Fundamentals of Managerial Economics (with Economic Applications Access)

by Hirschey, Mark

• ISBN13: 9780324288896
• ISBN10: 0324288891
• Edition: 8th
• Format: Paperback
• Copyright: 2005-05-16
• Publisher: South-Western College Pub

Summary

Little or no background in economics or higher level mathematics? Not a problem. FUNDAMENTALS OF MANAGERIAL ECONOMICS focuses on the economics, not the mathematics, of the managerial decision process. You'll learn how managers use economics to make decisions and stay ahead of change. And in this version, you'll learn it fast through captivating examples and uncomplicated math. Plus it comes with Economics Applications Access! This powerful program walks you step-by-step through the decision-making process using economics.

Table of Contents

Part 1 Overview of Managerial Economics
Introduction	2	(19)
How Is Managerial Economics Useful?	3	(1)
Evaluating Choice Alternatives	3	(1)
Making the Best Decision	4	(1)
Managerial Application 1.1: Managerial Ethics	4	(1)
Theory of the Firm	5	(3)
Expected Value Maximization	5	(2)
Constraints and the Theory of the Firm	7	(1)
Limitations of the Theory of the Firm	7	(1)
Managerial Application 1.2: The World Is Turning to Capitalism and Democracy	8	(1)
Profit Measurement	8	(3)
Business Versus Economic Profit	9	(1)
Variability of Business Profits	9	(2)
Why Do Profits Vary Among Firms?	11	(1)
Disequilibrium Profit Theories	11	(1)
Compensatory Profit Theories	11	(1)
Role of Profits in the Economy	12	(1)
Managerial Application 1.3: Google on Social Responsibility: Don't Be Evil	12	(1)
Role of Business in Society	13	(1)
Why Firms Exist	13	(1)
Social Responsibility of Business	14	(1)
Managerial Application 1.4: The Internet Revolution	14	(1)
Structure of This Text	15	(2)
Objectives	15	(1)
Development of Topics	16	(1)
Summary	17	(1)
Case Study: Is Coca-Cola the ``Perfect'' Business?	18	(3)
Basic Economic Relations	21	(26)
Economic Optimization Process	21	(2)
Optimal Decisions	22	(1)
Maximizing the Value of the Firm	22	(1)
Managerial Application 2.1: Greed Versus Self-Interest	23	(1)
Expressing Economic Relations	23	(5)
Tables and Equations	23	(1)
Total, Average, and Marginal Relations	24	(2)
Graphing Total, Marginal, and Average Relations	26	(2)
Managerial Application 2.2: Do Firms Really Optimize?	28	(1)
Marginal Analysis in Decision Making	28	(4)
Use of Marginals in Resource Allocation	29	(1)
Total and Marginal Relations	30	(2)
Practical Applications of Marginal Analysis	32	(1)
Managerial Application 2.3: How Entrepreneurs Shape the Economy	33	(3)
Profit Maximization	33	(1)
Revenue Maximization	34	(1)
Average Cost Minimization	35	(1)
Managerial Application 2.4: Information Brought Down the Berlin Wall	36	(1)
Incremental Concept in Economic Analysis	36	(3)
Marginal Versus Incremental Concept	36	(1)
Incremental Profits	37	(1)
Incremental Concept Example	38	(1)
Summary	39	(6)
Case Study: Spreadsheet Analysis of the EOQ at the Neighborhood Pharmacy, Inc.	45	(2)
Statistical Analysis of Economic Relations	47	(40)
Data Summary and Description	48	(1)
Population Parameters	48	(1)
Sample Statistics	48	(1)
Measures of Central Tendency	48	(6)
Mean	48	(2)
Median	50	(2)
Mode	52	(1)
Comparing Measures of Central Tendency	52	(2)
Managerial Application 3.1: Sampling Technology for TV Advertising	54	(1)
Measures of Dispersion	54	(3)
Range	54	(1)
Variance and Standard Deviation	55	(1)
Coefficient of Variation	56	(1)
Hypothesis Testing	57	(3)
Hypothesis Tests	57	(1)
Means Tests for Large Samples	57	(2)
Means Tests for Small Samples	59	(1)
Managerial Application 3.2: Market Experiments on the Web	60	(1)
Economic Relations	60	(1)
Deterministic and Statistical Relations	60	(1)
Scatter Diagrams	61	(1)
Regression Analysis	61	(4)
Linear and Multiplicative Models	61	(3)
Least Squares Method	64	(1)
Managerial Application 3.3: Lies, Damn Lies, and Government Statistics	65	(2)
Judging Regression Model Fit	67	(5)
Standard Error of the Estimate	67	(2)
Goodness of Fit, r, and R2	69	(1)
Corrected Coefficient of Determination, R2	70	(1)
F Statistic	71	(1)
Judging Variable Significance	72	(2)
Statistics	72	(1)
Interpreting t Statistics	73	(1)
Managerial Application 3.4: Spreadsheet and Statistical Software for the PC	74	(1)
Summary	74	(9)
Case Study: Demand Estimation for The San Francisco Bread Co.	83	(4)
Part 2 Demand Analysis and Estimation	87	(102)
Demand and Supply	88	(29)
Basis for Demand	89	(1)
Direct Demand	89	(1)
Derived Demand	89	(1)
Managerial Application 4.1: How the Internet Affects Demand and Supply	90	(1)
Market Demand Function	90	(2)
Determinants of Demand	91	(1)
Industry Demand Versus Firm Demand	91	(1)
Demand Curve	92	(3)
Demand Curve Determination	92	(1)
Relation Between the Demand Curve and Demand Function	93	(2)
Basis for Supply	95	(1)
Managerial Application 4.2: ISP Customers Learn About Demand and Supply	96	(1)
How Output Prices Affect Supply	96	(1)
Other Factors That Influence Supply	97	(1)
Market Supply Function	97	(2)
Determinants of Supply	97	(1)
Industry Supply Versus Firm Supply	98	(1)
Managerial Application 4.3: The Import Supply Battle in the U.S. Auto Industry	99	(1)
Supply Curve	100	(3)
Supply Curve Determination	100	(1)
Relation Between Supply Curve and Supply Function	100	(3)
Managerial Application 4.4: Demand and Supply Conditions for Economists	103	(1)
Market Equilibrium	104	(5)
Surplus and Shortage	104	(2)
Comparative Statics: Changing Demand	106	(3)
Comparative Statics: Changing Supply	109	(1)
Comparative Statics: Changing Demand and Supply	109	(1)
Summary	109	(6)
Case Study: Spreadsheet Analysis of Demand and Supply for Sunbest Orange Juice	115	(2)
Demand Analysis and Estimation	117	(32)
Measuring Market Demand	118	(2)
Graphing the Market Demand Curve	118	(2)
Evaluating Market Demand	120	(1)
Managerial Application 5.1: Demand for Oranges: A Classic Market Experiment	120	(1)
Demand Sensitivity Analysis: Elasticity	121	(3)
Elasticity Concept	121	(1)
Point Elasticity and Arc Elasticity	121	(1)
Advertising Elasticity Example	122	(2)
Managerial Application 5.2: Price Elasticity for Airline Passenger Service	124	(1)
Price Elasticity of Demand	125	(4)
Price Elasticity Formula	125	(1)
Price Elasticity and Total Revenue	126	(2)
Uses of Price Elasticity Information	128	(1)
Price Elasticity and Marginal Revenue	129	(3)
Varying Elasticity at Different Points on a Demand Curve	129	(1)
Price Elasticity and Price Changes	129	(3)
Managerial Application 5.3: Ag Price Supports	132	(1)
Price Elasticity and Optimal Pricing Policy	133	(2)
Optimal Price Formula	133	(1)
Optimal Pricing Policy Example	134	(1)
Determinants of Price Elasticity	134	(1)
Cross-Price Elasticity of Demand	135	(2)
Substitutes and Complements	136	(1)
Cross-Price Elasticity Example	136	(1)
Managerial Application 5.4: Haggling in the Car Business	137	(1)
Income Elasticity of Demand	138	(2)
Normal Versus Inferior Goods	138	(1)
Types of Normal Goods	139	(1)
Summary	140	(6)
Case Study: Demand Estimation for Mrs. Smyth's Pies	146	(3)
Forecasting	149	(40)
Forecasting Applications	150	(2)
Macroeconomic Applications	150	(1)
Microeconomic Applications	150	(1)
Forecast Techniques	151	(1)
Managerial Application 6.1: Economic Forecasting: The Art and the Science	152	(1)
Qualitative Analysis	152	(1)
Expert Opinion	153	(1)
Survey Techniques	153	(1)
Trend Analysis and Projection	153	(6)
Trends in Economic Data	154	(1)
Linear Trend Analysis	154	(2)
Growth Trend Analysis	156	(3)
Linear and Growth Trend Comparison	159	(1)
Managerial Application 6.2: The Dire Prediction Business	159	(1)
Business Cycle	160	(7)
What Is the Business Cycle?	160	(1)
Economic Indicators	161	(2)
Economic Recessions	163	(2)
Sources of Forecast Information	165	(2)
Managerial Application 6.3: The Stock Market and the Business Cycle	167	(1)
Exponential Smoothing	167	(4)
Exponential Smoothing Concept	167	(2)
One-Parameter (Simple) Exponential Smoothing	169	(1)
Two-Parameter (Holt) Exponential Smoothing	169	(1)
Three-Parameter (Winters) Exponential Smoothing	169	(1)
Practical Use of Exponential Smoothing	170	(1)
Managerial Application 6.4: How Good Is Your Forecasting Ability?	171	(1)
Econometric Forecasting	172	(2)
Advantages of Econometric Methods	172	(1)
Single-Equation Models	172	(1)
Multiple-Equation Systems	173	(1)
Judging Forecast Reliability	174	(2)
Tests of Predictive Capability	175	(1)
Correlation Analysis	175	(1)
Sample Mean Forecast Error Analysis	175	(1)
Choosing the Best Forecast Technique	176	(2)
Data Requirements	176	(1)
Time Horizon Considerations	176	(1)
Role of Judgment	177	(1)
Summary	178	(7)
Case Study: Forecasting Global Performance for a Mickey Mouse Organization	185	(4)
Part 3 Production and Competitive Markets	189	(186)
Production Analysis and Compensation Policy	190	(39)
Production Functions	191	(2)
Properties of Production Functions	191	(1)
Returns to Scale and Returns to a Factor	192	(1)
Total, Marginal, and Average Product	193	(3)
Total Product	193	(3)
Marginal Product	196	(1)
Average Product	196	(1)
Managerial Application 7.1: Total Quality Management	196	(1)
Law of Diminishing Returns to a Factor	197	(2)
Diminishing Returns to a Factor Concept	197	(1)
Illustration of Diminishing Returns to a Factor	198	(1)
Input Combination Choice	199	(5)
Production Isoquants	199	(1)
Input Factor Substitution	200	(2)
Marginal Rate of Technical Substitution	202	(1)
Rational Limits of Input Substitution	203	(1)
Managerial Application 7.2: What's Wrong with Manufacturing?	204	(1)
Marginal Revenue Product and Optimal Employment	204	(3)
Marginal Revenue Product	204	(1)
Optimal Level of a Single Input	205	(1)
Illustration of Optimal Employment	206	(1)
Optimal Combination of Multiple Inputs	207	(3)
Budget Lines	207	(2)
Expansion Path	209	(1)
Illustration of Optimal Input Proportions	210	(1)
Optimal Levels of Multiple Inputs	210	(1)
Optimal Employment and Profit Maximization	211	(1)
Managerial Application 7.3: A Jobless Recovery?	211	(1)
Illustration of Optimal Levels of Multiple Inputs	212	(1)
Returns to Scale	212	(3)
Evaluating Returns to Scale	213	(1)
Output Elasticity and Returns to Scale	213	(1)
Returns to Scale Estimation	214	(1)
Production Function Estimation	215	(1)
Cubic Production Functions	215	(1)
Power Production Functions	216	(1)
Managerial Application 7.4: BLS Statistics	216	(1)
Productivity Measurement	217	(3)
How Is Productivity Measured?	217	(1)
Uses and Limitations of Productivity Data	218	(2)
Summary	220	(6)
Case Study: Employee Productivity Among the Largest S&P 500 Firms	226	(3)
Cost Analysis and Estimation	229	(40)
What Makes Cost Analysis Difficult?	230	(1)
Link Between Accounting and Economic Valuations	230	(1)
Historical Versus Current Costs	230	(1)
Replacement Cost	231	(1)
Opportunity Costs	231	(2)
Opportunity Cost Concept	232	(1)
Explicit and Implicit Costs	232	(1)
Managerial Application 8.1: GE's ``20-70-10'' Plan	233	(1)
Incremental and Sunk Costs in Decision Analysis	233	(1)
Incremental Cost	233	(1)
Sunk Costs	234	(1)
Short-Run and Long-Run Costs	234	(2)
How Is the Operating Period Defined?	235	(1)
Fixed and Variable Costs	235	(1)
Short-Run Cost Curves	236	(1)
Short-Run Cost Categories	236	(1)
Short-Run Cost Relations	236	(1)
Managerial Application 8.2: Gaps in GAAP?	237	(2)
Long-Run Cost Curves	239	(4)
Long-Run Total Costs	239	(1)
Economies of Scale	239	(2)
Cost Elasticities and Economies of Scale	241	(1)
Long-Run Average Costs	241	(2)
Managerial Application 8.3: What in the Heck Is FASB?	243	(1)
Minimum Efficient Scale	244	(1)
Competitive Implications of Minimum Efficient Scale	244	(1)
Transportation Costs and MES	244	(1)
Firm Size and Plant Size	245	(6)
Multiplant Economies and Diseconomies of Scale	245	(1)
Economics of Multiplant Operation: An Example	246	(3)
Plant Size and Flexibility	249	(2)
Managerial Application 8.4: Bigger Isn't Always Better	251	(1)
Learning Curves	251	(3)
Learning Curve Concept	251	(2)
Learning Curve Example	253	(1)
Strategic Implications of the Learning Curve Concept	254	(1)
Economies of Scope	254	(1)
Economies of Scope Concept	254	(1)
Exploiting Scope Economies	255	(1)
Cost-Volume-Profit Analysis	255	(1)
Cost-Volume-Profit Charts	255	(5)
Degree of Operating Leverage	257	(3)
Summary	260	(5)
Case Study: Estimating the Costs of Nursing Care for Regional Hospitals	265	(4)
Linear Programming	269	(43)
Basic Characteristics	270	(1)
Inequality Constraints	270	(1)
Linear Assumptions	270	(1)
Managerial Application 9.1: Karmarkar's LP Breakthrough	271	(1)
Production Planning for a Single Product	271	(7)
Production Processes	271	(2)
Production Isoquants	273	(2)
Least-Cost Input Combinations	275	(1)
Optimal Input Combinations with Limited Resources	275	(3)
Managerial Application 9.2: LP: More Than a Visual Approach	278	(1)
Production Planning for Multiple Products	278	(2)
Objective Function Specification	278	(1)
Constraint Equation Specification	279	(1)
Nonnegativity Requirement	280	(1)
Graphic Specification and Solution	280	(5)
Analytic Expression	280	(1)
Graphing the Feasible Space	280	(1)
Graphing the Objective Function	281	(2)
Graphic Solution	283	(2)
Algebraic Specification and Solution	285	(4)
Slack Variables	285	(1)
Algebraic Solution	285	(3)
Slack Variables at the Solution Point	288	(1)
Computer-Based Solution Methods	289	(1)
Managerial Application 9.3: LP on the PC!	289	(1)
Dual in Linear Programming	289	(2)
Duality Concept	289	(1)
Shadow Prices	290	(1)
Dual Specification	291	(1)
Dual Objective Function	291	(1)
Dual Constraints	291	(1)
Dual Slack Variables	292	(1)
Solving the Dual Problem	292	(3)
Dual Solution	293	(1)
Using the Dual Solution to Solve the Primal	294	(1)
Managerial Application 9.4: It's a RIOT on the Internet!	295	(1)
Summary	296	(9)
Case Study: An LP Pension Funding Model	305	(2)
Appendix 9A: Rules for Forming the Dual LP Problem	307	(4)
Competitive Markets	311	(1)
Competitive Environment	312	(27)
What Is Market Structure?	312	(1)
Vital Role of Potential Entrants	312	(1)
Managerial Application 10.1: Benefits from Free Trade	313	(1)
Factors That Shape the Competitive Environment	313	(2)
Product Differentiation	313	(1)
Production Methods	314	(1)
Entry and Exit Conditions	314	(1)
Competitive Market Characteristics	315	(1)
Basic Features	315	(1)
Examples of Competitive Markets	315	(1)
Managerial Application 10.2: Is the Stock Market Perfectly Competitive?	316	(1)
Profit Maximization in Competitive Markets	317	(4)
Profit Maximization Imperative	317	(1)
Role of Marginal Analysis	317	(4)
Marginal Cost and Firm Supply	321	(2)
Short-Run Firm Supply Curve	321	(2)
Long-Run Firm Supply Curve	323	(1)
Managerial Application 10.3: Dot.com	323	(1)
Competitive Market Supply Curve	324	(2)
Market Supply with a Fixed Number of Competitors	324	(2)
Market Supply with Entry and Exit	326	(1)
Competitive Market Equilibrium	326	(3)
Balance of Supply and Demand	326	(3)
Normal Profit Equilibrium	329	(1)
Managerial Application 10.4: The Enron Debacle	329	(1)
Summary	330	(7)
Case Study: Profitability Effects of Firm Size for DJIA Companies	337	(2)
Performance and Strategy in Competitive Markets	339	(36)
Competitive Market Efficiency	340	(4)
Why Is It Called ``Perfect Competition''?	340	(1)
Deadweight Loss Problem	341	(1)
Deadweight Loss Illustration	342	(2)
Managerial Application 11.1: The Wal-Mart Phenomenon	344	(1)
Market Failure	344	(2)
Structural Problems	344	(1)
Incentive Problems	345	(1)
Role for Government	346	(1)
How Government Influences Competitive Markets	346	(1)
Broad Social Considerations	347	(1)
Managerial Application 11.2: Corn Growers Discover Oil!	347	(1)
Subsidy and Tax Policy	348	(2)
Subsidy Policy	348	(1)
Deadweight Loss from Taxes	348	(2)
Tax Incidence and Burden	350	(4)
Role of Elasticity	350	(2)
Tax Cost-Sharing Example	352	(2)
Managerial Application 11.3: Measuring Economic Profits	354	(1)
Price Controls	355	(2)
Price Floors	355	(2)
Price Ceilings	357	(1)
Business Profit Rates	357	(3)
Return on Stockholders' Equity	358	(1)
Typical Profit Rates	359	(1)
Managerial Application 11.4: Wonderful Businesses	360	(1)
Market Structure and Profit Rates	361	(2)
Profit Rates in Competitive Markets	361	(1)
Mean Reversion in Profit Rates	361	(2)
Competitive Market Strategy	363	(2)
Short-Run Firm Performance	363	(1)
Long-Run Firm Performance	364	(1)
Summary	365	(7)
Case Study: Profit Margins Among the Most Profitable S&P 500 Companies	372	(3)
Part 4 Imperfect Competition	375	(146)
Monopoly and Monopsony	376	(37)
Monopoly Market Characteristics	377	(2)
Basic Features	377	(1)
Examples of Monopoly	377	(2)
Managerial Application 12.1: The NCAA Cartel	379	(1)
Profit Maximization Under Monopoly	379	(4)
Price/Output Decisions	379	(2)
Role of Marginal Analysis	381	(2)
Social Costs of Monopoly	383	(3)
Monopoly Underproduction	383	(1)
Deadweight Loss from Monopoly	383	(3)
Social Benefits of Monopoly	386	(2)
Economies of Scale	386	(1)
Invention and Innovation	387	(1)
Managerial Application 12.2: Is Ticketmaster a Monopoly?	388	(1)
Monopoly Regulation	389	(5)
Dilemma of Natural Monopoly	389	(1)
Utility Price and Profit Regulation	390	(1)
Utility Price and Profit Regulation Example	391	(2)
Problems with Utility Price and Profit Regulation	393	(1)
Monopsony	394	(3)
Buyer Power	394	(1)
Bilateral Monopoly Illustration	394	(3)
Managerial Application 12.3: Is This Why They Call It ``Hardball''?	397	(1)
Antitrust Policy	398	(2)
Overview of Antitrust Law	398	(1)
Sherman and Clayton Acts	398	(1)
Antitrust Enforcement	399	(1)
Managerial Application 12.4: Price Fixing by the Insurance Cartel	400	(1)
Competitive Strategy in Monopoly Markets	401	(2)
Market Niches	401	(1)
Information Barriers to Competitive Strategy	401	(2)
Summary	403	(7)
Case Study: Effect of R&D on Tobin's q	410	(3)
Monopolistic Competition and Oligopoly	413	(42)
Contrast Between Monopolistic Competition and Oligopoly	414	(1)
Monopolistic Competition	414	(1)
Oligopoly	414	(1)
Dynamic Nature of Competition	415	(1)
Managerial Application 13.1: Dell's Price War with Itself	415	(1)
Monopolistic Competition	416	(3)
Monopolistic Competition Characteristics	416	(1)
Monopolistic Competition Price/Output
Decisions	417	(2)
Managerial Application 13.2: Government-Guaranteed Oligopoly	419	(1)
Monopolistic Competition Process	420	(3)
Short-Run Monopoly Equilibrium	420	(1)
Long-Run High-Price/Low-Output Equilibrium	421	(1)
Long-Run Low-Price/High-Output Equilibrium	422	(1)
Oligopoly	423	(1)
Oligopoly Market Characteristics	423	(1)
Examples of Oligopoly	423	(1)
Cartels and Collusion	424	(1)
Overt and Covert Agreements	424	(1)
Enforcement Problems	424	(1)
Oligopoly Output-Setting Models	425	(6)
Cournot Oligopoly	425	(3)
Stackelberg Oligopoly	428	(3)
Oligopoly Price-Setting Models	431	(5)
Bertrand Oligopoly: Identical Products	431	(1)
Bertrand Oligopoly: Differentiated Products	431	(3)
Sweezy Oligopoly	434	(1)
Oligopoly Model Comparison	435	(1)
Managerial Application 13.3: Contestable Airline Passenger Service Markets	436	(1)
Market Structure Measurement	436	(3)
Economic Markets	437	(1)
Economic Census	437	(2)
Census Measures of Market Concentration	439	(3)
Concentration Ratios	439	(2)
Herfindahl-Hirschmann Index	441	(1)
Limitations of Census Information	441	(1)
Managerial Application 13.4: Horizontal Merger Guidelines	442	(1)
Summary	443	(8)
Case Study: Market Structure Analysis at Columbia Drugstores, Inc.	451	(4)
Game Theory and Competitive Strategy	455	(32)
Game-Theory Basics	456	(2)
Types of Games	456	(1)
Role of Interdependence	456	(1)
Strategic Considerations	457	(1)
Managerial Application 14.1: Intel: Running Fast to Stay in Place	458	(1)
Prisoner's Dilemma	458	(3)
Classic Riddle	458	(2)
Business Application	460	(1)
Broad Implications	460	(1)
Nash Equilibrium	461	(2)
Nash Equilibrium Concept	461	(1)
Nash Bargaining	462	(1)
Infinitely Repeated Games	463	(1)
Role of Reputation	463	(1)
Product Quality Games	463	(1)
Managerial Application 14.2: Wrigley's Success Formula	464	(1)
Finitely Repeated Games	465	(2)
Uncertain Final Period	465	(1)
End-of-Game Problem	466	(1)
First-Mover Advantages	466	(1)
Competitive Strategy	467	(3)
Basic Concepts	467	(1)
Competitive Advantage	468	(1)
When Large Size Is a Disadvantage	469	(1)
Managerial Application 14.3: The ``Tobacco'' Issue	470	(1)
Pricing Strategies	470	(3)
Limit Pricing	470	(2)
Market Penetration Pricing	472	(1)
Managerial Application 14.4: Network Switching Costs	473	(1)
Nonprice Competition	473	(4)
Advantages of Nonprice Competition	473	(1)
Optimal Level of Advertising	474	(2)
Optimal Advertising Example	476	(1)
Summary	477	(7)
Case Study: Time Warner, Inc., Is Playing Games with Stockholders	484	(3)
Pricing Practices	487	(34)
Pricing Rules-of-Thumb	488	(1)
Competitive Markets	488	(1)
Imperfectly Competitive Markets	488	(1)
Managerial Application 15.1: Markup Pricing Technology	489	(1)
Markup Pricing and Profit Maximization	490	(2)
Optimal Markup on Cost	490	(1)
Optimal Markup on Price	491	(1)
Price Discrimination	492	(3)
Profit-Making Criteria	493	(1)
Degrees of Price Discrimination	494	(1)
Managerial Application 15.2: 10 for a Gallon of Gas in Dayton, Ohio	495	(1)
Price Discrimination Example	495	(4)
Price/Output Determination	495	(2)
One-Price Alternative	497	(1)
Graphic Illustration	498	(1)
Multiple-Product Pricing	499	(1)
Demand Interrelations	499	(1)
Production Interrelations	499	(1)
Joint Products	500	(3)
Joint Products in Variable Proportions	500	(1)
Joint Products in Fixed Proportions	501	(2)
Managerial Application 15.3: Do Colleges Price Discriminate?	503	(1)
Joint Product Pricing Example	503	(4)
Joint Products Without Excess By-Product	503	(2)
Joint Production with Excess By-Product (Dumping)	505	(2)
Transfer Pricing	507	(2)
Transfer Pricing Problem	507	(1)
Products Without External Markets	507	(1)
Products with Competitive External Markets	508	(1)
Products with Imperfectly Competitive External Markets	508	(1)
Managerial Application 15.4: Why Some Price Wars Never End	509	(1)
Global Transfer Pricing Example	509	(4)
Profit Maximization for an Integrated Firm	509	(1)
Transfer Pricing with No External Market	510	(1)
Competitive External Market with Excess Internal Demand	511	(1)
Competitive External Market with Excess Internal Supply	512	(1)
Summary	513	(6)
Case Study: Pricing Practices in the Denver, Colorado, Newspaper Market	519	(2)
Part 5 Long-Term Investment Decisions	521	(114)
Risk Analysis	522	(39)
Concepts of Risk and Uncertainty	523	(2)
Economic Risk and Uncertainty	523	(1)
General Risk Categories	524	(1)
Special Risks of Global Operations	524	(1)
Managerial Application 16.1: Internet Fraud	525	(1)
Probability Concepts	525	(6)
Probability Distribution	525	(2)
Expected Value	527	(2)
Absolute Risk Measurement	529	(1)
Relative Risk Measurement	530	(1)
Other Risk Measures	530	(1)
Standard Normal Concept	531	(2)
Normal Distribution	531	(1)
Standardized Variables	532	(1)
Use of the Standard Normal Concept: An Example	532	(1)
Managerial Application 16.2: Why Lotteries Are Popular	533	(1)
Utility Theory and Risk Analysis	533	(2)
Possible Risk Attitudes	534	(1)
Relation Between Money and Its Utility	534	(1)
Managerial Application 16.3: Employee Stock Options	535	(1)
Adjusting the Valuation Model for Risk	536	(4)
Basic Valuation Model	536	(1)
Certainty Equivalent Adjustments	536	(1)
Certainty Equivalent Adjustment Example	537	(2)
Risk-Adjusted Discount Rates	539	(1)
Risk-Adjusted Discount Rate Example	540	(1)
Decision Trees and Computer Simulation	540	(3)
Decision Trees	541	(1)
Computer Simulation	542	(1)
Computer Simulation Example	543	(1)
Managerial Application 16.4: Game Theory at the FCC	543	(2)
Uses of Game Theory in Risk Analysis	545	(4)
Game Theory and Auction Strategy	545	(1)
Maximin Decision Rule	546	(1)
Minimax Regret Decision Rule	547	(1)
Cost of Uncertainty	548	(1)
Summary	549	(8)
Case Study: Stock-Price Beta Estimation for the Royal Dutch Petroleum Company	557	(4)
Capital Budgeting	561	(38)
Capital Budgeting Process	562	(1)
What Is Capital Budgeting?	562	(1)
Project Classification Types	562	(1)
Steps in Capital Budgeting	563	(2)
Sequence of Project Valuation	563	(1)
Cash Flow Estimation	563	(1)
Incremental Cash Flow Evaluation	564	(1)
Managerial Application 17.1: Market-Based Capital Budgeting	565	(1)
Cash Flow Estimation Example	565	(3)
Project Description	565	(1)
Cash Flow Estimation and Analysis	566	(2)
Capital Budgeting Decision Rules	568	(5)
Net Present-Value Analysis	568	(2)
Profitability Index or Benefit/Cost Ratio Analysis	570	(1)
Internal Rate of Return Analysis	571	(1)
Payback Period Analysis	572	(1)
Managerial Application 17.2: Is the Sun Setting on Japan's Vaunted MOF?	573	(1)
Project Selection	574	(4)
Decision Rule Conflict Problem	574	(1)
Reasons for Decision Rule Conflict	574	(1)
Ranking Reversal Problem	575	(2)
Making the Correct Investment Decision	577	(1)
Managerial Application 17.3: Federal Government Support for R&D	578	(1)
Cost of Capital	578	(5)
Component Cost of Debt Financing	579	(1)
Component Cost of Equity Financing	579	(2)
Weighted-Average Cost of Capital	581	(2)
Managerial Application 17.4: Capital Allocation at Berkshire Hathaway, Inc.	583	(1)
Optimal Capital Budget	583	(3)
Investment Opportunity Schedule	584	(1)
Marginal Cost of Capital	585	(1)
Postaudit	585	(1)
Summary	586	(7)
Case Study: Sophisticated NPV Analysis at Level 3 Communications, Inc.	593	(6)
Government in the Market Economy	599	(36)
Externalities	600	(2)
Negative Externalities	600	(1)
Positive Externalities	600	(2)
Managerial Application 18.1: How Do You Regulate a Global Economy?	602	(1)
Solving Externalities	602	(2)
Government Solutions	603	(1)
Market Solutions	603	(1)
Public Goods	604	(3)
Rivalry and Exclusion	604	(1)
Free Riders and Hidden Preferences	605	(2)
Managerial Application 18.2: Political Corruption	607	(1)
Benefit/Cost Concepts	608	(4)
Pareto Improvement	608	(2)
Benefit/Cost Methodology	610	(1)
Social Rate of Discount	611	(1)
Benefit/Cost Criteria	612	(4)
Social Net Present-Value	612	(2)
Benefit/Cost Ratio	614	(1)
Internal Rate of Return	615	(1)
Limitations of Benefit/Cost Analysis	616	(1)
Managerial Application 18.3: Free Trade Helps Everyone	616	(1)
Additional Methods for Improving Public Management	617	(2)
Cost-Effectiveness Analysis	617	(1)
Privatization	618	(1)
Regulatory Reform in the New Millennium	619	(2)
Promoting Competition in Electric Power Generation	619	(1)
Fostering Competition in Telecommunications	619	(1)
Reforming Environmental Regulation	620	(1)
Improving Regulation of Health and Safety	621	(1)
Managerial Application 18.4: Price Controls for Pharmaceutical Drugs	621	(1)
Health Care Reform	622	(2)
Managed Competition	622	(2)
Outlook for Health Care Reform	624	(1)
Summary	624	(7)
Case Study: Oh, Lord, Won't You Buy Me a Mercedes-Benz (Factory)?	631	(4)
Appendices	635	(14)
Appendix A: Interest Factor Tables	635	(8)
Appendix B: Statistical Tables	643	(6)
Selected Check Figures for End-of-Chapter Problems	649	(6)
Index	655