theory of non-parametric efficiency analysis of firms and trades.

• apply the theory on specific examples, such as the choice of degree of insurance or the choice of an optimal portfolio of assets.

• analyse competitive situations and other economic and social interaction problems using applicable solution concepts.

Judgement and approach
For a passing grade the student must

Contents
In the first part of the course, the technology that a firm can be expected to use is modelled. Then, we show under what circumstances all relevant technological information can be comprised into purely economic quantities. We then show how efficiency analysis can be performed by DEA analysis. Then, the course focuses on the problem of individual choice and how it can be represented, under certainty and under uncertainty. Various applications of the theory of preferences are analysed, in particular the first proposition of welfare theory and its applications on various asset markets and other forms of decision-making under uncertainty. Finally, the course analyses the dual approach to consumption theory. Here, we give a full characterization of the consequences of individual utility maximization in a market situation. We derive results such as the Slutsky equation, Roy’s identity and Shepard’s lemma. The second part of the course consists of non-cooperative game theory and its economic applications. The focus is on static and dynamic games with full information but we also deal with simpler games with incomplete information, in particular signalling games.

Literature
Gibbons R.: A Primer in Game Theory. Harvester Wheatsheaf, 1992
Mas-Colell A, Whinston M D and Green J R: Microeconomic Theory, Oxford University Press, 1995
Supplementary material.