Managerial Economics and Business Strategy

by BAYE

• ISBN13: 9780072358384
• ISBN10: 0072358386
• Edition: 3rd
• Format: Hardcover
• Copyright: 1999-09-01
• Publisher: McGraw-Hill College

Table of Contents

The Fundamentals of Managerial Economics	1	(32)
Headline: Amcott Loses $3.5 Million; Manager Fired	1	(1)
Introduction	1	(3)
The Manager	3	(1)
Economics	3	(1)
Managerial Economics Defined	4	(1)
The Economics of Effective Management	4	(4)
Identify Goals and Constraints	4	(1)
Recognize the Nature and Importance of Profits	5	(1)
Economic Versus Accounting Profits	5	(2)
The Role of Profits	7	(1)
Understand Incentives	8	(2)
Understand Markets	10	(2)
Consumer--Producer Rivalry	10	(1)
Consumer--Consumer Rivalry	11	(1)
Producer--Producer Rivalry	11	(1)
Government and the Market	12	(1)
Recognize the Time Value of Money	12	(6)
Present Value Analysis	12	(3)
The Value of the Firm	15	(3)
Use Marginal Analysis	18	(6)
Discrete Decisions	18	(3)
Continuous Decisions	21	(2)
Incremental Decisions	23	(1)
Learning Managerial Economics	24	(1)
Answering the Headline	25	(1)
Key Terms and Concepts	26	(1)
Problems	26	(4)
Selected Readings	30	(1)
Appendix: The Calculus of Maximizing Net Benefits	31	(2)
Inside Business 1--1: What Are the Goals of Firms?	7	(2)
Inside Business 1--2: Profits and the Computer Industry	9	(4)
Inside Business 1--3: The Five Forces Model: The Link Between Strategic Management and Managerial Economics	13	(3)
Inside Business 1--4: Joining the Jet Set	16	(17)
Market Forces: Demand and Supply	33	(36)
Headline: Samsung and Hyundai Electronics to Cut Chip Production	33	(1)
Introduction	33	(1)
Demand	34	(9)
Demand Shifters	35	(1)
Income	36	(1)
Prices of Related Goods	36	(2)
Advertising and Consumer Tastes	38	(1)
Population	38	(1)
Consumer Expectations	39	(1)
Other Factors	39	(1)
The Demand Function	39	(2)
Consumer Surplus	41	(2)
Supply	43	(7)
Supply Shifters	44	(1)
Input Prices	44	(1)
Technology or Government Regulations	44	(1)
Number of Firms	45	(1)
Substitutes in Production	45	(1)
Taxes	45	(1)
Producer Expectations	46	(1)
The Supply Function	47	(2)
Producer Surplus	49	(1)
Market Equilibrium	50	(2)
Price Restrictions and Market Equilibrium	52	(5)
Price Ceilings	52	(4)
Price Floors	56	(1)
Comparative Statics	57	(6)
Changes in Demand	58	(2)
Changes in Supply	60	(1)
Simultaneous Shifts in Supply and Demand	61	(2)
Answering the Headline	63	(1)
Summary	64	(1)
Key Terms and Concepts	64	(1)
Problems	65	(3)
Selected Readings	68	(1)
Inside Business 2--1: Asahi Breweries Ltd. and the Asian Recession	37	(8)
Inside Business 2--2: NAFTA and the Supply Curve	45	(14)
Inside Business 2--3: Changes in Indonesian Incomes and the Market for Clone PCs	59	(10)
Quantitative Demand Analysis	69	(44)
Headline: Winners of Wireless Auction to Pay $7 Billion	69	(1)
Introduction	70	(1)
Elasticities of Demand	70	(1)
Own Price Elasticity	71	(10)
Elasticity and Total Revenue	72	(3)
Factors Affecting the Own Price Elasticity	75	(1)
Available Substitutes	75	(3)
Time	78	(1)
Expenditure Share	78	(1)
Marginal Revenue and the Own Price Elasticity of Demand	79	(2)
Cross-Price Elasticity	81	(3)
Income Elasticity	84	(2)
Other Elasticities	86	(1)
Obtaining Elasticities from Demand Functions	87	(6)
Elasticities for Linear Demand Functions	87	(2)
Elasticities for Nonlinear Demand Functions	89	(4)
Regression Analysis	93	(10)
Evaluating the Statistical Significance of Estimated Coefficients	96	(1)
Confidence Intervals	96	(1)
The t-Statistic	97	(1)
Evaluating the Overall Fit of the Regression Line	98	(1)
The R-Square	98	(1)
The F-Statistic	99	(1)
Nonlinear and Multiple Regressions	100	(1)
Nonlinear Regressions	100	(1)
Multiple Regression	101	(2)
Answering the Headline	103	(2)
Summary	105	(1)
Key Terms and Concepts	105	(1)
Problems	106	(6)
Selected Readings	112	(1)
Inside Business 3--1: Calculating and Using the Arc Elasticity: An Application to the Housing Market	76	(3)
Inside Business 3--2: GM's Pricing Strategy for the Saturn	79	(4)
Inside Business 3--3: Using Cross-Price Elasticities to Improve New Car Sales in the Wake of Increasing Gasoline Prices	83	(30)
The Theory of Individual Behavior	113	(39)
Headline: Packaging Firm Uses Overtime Pay to Overcome Labor Shortage	113	(1)
Introduction	113	(1)
Consumer Behavior	114	(3)
Constraints	117	(7)
The Budget Constraint	117	(5)
Changes in Income	122	(1)
Changes in Prices	123	(1)
Consumer Equilibrium	124	(2)
Comparative Statics	126	(6)
Price Changes and Consumer Behavior	126	(1)
Income Changes and Consumer Behavior	127	(2)
Substitution and Income Effects	129	(3)
Applications of Indifference Curve Analysis	132	(10)
Choices by Consumers	132	(1)
Buy One, Get One Free	132	(2)
Cash Gifts, In-Kind Gifts, and Gift Certificates	134	(4)
Choices by Workers and Managers	138	(1)
A Simplified Model of Income-Leisure Choice	138	(1)
The Decisions of Managers	139	(3)
The Relationship Between Indifference Curve Analysis and Demand Curves	142	(2)
Individual Demand	142	(1)
Market Demand	143	(1)
Answering the Headline	144	(1)
Summary	145	(1)
Key Terms and Concepts	146	(1)
Problems	146	(3)
Selected Readings	149	(1)
Appendix: A Calculus Approach to Individual Behavior	150	(2)
Inside Business 4--1: Indifference Curves and Risk Preferences	119	(11)
Inside Business 4--2: Price Changes and Inventory Management for Multiproduct Firms	130	(2)
Inside Business 4--3: Income Effects and the Business Cycle	132	(2)
Inside Business 4--4: Are AT&T Wireless Customers In for a Busy Signal?	134	(18)
The Production Process and Costs	152	(49)
Headline: GM and UAW Butt Heads over jobs	152	(1)
Introduction	153	(1)
The Production Function	153	(22)
Short-Run Versus Long-Run Decisions	153	(2)
Measures of Productivity	155	(1)
Total Product	156	(1)
Average Product	156	(1)
Marginal Product	157	(2)
The Role of the Manager in the Production Process	159	(1)
Produce on the Production Function	159	(1)
Use the Right Level of Inputs	159	(3)
Algebraic Forms of Production Functions	162	(1)
Algebraic Measures of Productivity	163	(2)
Isoquants	165	(3)
Isocosts	168	(3)
Cost Minimization	171	(2)
Optimal Input Substitution	173	(2)
The Cost Function	175	(13)
Short-Run Costs	176	(2)
Average and Marginal Costs	178	(2)
Relations Among Costs	180	(2)
Fixed and Sunk Costs	182	(1)
Algebraic Forms of Cost Functions	183	(1)
Long-Run Costs	184	(2)
Economies of Scale	186	(1)
A Reminder: Economic Costs Versus Accounting Costs	187	(1)
Multiple-Output Cost Functions	188	(3)
Economies of Scope	188	(1)
Cost Complementarity	188	(3)
Answering the Headline	191	(1)
Summary	191	(1)
Key Terms and Concepts	192	(1)
Problems	192	(5)
Selected Readings	197	(1)
Appendix: The Calculus of Production and Costs	198	(3)
Inside Business 5--1: Where Does Technology Come From?	154	(15)
Inside Business 5--2: A Cobb-Douglas Production Function for Water Desalination	169	(7)
Inside Business 5--3: Fringe Benefits and Input Substitution	176	(25)
The Organization of the Firm	201	(36)
Headline: Incentives at Saturn: Will a New Kind of Car Company Continue to Roll?	201	(1)
Introduction	202	(1)
Methods of Procuring Inputs	203	(2)
Purchase the Inputs Using Spot Exchange	203	(1)
Acquire Inputs Under a Contract	204	(1)
Produce the Inputs Internally	204	(1)
Transaction Costs	205	(5)
Types of Specialized Investments	206	(1)
Site Specificity	206	(1)
Physical-Asset Specificity	206	(1)
Dedicated Assets	207	(1)
Human Capital	207	(1)
Implications of Specialized Investments	207	(1)
Costly Bargaining	207	(1)
Underinvestment	208	(1)
Opportunism and the ``Hold-Up Problem''	208	(2)
Optimal Input Procurement	210	(8)
Spot Exchange	210	(1)
Contracts	211	(4)
Vertical Integration	215	(1)
The Economic Trade-Off	216	(2)
Managerial Compensation and the Principal-Agent Problem	218	(3)
Forces That Discipline Managers	221	(3)
Incentive Contracts	221	(1)
External Incentives	222	(1)
Reputation	222	(1)
Takeovers	223	(1)
The Manager-Worker Principal-Agent Problem	224	(4)
Solutions to the Manager-Worker Principal-Agent Problem	224	(1)
Profit Sharing	224	(1)
Revenue Sharing	224	(2)
Piece Rates	226	(1)
Time Clocks and Spot Checks	227	(1)
Answering the Headline	228	(1)
Summary	228	(1)
Key Terms and Concepts	229	(1)
Problems	229	(3)
Selected Readings	232	(1)
Appendix: An Indifference Curve Approach to Managerial Incentives	233	(4)
Inside Business 6--1: The Cost of Using an Inefficient Method of Procuring Inputs	209	(6)
Inside Business 6--2: Factors Affecting the Length of Coal and Natural-Gas Contracts	215	(4)
Inside Business 6--3: The Evolution of Input Decisions in The Automobile Industry	219	(4)
Inside Business 6--4: Compensation in Fast Food Restaurants	223	(2)
Inside Business 6--5: What are Profits Worth to CEO's?	225	(1)
Inside Business 6--6: Incentive Based Contracts for School Superintendents	226	(11)
The Nature of Industry	237	(31)
Headline: Microsoft Puts Halt to Merger Plans	237	(1)
Introduction	237	(1)
Market Structure	238	(12)
Firm Size	238	(1)
Industry Concentration	239	(1)
Measures of Industry Concentration	240	(1)
The Concentration of U.S. Industry	241	(2)
Limitations of Concentration Measures	243	(1)
Global Markets	243	(1)
National, Regional, and Local Markets	243	(1)
Industry Definitions and Product Classes	243	(1)
Technology	244	(2)
Demand and Market Conditions	246	(2)
Potential for Entry	248	(2)
Conduct	250	(6)
Pricing Behavior	250	(2)
Integration and Merger Activity	252	(1)
Vertical Integration	252	(1)
Horizontal Integration	252	(1)
Conglomerate Mergers	253	(1)
Trends in Mergers, Takeovers, and Acquisitions	253	(2)
Research and Development	255	(1)
Advertising	256	(1)
Performance	256	(2)
Profits	256	(1)
Social Welfare	256	(2)
The Structure-Conduct-Performance Paradigm	258	(1)
The Causal View	258	(1)
The Feedback Critique	258	(1)
Overview of the Remainder of the Book	259	(3)
Perfect Competition	259	(1)
Monopoly	259	(1)
Monopolistic Competition	260	(1)
Oligopoly	260	(2)
Answering the Headline	262	(1)
Summary	262	(1)
Key Terms and Concepts	263	(1)
Problems	263	(2)
Selected Readings	265	(1)
Appendix: Data Sources for Managers	266	(2)
Inside Business 7--1: The North American Industry Classification System (NAICS)	245	(4)
Inside Business 7--2: The Elasticity of Demand at the Firm and Market Levels	249	(5)
Inside Business 7--3: The Language of Corporate Takeovers	254	(6)
Inside Business 7--4: The Evolution of Market Structure in the Computer Industry	260	(8)
Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets	268	(51)
Headline: No Profits, No Cake for Japanese VCR Makers	268	(1)
Introduction	268	(1)
Perfect Competition	268	(14)
Demand at the Market and the Firm	270	(1)
Short-Run Output Decisions	270	(1)
Maximizing Profits	271	(4)
Minimizing Losses	275	(1)
Short-Run Operating Losses	275	(1)
The Decision to Shut Down	276	(2)
The Short-Run Firm and Industry Supply Curves	278	(1)
Long-Run Decisions	279	(3)
Monopoly	282	(19)
Monopoly Power	282	(2)
Sources of Monopoly Power	284	(1)
Economies of Scale	284	(1)
Economies of Scope	285	(1)
Cost Complementarity	286	(1)
Patents and Other Legal Barriers	287	(1)
Maximizing Profits	288	(1)
Marginal Revenue	288	(5)
The Output Decision	293	(4)
The Absence of a Supply Curve	297	(1)
Multiplant Decisions	297	(2)
Implications of Entry Barriers	299	(2)
Monopolistic Competition	301	(6)
Conditions for Monopolistic Competition	301	(1)
Profit Maximization	301	(3)
Long-Run Equilibrium	304	(2)
Implications of Product Differentiation	306	(1)
Optimal Advertising Decisions	307	(2)
Answering the Headline	309	(1)
Summary	310	(1)
Key Terms and Concepts	310	(1)
Problems	310	(5)
Selected Readings	315	(1)
Appendix: The Calculus of Profit Maximization	316	(1)
Appendix: The Algebra of Perfectly Competitive Supply Functions	317	(2)
Inside Business 8--1: Competition in the Poultry Market	282	(4)
Inside Business 8--2: Minimum Efficient Scale and Monopoly Power	286	(3)
Inside Business 8--3: Factors That Affect Technological Progress	289	(30)
Basic Oligopoly Models	319	(39)
Headline: Crude Oil Prices Fall, but Consumers in Some Areas See No Relief at the Pump	319	(1)
Introduction	319	(1)
Conditions for Oligopoly	320	(1)
The Role of Beliefs and Strategic Interaction	320	(2)
Profit Maximization in Four Oligopoly Settings	322	(21)
Sweezy Oligopoly	322	(2)
Cournot Oligopoly	324	(1)
Reaction Functions and Equilibrium	324	(7)
Isoprofit Curves	331	(3)
Changes in Marginal Costs	334	(1)
Collusion	335	(1)
Stackelberg Oligopoly	336	(6)
Bertrand Oligopoly	342	(1)
Comparing Oligopoly Models	343	(5)
Cournot	345	(1)
Stackelberg	346	(1)
Bertrand	346	(1)
Collusion	346	(2)
Contestable Markets	348	(1)
Answering the Headline	349	(1)
Summary	350	(1)
Key Terms and Concepts	351	(1)
Problems	351	(4)
Selected Readings	355	(1)
Appendix: Differentiated-Product Bertrand Oligopoly	356	(2)
Inside Business 9--1: Using Experiments to Understand Oligopoly Behavior	329	(11)
Inside Business 9--2: Stackelberg Oligopoly and International Trade	340	(4)
Inside Business 9--3: Managerial Compensation in Bertrand and Cournot Oligopoly	344	(3)
Inside Business 9--4: Using a Spreadsheet to Calculate Cournot, Stackelberg, and Collusive Outcomes	347	(11)
Game Theory: Inside Oligopoly	358	(44)
Headline: Airline Seeks Government Regulation of Carry-On Baggage	358	(1)
Introduction	359	(1)
Overview of Games and Strategic Thinking	359	(1)
Simultaneous-Move, One-Short Games	360	(12)
Theory	360	(4)
Applications of One-Shot Games	364	(1)
Pricing Decisions	364	(1)
Advertising and Quality Decisions	365	(2)
Coordination Decisions	367	(1)
Monitoring Employees	368	(2)
Nash Bargaining	370	(2)
Infinitely Repeated Games	372	(8)
Theory	372	(1)
Review of Present Value	372	(1)
Supporting Collusion with Trigger Strategies	373	(3)
Factors Affecting Collusion in Pricing Games	376	(1)
Number of Firms	376	(1)
Firm Size	376	(1)
History of the Market	377	(1)
Punishment Mechanisms	378	(1)
An Application of Infinitely Repeated Games to Product Quality	378	(2)
Finitely Repeated Games	380	(6)
Games with an Uncertain Final Period	380	(3)
Repeated Games with a Known Final Period: The End-of-Period Problem	383	(2)
Applications of the End-of-Period Problem	385	(1)
Resignations and Quits	385	(1)
The ``Snake-Oil'' Salesman	386	(1)
Multistage Games	386	(8)
Theory	386	(3)
Applications of Multistage Games	389	(1)
The Entry Game	389	(1)
Innovation	390	(1)
Sequential Bargaining	391	(3)
Answering the Headline	394	(1)
Summary	395	(1)
Key Terms and Concepts	395	(1)
Problems	396	(5)
Selected Readings	401	(1)
Inside Business 10--1: Coordinating Activities: How Hard Is It?	368	(9)
Inside Business 10--2: Trigger Strategies in the Waste Industry	377	(2)
Inside Business 10--3: Collusion on NASDAQ?	379	(23)
Pricing Strategies for Firms with Market Power	402	(37)
Headline: Mickey Mouse Lets You Ride ``For Free'' at Disney World	402	(1)
Introduction	402	(1)
Basic Pricing Strategies	403	(6)
Review of the Basic Rule of Profit Maximization	403	(1)
A Simple Pricing Rule for Monopoly and Monopolistic Competition	404	(3)
A Simple Pricing Rule for Cournot Oligopoly	407	(2)
Strategies That Yield Even Greater Profits	409	(23)
Extracting Surplus from Consumers	410	(1)
Price Discrimination	410	(5)
Two-Part Pricing	415	(3)
Block Pricing	418	(2)
Commodity Bundling	420	(2)
Pricing Strategies for Special Cost and Demand Structures	422	(1)
Peak-Load Pricing	423	(1)
Cross Subsidies	424	(1)
Transfer Pricing	425	(2)
Pricing Strategies in Markets with Intense Price Competition	427	(1)
Price Matching	427	(3)
Inducing Brand Loyalty	430	(1)
Randomized Pricing	430	(2)
Answering the Headline	432	(1)
Summary	433	(1)
Key Terms and Concepts	433	(1)
Problems	433	(5)
Selected Readings	438	(1)
Inside Business 11--1: Pricing Markups as Rules of Thumb	405	(24)
Inside Business 11--2: The Prevalence of Price-Matching Policies and Other Low-Price Guarantees	429	(2)
Inside Business 11--3: Randomized Pricing in the Airline Industry	431	(8)
The Economics of Information	439	(40)
Headline: Firm Chickens Out in the FCC Spectrum Auction	439	(1)
Introduction	439	(1)
The Mean and the Variance	440	(3)
Uncertainty and Consumer Behavior	443	(7)
Risk Aversion	443	(1)
Managerial Decisions with Risk-Averse Consumers	444	(1)
Product Quality	444	(1)
Chain Stores	445	(2)
Insurance	447	(1)
Consumer Search	447	(3)
Uncertainty and the Firm	450	(5)
Risk Aversion	450	(3)
Producer Search	453	(1)
Profit-Maximization	454	(1)
Uncertainty and the Market	455	(7)
Asymmetric Information	455	(2)
Adverse Selection	457	(1)
Moral Hazard	458	(1)
Signaling and Screening	459	(3)
Auctions	462	(12)
Types of Auctions	463	(1)
English Auctions	463	(1)
First Price, Sealed-Bid Auction	463	(1)
Second-Price, Sealed-Bid Auction	464	(1)
Dutch Auction	464	(1)
Information Structures	464	(1)
Independent Private Values	465	(1)
Correlated Value Estimates	465	(1)
Optimal Bidding Strategies for Risk-Neutral Bidders	466	(1)
Strategies for Independent Private Values Auctions	466	(3)
Strategies for Correlated Values Auctions	469	(2)
Expected Revenues in Alternative Types of Auctions	471	(3)
Answering the Headline	474	(1)
Summary	474	(1)
Key Terms and Concepts	475	(1)
Problems	475	(3)
Selected Readings	478	(1)
Inside Business 12--1: The Likelihood of Business Failure	445	(1)
Inside Business 12--2: Risk Aversion and the Value of Selling the Firm: The St. Petersburg Paradox	446	(7)
Inside Business 12--3: Searching for Workers	453	(19)
Inside Business 12--4: Auctions with risk-Averse Bidders	472	(1)
Inside Business 12--5: Uncertainty and Real Estate Foreclosure Sales	473	(6)
A Manager's Guide to Government in the Marketplace	479	(36)
Headline: Justice Department Settles Price-Fixing Case Involving Eight Major Airlines	479	(1)
Introduction	479	(1)
Market Failure	480	(22)
Market Power	480	(1)
Antitrust Policy	481	(4)
Price Regulation	485	(3)
Externalities	488	(2)
The Clean Air Act	490	(3)
Public Goods	493	(5)
Incomplete Information	498	(1)
Rules Against Insider Trading	498	(1)
Certification	499	(1)
Truth in Lending	500	(1)
Truth in Advertising	500	(1)
Enforcing Contracts	501	(1)
Rent Seeking	502	(2)
Government Policy and International Markets	504	(6)
Quotas	504	(2)
Tariffs	506	(1)
Lump-Sum Tariffs	507	(1)
Excise Tariffs	507	(3)
Answering the Headline	510	(1)
Summary	510	(1)
Key Terms and Concepts	511	(1)
Problems	511	(3)
Selected Readings	514	(1)
Inside Business 13--1: False Advertisements	501	(8)
Inside Business 13--2: Motorcycle Tariffs	509	(6)
Appendix A Answers to Selected End-of-Chapter Problems	515	(9)
Appendix B Additional Readings and References	524	(19)
Name Index	543	(6)
General Index	549