About the Author ; Preface ; PART ONE. INTRODUCTION ; CHAPTER 1. THE NATURE AND SCOPE OF MANAGERIAL ECONOMICS ; 1-1. THE SCOPE OF MANAGERIAL ECONOMICS ; Definition of Managerial Economics ; Relationship to Economic Theory ; Relationship to the Decision Sciences ; Relationship to the Functional Areas of Business Administration Studies ; 1-2. THE BASIC PROCESS OF DECISION MAKING ; 1-3. THE THEORY OF THE FIRM ; Reasons for the Existence of Firms and Their Functions ; The Objective and Value of the Firm ; Constraints on the Operation of the Firm ; Limitations of the Theory of the Firm ; 1-4. THE NATURE AND FUNCTION OF PROFITS ; Business versus Economic Profit ; Theories of Profit ; Function of Profit ; 1-5. BUSINESS ETHICS ; 1-6. THE INTERNATIONAL FRAMEWORK OF MANAGERIAL ECONOMICS ; 1-7. MANAGERIAL ECONOMICS AND THE INTERNET ; SUMMARY * DISCUSSION QUESTIONS * PROBLEMS ; APPENDIX: SOLVING MANAGERIAL DECISION PROBLEMS USING SPREADSHEETS ; Microsoft Excel ; Example ; Solution ; SPREADSHEET PROBLEM * SUPPLEMENTARY READINGS ; CHAPTER 2. DEMAND, SUPPLY, AND EQUILIBRIUM ANALYSIS ; 2-1. MARKET ANALYSIS ; 2-2. MARKET DEMAND ; Demand Schedule and Demand Curve ; Changes in Demand ; 2-3. MARKET SUPPLY ; Supply Schedule and Supply Curve ; Changes in Supply ; 2-4. WHEN IS A MARKET IN EQUILIBRIUM? ; 2-5. ADJUSTMENT TO CHANGES IN DEMAND AND SUPPLY: COMPARATIVE STATIC ANALYSIS ; Adjustment to Changes in Demand ; Adjustment to Changes in Supply ; 2-6. DOMESTIC DEMAND AND SUPPLY, IMPORTS, AND PRICES ; 2-7. INTERFERING WITH VERSUS WORKING THROUGH THE MARKET ; SUMMARY * DISCUSSION QUESTIONS * PROBLEMS * SPREADSHEET PROBLEMS ; APPENDIX: THE ALGEBRA OF DEMAND, SUPPLY, AND EQUILIBRIUM ; Market Equilibrium Algebraically ; Shifts in Demand and Supply, and Equilibrium ; The Effect of an Excise Tax ; APPENDIX PROBLEMS * SUPPLEMENTARY READINGS ; CHAPTER 3. OPTIMIZATION TECHNIQUES AND NEW MANAGEMENT TOOLS ; 3-1. METHODS OF EXPRESSING ECONOMIC RELATIONSHIPS ; 3-2. TOTAL, AVERAGE, AND MARGINAL RELATIONSHIPS ; Total, Average, and Marginal Cost ; Geometric Derivation of the Average- and Marginal-Cost Curves ; 3-3. OPTIMIZATION ANALYSIS ; Profit Maximization by the Total-Revenue and Total-Cost Approach ; Optimization by Marginal Analysis ; 3-4. CONSTRAINED OPTIMIZATION ; 3-5. NEW MANAGEMENT TOOLS FOR OPTIMIZATION ; Benchmarking ; Total Quality Management ; Reengineering ; The Learning Organization ; 3-6. OTHER MANAGEMENT TOOLS FOR OPTIMIZATION ; 3-7. NEW MANAGEMENT TOOLS AND FUNCTIONAL SPECIALIZATION ; SUMMARY * DISCUSSION QUESTIONS * PROBLEMS * SPREADSHEET PROBLEMS ; APPENDIX 1: OPTIMIZATION USING SPREADSHEETS ; APPENDIX PROBLEM ; APPENDIX 2: DIFFERENTIAL CALCULUS AND OPTIMIZATION TECHNIQUES ; THE DERIVATIVE AND RULES OF DIFFERENTIATION ; The Concept of the Derivative ; Rules of Differentiation ; OPTIMIZATION WITH CALCULUS ; Determining a Maximum or a Minimum by Calculus ; Distinguishing between a Maximum and a Minimum: The Second Derivative ; MULTIVARIATE OPTIMIZATION ; Partial Derivatives ; Maximizing a Multivariable Function ; CONSTRAINED OPTIMIZATION ; Constrained Optimization by Substitution ; Constrained Optimization by the Lagrangian Multiplier Method ; APPENDIX PROBLEMS * SUPPLEMENTARY READINGS ; INTEGRATING CASE STUDY 1: THE DECADE OF STEVE: HOW APPLE'S IMPERIOUS, BRILLIANT CEO TRANSFORMED AMERICAN BUSINESS ; The Decade of Steve ; Apple's Future ; PART TWO. DEMAND ANALYSIS ; CHAPTER 4. DEMAND THEORY ; 4-1. THE DEMAND FOR A COMMODITY ; An Individual's Demand for a Commodity ; From Individual to Market Demand ; The Demand Faced by a Firm ; 4-2. PRICE ELASTICITY OF DEMAND ; Point Price Elasticity of Demand ; Arc Price Elasticity of Demand ; Price Elasticity, Total Revenue, and Marginal Revenue ; Factors Affecting the Price Elasticity of Demand ; 4-3. INCOME ELASTICITY OF DEMAND ; 4-4. CROSS-PRICE ELASTICITY OF DEMAND ; 4-5. USING ELASTICITIES IN MANAGERIAL DECISION MAKING ; 4-6. INTERNATIONAL CONVERGENCE OF TASTES ; 4-7 ELECTRONIC COMMERCE ; SUMMARY * DISCUSSION QUESTIONS * PROBLEMS * SPREADSHEET PROBLEMS ; APPENDIX: BEHIND THE MARKET DEMAND CURVE-THE THEORY OF CONSUMER CHOICE ; The Consumer's Tastes: Indifference Curves ; The Consumer's Constraints: The Budget Line ; The Consumer's Equilibrium ; Derivation of the Consumer's Demand Curve ; Income and Substitution Effects of a Price Change ; The Theory of Consumer Choice Mathematically ; APPENDIX PROBLEMS * SUPPLEMENTARY READINGS ; CHAPTER 5. DEMAND ESTIMATION ; 5-1. THE IDENTIFICATION PROBLEM ; 5-2. MARKETING RESEARCH APPROACHES TO DEMAND ESTIMATION ; Consumer Surveys and Observational Research ; Consumer Clinics ; Market Experiments ; Virtual Shopping and Virtual Management ; 5-3. INTRODUCTION TO REGRESSION ANALYSIS ; 5-4. SIMPLE REGRESSION ANALYSIS ; The Ordinary Least-Squares Method ; Tests of Significance of Parameter Estimates ; Other Aspects of Significance Tests and Confidence Intervals ; Test of Goodness of Fit and Correlation ; 5-5. MULTIPLE REGRESSION ANALYSIS ; The Multiple Regression Model ; The Coefficient of Determination and Adjusted R2 ; Analysis of Variance ; Point and Interval Estimates ; 5-6. PROBLEMS IN REGRESSION ANALYSIS ; Multicollinearity ; Heteroscedasticity ; Autocorrelation ; 5-7. DEMAND ESTIMATION BY REGRESSION ANALYSIS ; Model Specification ; Collecting Data on the Variables ; Specifying the Form of the Demand Equation ; Testing the Econometric Results ; 5-8. ESTIMATING THE DEMAND FOR U.S. IMPORTS AND EXPORTS ; SUMMARY * DISCUSSION QUESTIONS * PROBLEMS ; APPENDIX: REGRESSION ANALYSIS WITH EXCEL ; Simple Regression ; Multiple Regression Analysis ; APPENDIX PROBLEMS * SUPPLEMENTARY READINGS ; CHAPTER 6. DEMAND FOREUASTING ; 6-1. QUALITATIVE FORECASTS ; Survey Techniques ; Opinion Polls ; Soliciting a Foreign Perspective ; 6-2. TIME-SERIES ANALYSIS ; Reasons for Fluctuations in Time-Series Data ; Trend Projection ; Seasonal Variations ; 6-3. SMOOTHING TECHNIQUES ; Moving Averages ; Exponential Smoothing ; 6-4. BAROMETRIC METHODS ; 6-5. ECONOMETRIC MODELS ; Single-Equation Models ; Multiple-Equation Models ; 6-6. INPUT-OUTPUT FORECASTING ; SUMMARY * DISCUSSION QUESTIONS * PROBLEMS ; APPENDIX: FORECASTING FLUCTUATIONS IN TIME-SERIES ANALYSIS USING EXCEL ; Forecasting New-Housing Starts with Regression Analysis ; Adjusting the Trend Forecasts of New-Housing Starts for Seasonal Variations by the Ratio-to-Trend Method ; Adjusting the Trend Forecasts of New-Housing Starts for Seasonal Variations by Using Seasonal Dummies ; APPENDIX PROBLEMS * SUPPLEMENTARY READINGS ; INTEGRATING CASE STUDY 2: FORD'S BET: IT'S A SMALL WORLD AFTER ALL ; INTEGRATING CASE STUDY 3: ESTIMATING AND FORECASTING THE U.S. DEMAND FOR ELECTRICITY ; PART THREE. PRODUCTION AND COST ANALYSIS ; CHAPTER 7. PRODUCTION THEORY AND ESTIMATION ; 7-1. THE ORGANIZATION OF PRODUCTION AND THE PRODUCTION FUNCTION ; The Organization of Production ; The Production Function ; 7-2. THE PRODUCTION FUNCTION WITH ONE VARIABLE INPUT ; Total, Average, and Marginal Product ; The Law of Diminishing Returns and Stages of Production ; 7-3. OPTIMAL USE OF THE VARIABLE INPUT ; 7-4. THE PRODUCTION FUNCTION WITH TWO VARIABLE INPUTS ; Production Isoquants ; Economic Region of Production ; Marginal Rate of Technical Substitution ; Perfect Substitutes and Complementary Inputs ; 7-5. OPTIMAL COMBINATION OF INPUTS ; Isocost Lines ; Optimal Input Combination for Minimizing Costs or Maximizing Output ; Profit Maximization ; Effect of Change in Input Prices ; 7-6. RETURNS TO SCALE ; 7-7. EMPIRICAL PRODUCTION FUNCTIONS ; 7-8. THE INNOVATION PROCESS ; Meaning and Importance of Innovations ; The Open Innovation Model ; The Next Step in Open Innovation ; 7-9. INNOVATION AND GLOBAL COMPETITIVENESS ; Innovations and the International Competitiveness of U.S. Firms ; The New Computer-Aided Production Revolution and the International Competitiveness of U.S. Firms ; SUMMARY * DISCUSSION QUESTIONS * PROBLEMS * SPREADSHEET PROBLEMS ; APPENDIX: PRODUCTION ANALYSIS WITH CALCULUS ; Constrained Output Maximization ; Constrained Cost Minimization ; Profit Maximization ; APPENDIX PROBLEMS * SUPPLEMENTARY READINGS ; CHAPTER 8. COST THEORY AND ESTIMATION ; 8-1. THE NATURE OF COSTS ; 8-2. SHORT-RUN COST FUNCTIONS ; Short-Run Total and Per-Unit Cost Functions ; Short-Run Total and Per-Unit Cost Curves ; 8-3. LONG-RUN COST CURVES ; Long-Run Total Cost Curves ; Long-Run Average and Marginal Cost Curves ; 8-4. PLANT SIZE AND ECONOMIES OF SCALE ; 8-5. LEARNING CURVES ; 8-6. MINIMIZING COSTS INTERNATIONALLY-THE NEW ECONOMIES OF SCALE ; International Trade in Inputs ; The New International Economies of Scale ; Immigration of Skilled Labor ; 8-7. LOGISTICS OR SUPPLY-CHAIN MANAGEMENT ; 8-8. COST-VOLUME-PROFIT ANALYSIS AND OPERATING LEVERAGE ; Cost-Volume-Profit Analysis ; Operating Leverage ; 8-9. EMPIRICAL ESTIMATION OF COST FUNCTIONS ; Data and Measurement Problems in Estimating Short-Run Cost Functions ; The Functional Form of Short-Run Cost Functions ; Estimating Long-Run Cost Functions with Cross-Sectional Regression Analysis ; Estimating Long-Run Cost Functions with Engineering and Survival Techniques ; SUMMARY * DISCUSSION QUESTIONS * PROBLEMS * SPREADSHEET PROBLEMS ; APPENDIX: COST ANALYSIS WITH CALCULUS 3 ; APPENDIX PROBLEMS * SUPPLEMENTARY READINGS ; INTEGRATING CASE STUDY 4: PRODUCTION AND COST FUNCTIONS IN THE PETROLEUM INDUSTRY ; INTEGRATING CASE STUDY 5: TOYOTA: THE MACHINE THAT RAN TOO HOT ; INTEGRATING CASE STUDY 6: STREAMLINED PLANE MAKING ; PART FOUR. MARKET STRUCTURE AND PRICING PRACTICES ; CHAPTER 9. MARKET STRUCTURE: PERFECT COMPETITION, MONOPOLY, AND MONOPOLISTIC COMPETITION ; 9-1. MARKET STRUCTURE AND DEGREE OF COMPETITION ; 9-2. PERFECT COMPETITION ; Meaning and Importance of Perfect Competition ; Price Determination under Perfect Competition ; Short-Run Analysis of a Perfectly Competitive Firm ; Short-Run Supply Curve of the Competitive Firm and Market ; Long-Run Analysis of a Perfectly Competitive Firm ; 9-3. COMPETITION IN THE GLOBAL ECONOMY ; Domestic Demand and Supply, Imports, and Prices ; The Dollar Exchange Rate and the International Competitiveness of U.S. Firms ; 9-4. MONOPOLY ; Sources of Monopoly ; Short-Run Price and Output Determination under Monopoly ; Long-Run Price and Output Determination under Monopoly ; Comparison of Monopoly and Perfect Competition ; 9-5. MONOPOLISTIC COMPETITION ; Meaning and Importance of Monopolistic Competition ; Short-Run Price and Output Determination under Monopolistic Competition ; Long-Run Price and Output Determination under Monopolistic Competition ; Product Variation and Selling Expenses under Monopolistic Competition ; SUMMARY * DISCUSSION QUESTIONS * PROBLEMS * SPREADSHEET PROBLEMS ; APPENDIX: PROFIT MAXIMIZATION WITH CALCULUS ; APPENDIX PROBLEMS * SUPPLEMENTARY READINGS ; CHAPTER 10. OLIGOPOLY AND FIRM ARCHITECTURE ; 10-1. OLIGOPOLY AND MARKET CONCENTRATION ; Oligopoly: Meaning and Sources ; Concentration Ratios, the Herfindahl Index, and Contestable Markets ; 10-2. OLIGOPOLY MODELS ; The Cournot Model ; The Kinked Demand Curve Model ; Cartel Arrangements ; PRICE LEADERSHIP ; 10-3. PROFITABILITY AND EFFICIENCY IMPLICATIONS OF OLIGOPOLY ; Porter's Strategic Framework ; Efficiency Implications of Oligopoly ; 10-4. THE SALES MAXIMIZATION MODEL ; 10-5. MARCH OF GLOBAL OLIGOPOLISTS ; 10-6. THE ARCHITECTURE OF THE IDEAL FIRM AND THE CREATIVE COMPANY ; The Architecture of the Ideal Firm ; The Evolution of the Creative Company ; 10-7. THE VIRTUAL CORPORATION AND RELATIONSHIP ENTERPRISES ; The Virtual Corporation ; Relationship Enterprises ; SUMMARY * DISCUSSION QUESTIONS * PROBLEMS * SPREADSHEET PROBLEMS ; APPENDIX: OLIGOPOLY THEORY MATHEMATICALLY ; The Cournot Model ; The Kinked Demand Curve Model ; The Centralized Cartel Model ; The Market-Sharing Cartel ; The Sales Maximization Model ; APPENDIX PROBLEMS * SUPPLEMENTARY READINGS ; CHAPTER 11. GAME THEORY AND STRATEGIC BEHAVIOR ; 11-1. STRATEGIC BEHAVIOR AND GAME THEORY ; 11-2. DOMINANT STRATEGY AND NASH EQUILIBRIUM ; Dominant Strategy ; Nash Equilibrium ; 11-3. THE PRISONERS' DILEMMA ; 11-4. PRICE AND NONPRICE COMPETITION, CARTEL CHEATING, AND THE PRISONERS' DILEMMA ; Price Competition and the Prisoners' Dilemma ; Nonprice Competition, Cartel Cheating, and the Prisoners' Dilemma ; 11-5. REPEATED GAMES AND TIT-FOR-TAT STRATEGY ; 11-6. STRATEGIC MOVES ; Threat, Commitments, and Credibility ; Entry Deterrence ; 11-7. STRATEGIC BEHAVIOR AND INTERNATIONAL COMPETITIVENESS ; 11-8. SEQUENTIAL GAMES AND DECISION TREES ; SUMMARY * DISCUSSION QUESTIONS * PROBLEMS * SPREADSHEET PROBLEMS * SUPPLEMENTARY READINGS ; CHAPTER 12. PRICING PRACTICES ; 12-1. PRICING OF MULTIPLE PRODUCTS ; Pricing of Products with Interrelated Demands ; Plant Capacity Utilization and Optimal Product Pricing ; Optimal Pricing of Joint Products Produced in Fixed Proportions ; Optimal Pricing and Output of Joint Products Produced in Variable Proportions ; 12-2. PRICE DISCRIMINATION ; Meaning of and Conditions for Price Discrimination ; First- and Second-Degree Price Discrimination ; Third-Degree Price Discrimination Graphically ; Third-Degree Price Discrimination Algebraically ; 12-3. INTERNATIONAL PRICE DISCRIMINATION AND DUMPING ; 12-4. TRANSFER PRICING ; Meaning and Nature of Transfer Pricing ; Transfer Pricing with No External Market for the Intermediate Product ; Transfer Pricing with a Perfectly Competitive Market for the Intermediate Product ; Transfer Pricing with an Imperfectly Competitive Market for the Intermediate Product ; 12-5. PRICING IN PRACTICE ; Cost-Plus Pricing ; Evaluation of Cost-Plus Pricing ; Incremental Analysis in Pricing ; Peak-Load Pricing, Two-Part Tariff, Tying, and Bundling ; Other Pricing Practices ; SUMMARY * DISCUSSION QUESTIONS * PROBLEMS * SPREADSHEET PROBLEMS ; APPENDIX: THIRD-DEGREE PRICE DISCRIMINATION WITH CALCULUS ; APPENDIX PROBLEMS * SUPPLEMENTARY READINGS ; INTEGRATING CASE STUDY 7: EBAY AND COMPETITION ON THE INTERNET ; INTEGRATING CASE STUDY 8: E-BOOKS REWRITE BOOKSELLING ; INTEGRATING CASE STUDY 9: THE ART OF DEVISING AIRFARES ; PART FIVE. REGULATION, RISK ANALYSIS, AND CAPITAL BUDGETING ; CHAPTER 13. REGULATION AND ANTITRUST: THE ROLE OF GOVERNMENT IN THE ECONOMY ; 13-1. GOVERNMENT REGULATION TO SUPPORT BUSINESS AND TO PROTECT CONSUMERS, WORKERS, AND THE ENVIRONMENT ; Government Regulations that Restrict Competition ; Government Regulations to Protect Consumers, Workers, and the Environment ; 13-2. EXTERNALITIES AND REGULATION ; The Meaning and Importance of Externalities ; Policies to Deal with Externalities ; 13-3. PUBLIC UTILITY REGULATION ; Public Utilities as Natural Monopolies ; Difficulties in Public Utility Regulation ; 13-4. ANTITRUST: GOVERNMENT REGULATION OF MARKET STRUCTURE AND CONDUCT ; Sherman Act (1890) ; Clayton Act (1914) ; Federal Trade Commission Act (1914) ; Robinson-Patman Act (1936) ; Wheeler-Lea Act (1938) ; Celler-Kefauver Antimerger Act (1950) ; 13-5. ENFORCEMENT OF ANTITRUST LAWS AND THE DEREGULATION MOVEMENT ; Enforcement of Antitrust Laws: Some General Observations ; Enforcement of Antitrust Laws: Structure ; Enforcement of Antitrust Laws: Conduct ; The Deregulation Movement ; 13-6. REGULATION OF INTERNATIONAL COMPETITION ; 13-7. THE EFFECT OF TAXATION ON BUSINESS DECISIONS ; SUMMARY * DISCUSSION QUESTIONS * PROBLEMS * SPREADSHEET PROBLEMS * SUPPLEMENTARY READINGS ; CHAPTER 14. RISK ANALYSIS ; 14-1. RISK AND UNCERTAINTY IN MANAGERIAL DECISION MAKING ; 14-2. MEASURING RISK WITH PROBABILITY DISTRIBUTIONS ; Probability Distributions ; An Absolute Measure of Risk: The Standard Deviation ; Measuring Probabilities with the Normal Distribution ; A Relative Measure of Risk: The Coefficient of Variation ; 14-3. UTILITY THEORY AND RISK AVERSION ; 14-4. ADJUSTING THE VALUATION MODEL FOR RISK ; Risk-Adjusted Discount Rates ; Certainty-Equivalent Approach ; 14-5. OTHER TECHNIQUES FOR INCORPORATING RISK INTO DECISION MAKING ; Decision Trees ; Simulation ; 14-6. DECISION MAKING UNDER UNCERTAINTY ; The Maximin Criterion ; The Minimax Regret Criterion ; Other Methods of Dealing with Uncertainty ; 14-7. FOREIGN-EXCHANGE RISKS AND HEDGING ; 14-8. INFORMATION AND RISK ; Asymmetric Information and the Market for Lemons ; The Insurance Market and Adverse Selection ; The Problem of Moral Hazard ; The Principal-Agent Problem ; Auctions ; SUMMARY * DISCUSSION QUESTIONS * PROBLEMS * SPREADSHEET PROBLEMS * SUPPLEMENTARY READINGS ; CHAPTER 15. LONG-RUN INVESTMENT DECISIONS: CAPITAL BUDGETING ; 15-1. CAPITAL BUDGETING: AN OVERVIEW ; Meaning and Importance of Capital Budgeting ; Overview of the Capital Budgeting Process ; 15-2. THE CAPITAL BUDGETING PROCESS ; Projecting Cash Flows ; Net Present Value (NPV) ; Internal Rate of Return (IRR) ; Comparison of NPV and IRR ; 15-3. CAPITAL RATIONING AND THE PROFITABILITY INDEX ; 15-4. THE COST OF CAPITAL ; The Cost of Debt ; The Cost of Equity Capital: The Risk-Free Rate Plus Premium ; The Cost of Equity Capital: The Dividend Valuation Model ; The Cost of Equity Capital: The Capital Asset Pricing Model (CAPM) ; The Weighted Cost of Capital ; 15-5. REVIEWING INVESTMENT PROJECTS AFTER IMPLEMENTATION ; 15-6. THE COST OF CAPITAL AND INTERNATIONAL COMPETITIVENESS ; SUMMARY * DISCUSSION QUESTIONS * PROBLEMS * SPREADSHEET PROBLEMS * SUPPLEMENTARY READINGS ; INTEGRATING CASE STUDY 10: HOW SILICON VALLEY CONQUERED THE CARRIERS ; INTEGRATING CASE STUDY 11: PHONE FIGHT! ; APPENDIXES ; APPENDIX A. COMPOUNDING, DISCOUNTING, AND PRESENT VALUE ; A-1. Future Value and Compounding ; A-2. Present Value and Discounting ; A-3. Future Value of an Annuity ; A-4. Present Value of an Annuity ; A-5. Compounding and Discounting Periods ; A-6. Determining the Interest Rate ; A-7. Perpetuities ; APPENDIX B. INTEREST FACTOR TABLES ; Table B-1. Compound Value of $1 ; Table B-2. Present Value of $1 ; Table B-3. Future Value of an Annuity of $1 for n Periods ; Table B-4. Present Value of an Annuity of $1 for n Periods ; APPENDIX C. STATISTICAL TABLES ; Table C-1. Areas under the Standard Normal Distribution ; Table C-2. Areas in the Tails of the t Distribution ; Table C-3. F Distribution for 5 Percent Significance ; Table C-4. Durbin-Watson Statistic for 5 Percent Significance Points of dL and dU ; APPENDIX D. ANSWERS TO SELECTED (ASTERISKED) PROBLEMS ; GLOSSARY ; SUBJECT INDEX
