Managerial Economics

Title
Contents
PART I SOME PRELIMINARIES
	CHAPTER 1 Managers, Profits, and Markets
		1.1 The Economic Way of Thinking about Business Practices and Strategy
			Economic Theory Simplifies Complexity
			The Roles of Microeconomics and Industrial Organization
		1.2 Measuring and Maximizing Economic Profit
			Economic Cost of Using Resources
			Economic Profit versus Accounting Profit
			Maximizing the Value of the Firm
			The Equivalence of Value Maximization and Profit Maximization
			Some Common Mistakes Managers Make
		1.3 Separation of Ownership and Control
			The Principal–Agent Problem
			Corporate Control Mechanisms
		1.4 Market Structure and Managerial Decision Making
			What Is a Market?
			Different Market Structures
			Globalization of Markets
		1.5 Summary
			Technical Problems
			Applied Problems
			Mathematical Appendix: Review of Present Value Calculations
			Mathematical Exercises
	CHAPTER 2 Demand, Supply, and Market Equilibrium
		2.1 Demand
			The General Demand Function: Qd � f(P, M, PR, �, Pe, N)
			Direct Demand Functions: Qd � f(P)
			Inverse Demand Functions: P � f(Qd)
			Movements along Demand
			Shifts in Demand
		2.2 Supply
			The General Supply Function: Qs � f(P, PI, Pr, T, Pe, F)
			Direct Supply Functions: Qs � f(P)
			Inverse Supply Functions: P � f(Qs)
			Shifts in Supply
		2.3 Market Equilibrium
		2.4 Measuring the Value of Market Exchange
			Consumer Surplus
			Producer Surplus
			Social Surplus
		2.5 Changes in Market Equilibrium
			Changes in Demand (Supply Constant)
			Changes in Supply (Demand Constant)
			Simultaneous Shifts in Both Demand and Supply
			Predicting the Direction of Change in Airfares: A Qualitative Analysis
			Advertising and the Price of Potatoes: A Quantitative Analysis
		2.6 Ceiling and Floor Prices
		2.7 Summary
			Technical Problems
			Applied Problems
	CHAPTER 3 Marginal Analysis for Optimal Decisions
		3.1 Concepts and Terminology
		3.2 Unconstrained Maximization
			The Optimal Level of Activity (A*)
			Marginal Benefit and Marginal Cost
			Finding Optimal Activity Levels with Marginal Analysis
			Maximization with Discrete Choice Variables
			Sunk Costs, Fixed Costs, and Average Costs Are Irrelevant
		3.3 Constrained Optimization
			Marginal Benefit per Dollar Spent on an Activity
			Constrained Maximization
			Optimal Advertising Expenditures: An Example of Constrained Maximization
			Constrained Minimization
		3.4 Summary
			Technical Problems
			Applied Problems
			Mathematical Appendix: A Brief Presentation of Optimization Theory
			Mathematical Exercises
	CHAPTER 4 Basic Estimation Techniques
		4.1 The Simple Linear Regression Model
			A Hypothetical Regression Model
			The Random Error Term
		4.2 Fitting a Regression Line
		4.3 Testing for Statistical Significance
			The Relative Frequency Distribution for ^ b
			The Concept of a t-Ratio
			Performing a t-Test for Statistical Significance
			Using p-Values to Determine Statistical Significance
		4.4 Evaluation of the Regression Equation
			The Coefficient of Determination (R2)
			The F-Statistic
			Controlling Product Quality at SLM: A Regression Example
		4.5 Multiple Regression
			The Multiple Regression Model
		4.6 Nonlinear Regression Analysis
			Quadratic Regression Models
			Log-Linear Regression Models
		4.7 Regression Analysis in Managerial Decision Making
		4.8 Summary
			Technical Problems
			Applied Problems
			Statistical Appendix: Problems Encountered in Regression Analysis
PART II DEMAND ANALYSIS
	CHAPTER 5 Theory of Consumer Behavior
		5.1 Basic Assumptions of Consumer Theory
			The Consumer’s Optimization Problem
			Properties of Consumer Preferences
			The Utility Function
		5.2 Indifference Curves
			Properties
			Marginal Rate of Substitution
			Indifference Maps
			A Marginal Utility Interpretation of MRS
		5.3 The Consumer’s Budget Constraint
			Budget Lines
			Shifting the Budget Line
		5.4 Utility Maximization
			Maximizing Utility Subject to a Limited Money Income
			Marginal Utility Interpretation of Consumer Optimization
			Finding the Optimal Bundle of Hot Dogs and Cokes
		5.5 Individual Consumer and Market Demand Curves
			An Individual Consumer’s Demand Curve
			Market Demand and Marginal Benefit
		5.6 Substitution and Income Effects
			Substitution Effect
			Income Effect
			Why Demand Slopes Downward
		5.7 Summary
			Technical Problems
			Applied Problems
			Mathematical Appendix: A Brief Presentation of Consumer Theory
			Mathematical Exercises
	CHAPTER 6 Elasticity and Demand
		6.1 The Price Elasticity of Demand
			Predicting the Percentage Change in Quantity Demanded
			Predicting the Percentage Change in Price
		6.2 Price Elasticity and Total Revenue
			Price Elasticity and Changes in Total Revenue
			Changing Price at Borderline Music Emporium: A Numerical Example
		6.3 Factors Affecting Price Elasticity of Demand
			Availability of Substitutes
			Percentage of Consumer’s Budget
			Time Period of Adjustment
		6.4 Calculating Price Elasticity of Demand
			Computation of Elasticity over an Interval
			Computation of Elasticity at a Point
			Elasticity (Generally) Varies along a Demand Curve
		6.5 Marginal Revenue, Demand, and Price Elasticity
			Marginal Revenue and Demand
			Marginal Revenue and Price Elasticity
		6.6 Other Demand Elasticities
			Income Elasticity (EM)
			Cross-Price Elasticity (EXR)
		6.7 Summary
			Technical Problems
			Applied Problems
			Mathematical Appendix: Demand Elasticity
			Mathematical Exercises
	CHAPTER 7 Demand Estimation and Forecasting
		7.1 Direct Methods of Demand Estimation
			Consumer Interviews
			Market Studies and Experiments
		7.2 Specification of the Empirical Demand Function
			A General Empirical Demand Specification
			A Linear Empirical Demand Specification
			A Nonlinear Empirical Demand Specification
			Choosing a Demand Specification
		7.3 Estimating Demand for a Price-Setting Firm
			Estimating Demand for a Pizza Firm: An Example
		7.4 Time-Series Forecasts of Sales and Price
			Linear Trend Forecasting
			A Sales Forecast for Terminator Pest Control
			A Price Forecast for Georgia Lumber Products
		7.5 Seasonal (or Cyclical) Variation
			Correcting for Seasonal Variation by Using Dummy Variables
			The Dummy-Variable Technique: An Example
		7.6 Some Final Warnings
		7.7 Summary
			Technical Problems
			Applied Problems
			Mathematical Appendix: Empirical Elasticities
			Data Appendix: Data for Checkers Pizza
PART III PRODUCTION AND COST ANALYSIS
	CHAPTER 8 Production and Cost in the Short Run
		8.1 Some General Concepts in Production and Cost
			Production Functions
			Technical Efficiency and Economic Efficiency
			Variable and Fixed Inputs in Production
			Short-Run and Long-Run Production Periods
			Sunk Costs versus Avoidable Costs
			Fixed or Variable Proportions
		8.2 Production in the Short Run
			Total Product
			Average and Marginal Products
			Law of Diminishing Marginal Product
			Changes in Fixed Inputs
		8.3 Short-Run Costs of Production
			Short-Run Total Costs
			Average and Marginal Costs
			General Short-Run Average and Marginal Cost Curves
		8.4 Relations between Short-Run Costs and Production
			Total Costs and the Short-Run Production Function
			Average Variable Cost and Average Product
			Marginal Cost and Marginal Product
			The Graphical Relation between AVC, SMC, AP, and MP
		8.5 Summary
			Technical Problems
			Applied Problems
			Mathematical Appendix: Short-Run Production and Cost Relations
			Mathematical Exercises
	CHAPTER 9 Production and Cost in the Long Run
		9.1 Production Isoquants
			Characteristics of Isoquants
			Marginal Rate of Technical Substitution
			Relation of MRTS to Marginal Products
		9.2 Isocost Curves
			Characteristics of Isocost Curves
			Shifts in Isocost Curves
		9.3 Finding the Optimal Combination of Inputs
			Production of a Given Output at Minimum Cost
			The Marginal Product Approach to Cost Minimization
			Production of Maximum Output with a Given Level of Cost
		9.4 Optimization and Cost
			An Expansion Path
			The Expansion Path and the Structure of Cost
		9.5 Long-Run Costs
			Derivation of Cost Schedules from a Production Function
		9.6 Forces Affecting Long-Run Costs
			Economies and Diseconomies of Scale
			Economies of Scope in Multiproduct Firms
			Purchasing Economies of Scale
			Learning or Experience Economies
		9.7 Relations between Short-Run and Long-Run Costs
			Long-Run Average Cost as the Planning Horizon
			Restructuring Short-Run Costs
		9.8 Summary
			Technical Problems
			Applied Problems
			Mathematical Appendix: Production and Cost Relations with Two Variable Inputs
			Mathematical Exercises
	CHAPTER 10 Production and Cost Estimation
		10.1 Specification of the Short-Run Production Function
		10.2 Estimation of a Short-Run Production Function
		10.3 Short-Run Cost Estimation: Some Problems with Measuring Cost
			Correcting Data for the Effects of Inflation
				Problems Measuring Economic Cost
		10.4 Estimation of a Short-Run Cost Function
			Estimation of Typical Short-Run Costs
				Estimation of Short-Run Costs at Rockford Enterprises: An Example
		10.5 Summary
			Technical Problems
				Applied Problems
				Mathematical Appendix: Empirical Production and Cost Relations
				Mathematical Exercises
PART IV PROFIT MAXIMIZATION IN VARIOUS MARKET STRUCTURES
	CHAPTER 11 Managerial Decisions in Competitive Markets
		11.1 Characteristics of Perfect Competition
		11.2 Demand Facing a Price-Taking Firm
		11.3 Profit Maximization in the Short Run
			The Output Decision: Earning Positive Economic Profit
				The Output Decision: Operating at a Loss or Shutting Down
				The Irrelevance of Sunk Costs, Fixed Costs, and Average Costs
			Short-Run Supply for the Firm and Industry
			Producer Surplus and Profit in Short-Run Competitive Equilibrium
		11.4 Profit Maximization in the Long Run
			Profit-Maximizing Equilibrium for the Firm in the Long Run
			Long-Run Competitive Equilibrium for the Industry
			Long-Run Supply for a Perfectly Competitive Industry
			Economic Rent and Producer Surplus in Long-Run Equilibrium
		11.5 Profit-Maximizing Input Usage
			Marginal Revenue Product and the Hiring Decision
			Average Revenue Product and the Shutdown Decision
		11.6 Implementing the Profit-Maximizing Output Decision
			General Rules for Implementation
			Profit Maximization at Beau Apparel: An Illustration
		11.7 Summary
			Technical Problems
			Applied Problems
			Mathematical Appendix: Profit Maximization for Price-Taking Firms
	CHAPTER 12 Managerial Decisions for Firms with Market Power
		12.1 Measurement of Market Power
			Market Definition
			Elasticity of Demand
			The Lerner Index
			Cross-Price Elasticity of Demand
		12.2 Barriers to Entry
			Economies of Scale
			Barriers Created by Government
			Essential Input Barriers
			Brand Loyalties
			Consumer Lock-In
			Network Externalities (or Network Effects)
			Sunk Costs as a General Barrier to Entry
		12.3 Profit Maximization under Monopoly: Output and Pricing Decisions
			Demand and Marginal Revenue for a Monopolist
			Maximizing Profit at Southwest Leather Designs: An Example
			Short-Run Equilibrium: Profit Maximization or Loss Minimization
			Long-Run Equilibrium
		12.4 Profit-Maximizing Input Usage
		12.5 Monopolistic Competition
			Short-Run Equilibrium
			Long-Run Equilibrium
		12.6 Implementing the Profit-Maximizing Output and Pricing Decision
			General Rules for Implementation
			Maximizing Profit at Aztec Electronics: An Example
		12.7 Multiplant Firms
			Multiplant Production at Mercantile Enterprises
		12.8 Summary
			Technical Problems
			Applied Problems
			Mathematical Appendix: Profit Maximization for a Monopoly
	CHAPTER 13 Strategic Decision Making in Oligopoly Markets
		13.1 Decision Making When Rivals Make Simultaneous Decisions
			The Prisoners’ Dilemma
			Decisions with One Dominant Strategy
			Successive Elimination of Dominated Strategies
			Nash Equilibrium: Making Mutually Best Decisions
			Super Bowl Advertising: An Example of Nash Equilibrium
			Best-Response Curves and Continuous Decision Choices
		13.2 Strategy When Rivals Make Sequential Decisions
			Making Sequential Decisions
			First-Mover and Second-Mover Advantages
			Strategic Moves: Commitments, Threats, and Promises
		13.3 Cooperation in Repeated Strategic Decisions
			One-Time Prisoners’ Dilemma Decisions
			Punishment for Cheating in Repeated Decisions
			Deciding to Cooperate
			Trigger Strategies for Punishing Cheating
			Pricing Practices That Facilitate Cooperation
			Explicit Price-Fixing Agreements and Cartels
			Tacit Collusion
		13.4 Strategic Entry Deterrence
			Limit Pricing
			Capacity Expansion as a Barrier to Entry
		13.5 Summary
			Technical Problems
			Applied Problems
			Mathematical Appendix: Derivation of Best- Response Curves for Continuous Simultaneous Decisions
			Mathematical Exercises
PART V ADVANCED TOPICS IN MANAGERIAL ECONOMICS
	CHAPTER 14 Advanced Pricing Techniques
		14.1 Price Discrimination: Capturing Consumer Surplus
			The Trouble with Uniform Pricing
			Types of Price Discrimination
			Conditions for Profitable Price Discrimination
		14.2 First-Degree (or Perfect) Price Discrimination
		14.3 Second-Degree Price Discrimination Methods
			Two-Part Pricing
			Declining Block Pricing
		14.4 Third-Degree Price Discrimination
			Allocation of Sales in Two Markets to Maximize Revenue
			Profit Maximization with Third-Degree Price Discrimination
		14.5 Pricing Practices for Multiproduct Firms
			Pricing Multiple Products Related in Consumption
			Bundling Multiple Products
		14.6 Cost-Plus Pricing
			Practical and Conceptual Shortcomings
		14.7 Summary
			Technical Problems
			Applied Problems
			Mathematical Appendix: Two-Part Pricing with Two Identical Groups of Buyers
	CHAPTER 15 Decisions Under Risk and Uncertainty
		15.1 Distinctions between Risk and Uncertainty
		15.2 Measuring Risk with Probability Distributions
			Probability Distributions
			Expected Value of a Probability Distribution
			Dispersion of a Probability Distribution
		15.3 Decisions under Risk
			Maximization of Expected Value
			Mean–Variance Analysis
			Coefficient of Variation Analysis
			Which Rule Is Best?
		15.4 Expected Utility: A Theory of Decision Making under Risk
			A Manager’s Utility Function for Profit
			Deriving a Utility Function for Profit
			Maximization of Expected Utility
		15.5 Decisions under Uncertainty
			The Maximax Criterion
			The Maximin Criterion
			The Minimax Regret Criterion
			The Equal Probability Criterion
		15.6 Summary
			Technical Problems
			Applied Problems
			Mathematical Appendix: Decisions under Risk
	CHAPTER 16 Government Regulation of Business
		16.1 Market Competition and Social Economic Efficiency
			Efficiency Conditions for Society
			Social Economic Efficiency under Perfect Competition
		16.2 Market Failure and the Case for Government Intervention
		16.3 Market Power and Public Policy
			Market Power and Allocative Inefficiency
			Market Power and Deadweight Loss
			Promoting Competition through Antitrust Policy
			Natural Monoploy and Market Failure
			Regulating Price under Natural Monoploy
		16.4 The Problem of Negative Externality
			Pollution: Market Failure and Regulation
		16.5 Nonexcludability
			Common Property Resources
			Public Goods
		16.6 Information and Market Failure
			Imperfect Information about Prices
			Imperfect Information about Product Quality
			Information as a Public Good
		16.7 Summary
			Technical Problems
			Applied Problems
APPENDIX: STATISTICAL TABLES
ANSWERS TO TECHNICAL PROBLEMS
INDEX