Managerial Economics: A Problem-Solving Approach (Mba Series)

Front Cover......Page 1
Title Page......Page 2
Copyright......Page 3
Brief Contents\n......Page 5
Table of Contents......Page 6
Preface: Teaching Students to Solve Problems......Page 11
SECTION I: Problem Solving and Decision Making......Page 16
Problem Solving......Page 17
Ethics and Economics......Page 19
Economics in Job Interviews......Page 21
Summary & Homework Problems......Page 23
CHAPTER 2 THE ONE LESSON OF BUSINESS......Page 25
Capitalism and Wealth......Page 26
Do Mergers Move Assets To Higher-Valued Uses?......Page 28
Does the Government Create Wealth?......Page 29
Economics versus Business......Page 30
Wealth Creation in Organizations......Page 34
Summary & Homework Problems......Page 35
Background: Variable, Fixed, and Total Costs......Page 38
Background: Accounting versus Economic Profit......Page 40
Costs Are What You Give Up......Page 42
Fixed- or Sunk-Cost Fallacy......Page 43
Hidden-Cost Fallacy......Page 45
Economic Value Added......Page 46
Does EVA® work?......Page 47
Psychological Biases and Decision Making......Page 48
Summary & Homework Problems......Page 50
CHAPTER 4 EXTENT (HOW MUCH) DECISIONS......Page 55
Background: Average and Marginal Costs......Page 56
Marginal Analysis......Page 57
Incentive Pay......Page 60
Tie Pay to Performance Measures that Reflect Effort......Page 61
If Incentive Pay Is So Good, Why Don’t More Companies Use it?......Page 62
Summary & Homework Problems......Page 63
How to Determine Whether Investments Are Profitable......Page 66
Break-Even Analysis......Page 68
Choosing the Right Manufacturing Technology......Page 70
Shutdown Decisions and Break-Even Prices......Page 71
Sunk Costs and Post-Investment Hold-Up......Page 72
Solutions to the Hold-Up Problem......Page 74
Summary & Homework Problems......Page 75
SECTION II: Pricing, Costs, and Profits......Page 80
CHAPTER 6 SIMPLE PRICING......Page 81
Background: Consumer Surplus and Demand Curves......Page 82
Marginal Analysis of Pricing......Page 84
Price Elasticity and Marginal Revenue......Page 86
What Makes Demand More Elastic?......Page 89
Forecasting Demand Using Elasticity......Page 91
Stay-Even Analysis, Pricing, and Elasticity......Page 92
Summary & Homework Problems......Page 93
CHAPTER 7 ECONOMIES OF SCALE AND SCOPE......Page 97
Increasing Marginal Cost......Page 98
Economies of Scale......Page 100
Learning Curves......Page 101
Economies of Scope......Page 103
Diseconomies of Scope......Page 104
Summary & Homework Problems......Page 105
Which Industry or Market?......Page 109
Shifts in Demand......Page 110
Shifts in Supply......Page 112
Market Equilibrium......Page 113
Predicting Industry Changes Using Supply and Demand......Page 114
Explaining Industry Changes Using Supply and Demand......Page 117
Prices Convey Valuable Information......Page 120
Market Making......Page 122
Summary & Homework Problems......Page 125
CHAPTER 9 RELATIONSHIPS BETWEEN INDUSTRIES: THE FORCES MOVING US TOWARDS LONG-RUN EQUILIBRIUM......Page 130
Competitive Industries......Page 131
The Indifference Principle......Page 133
Monopoly......Page 137
Summary & Homework Problems......Page 138
CHAPTER 10 STRATEGY—THE QUEST TO KEEP PROFIT FROM ERODING......Page 140
Strategy Is Simple......Page 141
Sources of Economic Pro......Page 142
The Three Basic Strategies......Page 147
Summary & Homework Problems......Page 149
CHAPTER 11 USING SUPPLY AND DEMAND: FOREIGN EXCHANGE, TRADE, AND BUBBLES......Page 152
The Market for Foreign Exchange......Page 153
Purchasing Power Parity......Page 155
The Effects of a Currency Devaluation......Page 156
Bubbles: Past Performance Is No Guarantee of Future Success......Page 158
Summary & Homework Problems......Page 162
SECTION III: PRICING FOR GREATER PROFIT......Page 166
CHAPTER 12 MORE REALISTIC AND COMPLEX PRICING......Page 167
Pricing Commonly Owned Products......Page 168
Revenue or Yield Management......Page 170
Advertising and Promotional Pricing......Page 172
Psychological Pricing......Page 173
Summary & Homework Problems......Page 174
Introduction......Page 178
Why (Price) Discriminate?......Page 179
Direct Price Discrimination......Page 182
Robinson–Patman Act......Page 183
Implementing Price Discrimination Schemes......Page 184
Summary & Homework Problems......Page 185
CHAPTER 14 INDIRECT PRICE DISCRIMINATION......Page 187
Indirect Price Discrimination......Page 189
Volume Discounts as Discrimination......Page 191
Bundling Different Goods Together......Page 193
Summary & Homework Problems......Page 194
SECTION IV: STRATEGIC DECISION MAKING......Page 198
CHAPTER 15 STRATEGIC GAMES......Page 199
Sequential-Move Games......Page 200
Simultaneous-Move Games......Page 203
What Can I Learn from Studying Games Like the Prisoners’ Dilemma?......Page 209
Other Games......Page 211
Summary & Homework Problems......Page 216
CHAPTER 16 BARGAINING......Page 222
Bargaining as a Game of Chicken......Page 223
How to Improve Your Bargaining Position......Page 225
Summary & Homework Problems......Page 229
SECTION V: UNCERTAINTY......Page 234
Random Variables......Page 235
Uncertainty in Pricing......Page 239
Run Natural Experiments to Reduce Uncertainty......Page 241
Minimizing Expected Error Costs......Page 242
Risk versus Uncertainty......Page 243
Summary & Homework Problems......Page 244
CHAPTER 18 AUCTIONS......Page 248
Oral Auctions......Page 249
Second-Price Auctions......Page 250
First-Price Auctions......Page 251
Bid Rigging......Page 252
Common-Value Auctions......Page 254
Summary & Homework Problems......Page 255
Insurance and Risk......Page 259
Anticipating Adverse Selection......Page 260
Screening......Page 262
Signaling......Page 265
Adverse Selection and Internet Sales......Page 266
Summary & Homework Problems......Page 267
CHAPTER 20 THE PROBLEM OF MORAL HAZARD......Page 270
Insurance......Page 271
Moral Hazard versus Adverse Selection......Page 272
Shirking......Page 273
Moral Hazard in Lending......Page 275
Moral Hazard and the 2008 Financial Crisis......Page 276
Summary & Homework Problems......Page 277
SECTION VI: ORGANIZATIONAL DESIGN......Page 282
Principal–Agent Relationships......Page 283
Principles for Controlling Incentive Conflict......Page 285
Marketing versus Sales......Page 287
Franchising......Page 288
A Framework for Diagnosing and Solving Problems......Page 289
Summary & Homework Problems......Page 292
Incentive Conflict between Divisions......Page 296
Transfer Pricing......Page 298
Functional Silos versus Process Teams......Page 300
Budget Games: Paying People to Lie......Page 302
Summary & Homework Problems......Page 305
CHAPTER 23 MANAGING VERTICAL RELATIONSHIPS......Page 310
Do Not Buy a Customer or Supplier Simply Because They Are Profitable......Page 311
Evading Regulation, Bundling, Tying, and Exclusion......Page 312
Eliminating the Double Markup......Page 313
Aligning Retailer Incentives with the Goals of Manufacturers......Page 314
Price Discrimination......Page 316
Outsourcing......Page 317
Summary & Homework Problems......Page 318
SECTION VII: WRAPPING UP......Page 322
Excess Inventory of Prosthetic Heart Valves......Page 323
High Transportation Costs at a Coal-Burning Utility......Page 324
Overpaying for Acquired Hospitals......Page 325
Large E&O Claims at an Insurance Company......Page 327
Losing Money on Homeowner’s Insurance......Page 329
Quantity Discounts on Hip Replacements......Page 330
What You Should Have Learned......Page 331
Epilogue: Can Those Who Teach, Do?......Page 332
Glossary......Page 334
Index......Page 340