Managerial Economics: Theory, Applications, and Cases

Managerial Economics: Eighth Edition
	Brief Contents
	Contents
	Preface
Part 1: The Need for a Guide
Chapter 1: Introduction
	The Theory of the Firm
	What is Profit?
	Reasons for the Existence of Profit
	Managerial Interests and the Principal–Agent Problem
	Demand and Supply: A First Look
	The Demand Side of a Market
	The Supply Side of a Market
	Equilibrium Price
	Actual Price
	What If the Demand Curve Shifts?
	What If the Supply Curve Shifts?
	Summary
	Problems
	Excel Exercise: Demand, Supply, and Market Equilibrium
Part 2: The Nature of Markets
Chapter 2: Demand Theory
	The Market Demand Curve
	Industry and Firm Demand Functions
	The Own-Price Elasticity of Demand
	Point and Arc Elasticities
	Using the Demand Function to Calculate the Price Elasticity of Demand
	The Effect of Price Elasticity on the Firm\'s Revenue
	Funding Public Transit
	Determinants of the Own-Price Elasticity of Demand
	The Strategic Use of the Price Elasticity of Demand
	Total Revenue, Marginal Revenue, and Price Elasticity
	The Income Elasticity of Demand
	Cross-Price Elasticities of Demand
	The Advertising Elasticity of Demand
	The Constant-Elasticity and Unitary Elastic Demand Functions
	Summary
	Problems
Chapter 3: Consumer Behavior and Rational Choice
	Indifference Curves
	The Marginal Rate of Substitution
	The Concept of Utility
	The Budget Line
	The Equilibrium Market Bundle
	Maximizing Utility: A Closer Look
	Corner Solutions
	How Managers Can Strategically Influence Consumer Choices
	Deriving the Individual Demand Curve
	Deriving the Market Demand Curve
	Consumer Surplus
	Summary
	Problems
Chapter 4: Estimating Demand Functions
	The Identification Problem
	Consumer Interviews
	Market Experiments
	Regression Analysis
	Simple Regression Model
	Sample Regression Line
	Method of Least Squares
	Coefficient of Determination
	Multiple Regression
	Software Packages and Computer Printouts
	Interpreting the Output of Statistical Software
	Multicollinearity
	Serial Correlation
	Further Analysis of the Residuals
	Summary
	Problems
	Appendix: The Coefficient of Determination and the Concept of Explained Variation
Part 3: Production and Cost
Chapter 5: Production Theory
	The Production Function with One Variable Input
	The Law of Diminishing Marginal Returns
	The Production Function with Two Variable Inputs
	Isoquants
	The Marginal Rate of Technical Substitution
	The Optimal Combination of Inputs
	Corner Solutions
	Returns to Scale
	The Output Elasticity
	Estimations of Production Functions
	Summary
	Problems
	Appendix: Lagrangian Multipliers and Optimal Input Combinations
Chapter 6: The Analysis of Costs
	Opportunity Costs
	Short-Run Cost Functions
	Average and Marginal Costs
	Long-Run Cost Functions
	Managerial Use of Scale Economies
	Managerial Use of Scope Economies
	Transactions Costs Can Take Many Forms
	Network Economies
	Managerial Use of Break-Even Analysis
	Profit Contribution Analysis
	Summary
	Problems
	Excel Exercise: Production and Cost
	Appendix A: Break-Even Analysis and Operating Leverage
	Appendix B: Measurement of Short-Run Cost Functions: The Choice of a Mathematical Form
Part 4: Market Structure and Simple Pricing Strategies
Chapter 7: Perfect Competition
	Market Structure
	Market Price in Perfect Competition
	Shifts in Supply and Demand Curves
	The Output Decision of a Perfectly Competitive Firm
	Setting the Marginal Cost Equal to the Price
	Another Way of Viewing the Price Equals Marginal Cost Profit-Maximizing Rule
	Producer Surplus in the Short Run
	Long-Run Equilibrium of the Firm
	The Long-Run Adjustment Process: A Constant-Cost Industry
	The Long-Run Adjustment Process: An Increasing-Cost Industry
	How a Perfectly Competitive Economy Allocates Resources
	Summary
	Problems
	Excel Exercise: Perfect Competition
Chapter 8: Monopoly and Monopolistic Competition
	Pricing and Output Decisions in Monopoly
	Cost-Plus Pricing
	Cost-Plus Pricing at Therma-Stent
	Cost-Plus Pricing at Internet Companies and Government-Regulated Industries
	Can Cost-Plus Pricing Maximize Profit?
	The Multiple-Product Firm: Demand Interrelationships
	Pricing of Joint Products: Fixed Proportions
	Output of Joint Products: Variable Proportions
	Monopsony
	Monopolistic Competition
	Advertising Expenditures: A Simple Rule
	Using Graphs to Help Determine Advertising Expenditure
	Advertising, Price Elasticity, and Brand Equity: Evidence on Managerial Behavior
	Summary
	Problems
	Excel Exercise: Simple Monopoly
	Appendix: Allocation of Output Among Plants
Part 5: Sophisticated Market Pricing
Chapter 9: Managerial Use of Price Discrimination
	Motivation for Price Discrimination
	Price Discrimination
	Using Coupons and Rebates for Price Discrimination
	Peak Load Pricing
	Two-Part Tariffs
	Summary
	Problems
	Excel Exercise: Perfect Price Discrimination
	Excel Exercise: Third-Degree Price Discrimination
	Appendix: Two-Part Tariff with Intersecting Demands
Chapter 10: Bundling and Intrafirm Pricing
	The Mechanics of Bundling
	When to Unbundle
	Bundling as a Preemptive Entry Strategy
	Tying at IBM, Xerox, and Microsoft
	Transfer Pricing
	Transfer Pricing: A Perfectly Competitive Market fo the Upstream Product
	The Global Use of Transfer Pricing
	Summary
	Problems
	Excel Exercise: Transfer Pricing
Part 6: The Strategic World of Managers
Chapter 11: Oligopoly
	Cooperative Behavior
	The Breakdown of Collusive Agreements
	Price Leadership
	Possible Behavior in Markets with Few Rivals
	Duopolists and Price Competition with Differentiated Products
	The Sticky Pricing of Managers
	Summary
	Problems
	Excel Exercise: Dominant Firm Price Leader
	Excel Exercise: Cournot
	Excel Exercise: Stackelberg
Chapter 12: Game Theory
	Making Strategy and Game Theory
	Strategy Basics
	Visual Representation
	Solution Concepts
	Equilibria
	Dominant Strategies
	The Nash Equilibrium
	Strategic Foresight: The Use of Backward Induction
	Repeated Games
	Incomplete Information Games
	Reputation Building
	Coordination Games
	Strictly Competitive Games
	Summary
	Problems
	Excel Exercise: Game Theory
Chapter 13: Auctions
	A Short History of Auctions
	Types of Auction Mechanisms
	Auction Mechanism and Revenue Generation
	Bidding Strategies
	Strategies for Sellers
	Value of Information
	Risk Aversion
	Number of Bidders
	Winner\'s Curse
	Concerns in Auction Design
	Summary
	Problems
	Excel Exercise: Auctions
Part 7: Risk, Uncertainty, and Incentives
Chapter 14: Risk Analysis
	Risk and Probability
	Probability Distributions and Expected Values
	Comparisons of Expected Profit
	Road Map to Decision
	The Expected Value of Perfect Information
	Measuring Attitudes Toward Risk: The Utility Approach
	Attitudes Toward Risk: Three Types
	The Standard Deviation and Coefficient of Variation: Measures of Risk
	Adjusting the Valuation Model for Risk
	Certainty Equivalence and the Market for Insurance
	Summary
	Problems
	Excel Exercise: Expected Utility
Chapter 15: Principal–Agent Issues and Managerial Compensatoin
	Principal–Agent Issues
	The Diverging Paths of Owners and Managers
	The Principal–Agent Situation
	The Effect of Risk, Information, and Compensation on Principal–Agent Issues
	Resolving the Incentive Conflict When Output Is Risky and Effort Is Not Observable
	Some Refinements to Managerial Compensation
	Principal–Agent in Other Contexts
	Product Liability and the Safety of Consumer Goods
	Summary
	Problems
	Excel Exercise: Moral Hazard
Chapter 16: Adverse Selection
	The Market for \"Lemons\"
	Adverse Selection in Automobile Insurance
	The Market for Annuities
	Resolving Adverse Selection Through Self-Selection
	Using Education as a Signal: Adverse Selection in the Job Market
	Using Warranties as Signals: Adverse Selection in the Product Market
	Summary
	Problems
	Excel Exercise: Adverse Selection
Part 8: Government Actions and Managerial Behavior
Chapter 17: Government and Business
	Competition Versus Monopoly
	Regulation of Monopoly
	The One Star Gas Company: A Pseudo-Case Study
	Effects of Regulation on Efficiency
	The Concentration of Economic Power
	The Sherman Act
	The Clayton Act, the Robinson-Patman Act, and the Federal Trade Commission Act
	Interpretation of the Antitrust Laws
	The Patent System
	Trade and Trade Policy
	Government Price Ceilings and Price Floors
	The Welfare Impacts of Taxes
	Regulation of Environmental Pollution
	Public Goods
	Summary
	Problems
	Excel Exercise: Externalities
Chapter 18: Optimization Techniques
	Functional Relationships
	Marginal Analysis
	Relationships Among Total, Marginal, and Average Values
	The Concept of a Derivative
	How to Find a Derivative
	Using Derivatives to Solve Maximization and Minimization Problems
	Marginal Cost Equals Marginal Revenue and the Calculus of Optimization
	Partial Differentiation and the Maximization of Multivariable Functions
	Constrained Optimization
	Lagrangian Multipliers
	Comparing Incremental Costs with Incremental Revenues
	Summary
	Problems
Appendix A: Technological Change and Industrial Innovation
	Technological Change
	Labor Productivity
	Total Factor Productivity
	Using Total Factor Productivity to Track Factory Performance
	Research and Development: A Learning Process
	Parallel Development Efforts
	What Makes for Success?
	Project Selection
	Innovation
	Time-Cost Trade-Offs
	The Learning Curve
	Applications of the Learning Curve
	Henry Ford\'s Model T and Douglas Aircraft\'s DC-9
	Diffusion Models
	Forecasting the Rate of Diffusion of Numerically Controlled Machine Tools
	Summary
	Problems
Appendix B: Business and Economic Forecasting
	Survey Techniques
	Taking Apart a Time Series
	How to Estimate a Linear Trend
	How to Estimate a Nonlinear Trend
	Seasonal Variation
	Calculation of Seasonal Variation
	Cyclical Variation
	Elementary Forecasting Techniques
	How Leading Indicators are Used
	How Econometric Models are Used
	The Purvere Corporation: A Numerical Example
	\"Study Your Residuals\"
	Summary
	Problems
	Appendix: Exponential Smoothing and Forecasting
Appendix C: Discounting and Present Values
	Present Value of a Series of Payments
	The Use of Periods Other Than a Year
	Determining the Internal Rate of Return
Appendix D: Answers to Select End-Of-Chapter Problems
Appendix E: Tables
Index