Managerial Economics

by Shim, Jae K.; Siegel, Joel G.

• ISBN13: 9780764101700
• ISBN10: 0764101706
• Format: Paperback
• Copyright: 1998-07-01
• Publisher: Barrons Educational Series Inc

Summary

"Managerial Economics", the newest title in the "Business Review" series, deals with macro- and microeconomics, relating these subjects to the roles played in business by capital, management, labor, and government.

Table of Contents

PREFACE	xi
1 THE SCOPE AND METHODOLOGY OF MANAGERIAL ECONOMICS	1	(12)
What is Managerial Economics?	2	(1)
The Management Decision-Making Process	3	(1)
Profits	3	(1)
The Role of Profits	3	(1)
Accounting vs. Economic Profits	4	(1)
Profit Maximization and Marginal Analysis	4	(2)
Wealth Maximization	6	(3)
Recognizing the Time Value of Money	7	(2)
Defining the Value of the Firm	9	(1)
KNOW THE CONCEPTS	9	(2)
Terms for Study	9	(1)
Do You Know the Basics?	10	(1)
Practical Application	10	(1)
ANSWERS	11	(2)
2 OPTIMIZATION: PRINCIPLES AND TECHNIQUES	13	(26)
Using Functions, Graphs, and Equations	14	(2)
The Concept of a Functional Relationship	14	(1)
Using Graphs	14	(2)
Differential Calculus	16	(9)
The Extreme Value of a Function and the Derivative Tests	20	(1)
The First Derivative Test	20	(1)
The Second Derivative Test	21	(2)
Partial Derivatives and Multivariate Optimization	23	(2)
Profit Maximization	25	(1)
Constrained Optimization	26	(4)
The Substitution Method	27	(1)
Lagrangean Multiplier Technique	28	(2)
Marginal Analysis Versus Incremental Analysis	30	(1)
KNOW THE CONCEPTS	30	(3)
Terms for Study	30	(1)
Do You Know the Basics?	30	(1)
Practical Application	31	(2)
ANSWERS	33	(6)
3 DEMAND AND SUPPLY: THEORY AND ANALYSIS	39	(28)
Demand Function	40	(2)
Demand Schedule	40	(1)
Demand Curve	40	(1)
Shift in Demand	41	(1)
Market Demand Curve	41	(1)
Demand and Revenue	42	(1)
Average Revenue	42	(1)
Marginal Revenue	42	(1)
Elasticity of Demand	42	(9)
Price Elasticity	43	(2)
Two Extreme Cases of Price Elasticity	45	(2)
Linear Demand Curve and Nonconstant Price Elasticity	47	(1)
Total Revenue and Price Elasticity	47	(3)
Cross Elasticity of Demand	50	(1)
Income Elasticity of Demand	50	(1)
Advertising Elasticity of Demand	51	(1)
Market Share Elasticity	51	(1)
Constant Elasticity	51	(2)
Optimal Pricing Policy and Price Elasticity	53	(1)
Supply Function	54	(1)
Shift in Supply	55	(1)
Market Equilibrium	55	(2)
KNOW THE CONCEPTS	57	(3)
Terms for Study	57	(1)
Do You Know the Basics?	57	(1)
Practical Application	58	(2)
ANSWERS	60	(7)
4 DEMAND ESTIMATION	67	(34)
Consumer Surveys	68	(1)
Market Experiments	68	(1)
Identification Problem	69	(1)
Econometrics and Regression Analysis	70	(1)
Regression Analysis	70	(6)
Least-Squares Method	70	(3)
Assumptions Underlying Regression Analysis	73	(3)
Regression Statistics	76	(7)
Correlation Coefficient (r) and Coefficient of Determination (r(2))	76	(3)
Standard Error of the Estimate (S(e)) and Prediction Confidence Interval	79	(2)
Standard Error of the Regression Coefficient (S(b))	81	(1)
t-Statistic	81	(2)
Use of Excel for Regression	83	(1)
Multiple Regression	84	(1)
Applications	84	(1)
The Model	85	(1)
Statistics to Look for in Multiple Regressions	85	(2)
r(2) (r-bar squared) and F-Statistic	86	(1)
Multicollinearity	86	(1)
Autocorrelation (Serial Correlation)	87	(1)
Use of Regression Software	87	(3)
KNOW THE CONCEPTS	90	(5)
Terms for Study	90	(1)
Do You Know the Basics?	91	(1)
Practical Application	91	(4)
ANSWERS	95	(6)
5 BUSINESS AND ECONOMIC FORECASTING	101	(36)
Who Uses Forecasts?	102	(2)
Types of Forecasts	104	(1)
Sales Forecasts	104	(1)
Financial Forecasts	104	(1)
Economic Forecasts	104	(1)
Forecasting Methodology	104	(1)
Selection of Forecasting Method	105	(1)
The Qualitative Approach	106	(2)
Executive Opinions	106	(1)
The Delphi Method	107	(1)
Sales-Force Polling	107	(1)
Consumer Surveys	107	(1)
Common Features and Assumptions Inherent in Forecasting	108	(1)
Steps in the Forecasting Process	108	(1)
Naive Models, Moving Averages, and Smoothing Methods	109	(7)
Naive Models	109	(2)
Moving Averages	111	(2)
Exponential Smoothing	113	(3)
Trend Analysis	116	(3)
Linear Trend	117	(2)
Economic Forecasting	119	(5)
Barometric Forecasting	119	(2)
Econometric Models	121	(1)
Input-Output Analysis	122	(2)
Opinion Polling	124	(1)
Measuring Accuracy of Forecasts	124	(1)
Mean-Squared Error (MSE)	124	(1)
The U Statistic	124	(1)
KNOW THE CONCEPTS	125	(5)
Terms for Study	125	(1)
Do you Know the Basics?	125	(1)
Practical Application	126	(4)
ANSWERS	130	(7)
6 PRODUCTION THEORY AND ANALYSIS	137	(26)
Production Function	138	(2)
Linear Production Function	138	(1)
Leontief Production Function	139	(1)
Cobb-Douglas Production Function	139	(1)
Measures Of Productivity	140	(7)
Total Product	140	(1)
Average Product	140	(1)
Marginal Product	141	(1)
Relationship Among Total Product, Marginal Product, And Average Product	142	(1)
Marginal Revenue Product	142	(1)
Optimal Employment Rule	142	(2)
Isoquant	144	(1)
Marginal Rate of Technical Substitution	144	(1)
Substitutability of Inputs	144	(3)
The Stages of Production	147	(3)
Isocost Curve	147	(1)
Expansion Path	147	(2)
Cost Minimization -- Cost-Minimizing Input Rule	149	(1)
Returns to Scale	150	(2)
KNOW THE CONCEPTS	152	(3)
Terms for Study	152	(1)
Do You Know The Basics?	152	(1)
Practical Application	152	(3)
ANSWERS	155	(8)
7 LINEAR PROGRAMMING AND ACTIVITY ANALYSIS	163	(30)
Multiple Products and Production Planning	164	(11)
Applications of LP	165	(1)
Formulation of LP	165	(1)
Computation Methods of LP	166	(4)
The Dual Problem In LP	170	(2)
Economic Interpretation of The Dual Problem	172	(3)
Activity Analysis and Single Product	175	(7)
Formulation of Output-Maximization Problem	176	(1)
Graphical Approach To The Output-Maximization Problem	176	(1)
Process Rays	176	(1)
Production Isoquants	177	(1)
Feasible Region	178	(1)
Optimal Solution	179	(3)
KNOW THE CONCEPTS	182	(3)
Terms for Study	182	(1)
Do You Know The Basics?	182	(1)
Practical Application	183	(2)
ANSWERS	185	(8)
8 COST ANALYSIS	193	(36)
Cost Functions	194	(3)
The Set of Total Cost Concepts	195	(1)
The Set of Unit Cost Concepts	195	(1)
Marginal Cost	196	(1)
Stages of Production and Short-Run Cost Curves	197	(4)
Long-Run Cost Curves -- Planning Curves	201	(2)
Statistical Cost Analysis	203	(1)
Types of Costs	204	(2)
Explicit and Implicit Costs	204	(1)
Variable Costs, Fixed Costs, and Mixed Costs	204	(1)
Opportunity Costs	205	(1)
Out-of-Pocket (Outlay) Costs	205	(1)
Sunk Costs	205	(1)
Incremental (Differential) Costs	205	(1)
Shutdown Costs	205	(1)
Incremental Analysis vs. Marginal Analysis	206	(1)
Relevant Costs	206	(2)
Learning Curve	208	(4)
Cost-Volume-Profit and Break-Even Analysis	212	(3)
Break-Even Analysis	213	(1)
Determination of Target Income Volume	214	(1)
Graphical Approach in a Spreadsheet Format	215	(1)
Operating Leverage	216	(1)
KNOW THE CONCEPTS	217	(4)
Terms for Study	217	(1)
Do You Know The Basics?	217	(1)
Practical Application	218	(3)
ANSWERS	221	(8)
9 MARKET STRUCTURES AND THE THEORY OF THE FIRM	229	(26)
Perfect Competition	230	(2)
Long-Run	231	(1)
Monopolistic Competition	232	(1)
Oligopoly	232	(6)
Cournot's Duopoly Model	233	(1)
Kinked Demand Curve	233	(3)
Game Theory	236	(2)
Monopoly	238	(1)
Industry Concentration	238	(4)
Measures of Industry Concentration	239	(1)
Concentration Ratios	239	(1)
Herfindahl-Hirshman Index	240	(1)
Measures of Industry Characteristics	241	(1)
The Rothschild Index	241	(1)
The Lerner Index	241	(1)
KNOW THE CONCEPTS	242	(4)
Terms for Study	242	(1)
Do you Know the Basics?	242	(1)
Practical Application	243	(3)
ANSWERS	246	(9)
10 PRICING IN PRACTICE	255	(18)
Cost-Based Pricing	256	(1)
Optimal Pricing Policy and Price Elasticity	257	(1)
Mark up Pricing and Profit Maximization	258	(1)
Strategies That Yield Even Greater Profits	259	(3)
Price Discrimination	259	(2)
Two-Part Pricing	261	(1)
Block Pricing	261	(1)
Commodity Bundling	262	(1)
Strategies for Special Cost and Demand Structures	262	(1)
Peak Load Pricing	262	(1)
Cross Subsidization	262	(1)
Pricing Policies	263	(1)
Skimming Pricing	263	(1)
Penetrating Pricing	263	(1)
KNOW THE CONCEPTS	264	(2)
Terms for Study	264	(1)
Do you Know the Basics?	264	(1)
Practical Application	264	(2)
ANSWERS	266	(7)
11 ANALYSIS OF PROJECT DECISIONS (CAPITAL BUDGETING)	273	(26)
What are the Types of Investment Projects?	274	(1)
What are the Features of Investment Projects?	274	(1)
Understanding the Concept of Time Value of Money	275	(4)
How do you Calculate Future Values-How Money Grows?	275	(1)
Future Value of an Annuity	276	(1)
What is Present Value-How Much Money is Worth Now?	277	(1)
Present Value of an Annuity	278	(1)
A Basic Framework for Capital Budgeting	279	(1)
How do you Measure Investment Worth?	280	(3)
Net Present Value	280	(1)
Internal Rate of Return	281	(1)
Profitability Index	282	(1)
Capital Rationing-Project Ranking With a Limited Budget	283	(1)
How Do Income Taxes Affect Investment Decisions?	284	(2)
The Postaudit	286	(1)
Cost of Capital and the Discount Rate	286	(3)
Cost of Debt	286	(1)
Cost of Common Stock	287	(1)
Cost of Retained Earnings	288	(1)
Computing the Overall Cost of Capital	288	(1)
KNOW THE CONCEPTS	289	(4)
Terms for Study	289	(1)
Do you Know the Basics?	289	(1)
Practical Application	290	(3)
ANSWERS	293	(6)
12 RISK ANALYSIS	299	(24)
Risk	300	(3)
Expected Value	300	(1)
Standard Deviation	301	(1)
Coefficient of Variation	302	(1)
Utility Theory and Risk	303	(1)
Types of Risks	303	(3)
Risk Analysis in Capital Budgeting	306	(6)
Probability Distributions	306	(2)
Risk-Adjusted Discount Rate	308	(1)
Certainty Equivalent Approach	309	(1)
Simulation	310	(1)
Sensitivity Analysis	310	(1)
Decision Trees	310	(2)
KNOW THE CONCEPTS	312	(4)
Terms for Study	312	(1)
Do you Know the Basics?	312	(1)
Practical Application	312	(4)
ANSWERS	316	(7)
13 LEGAL AND REGULATORY ENVIRONMENT OF THE FIRM	323	(10)
The Rationale for Regulation	324	(1)
Antitrust Policy: Government Regulation of Market Conduct and Structure	324	(2)
Sherman Antitrust Act (1890)	325	(1)
Clayton Act (1914)	325	(1)
Robinson-Patman Act (1936)	325	(1)
Celler-Kefauver Act (1950)	326	(1)
Enforcement	326	(1)
Resource Allocation and the Supply of Public Goods	326	(2)
Public Project Analysis and Cost-Benefit Analysis	328	(2)
Classification of Goods	328	(1)
Social Goods and Externalities	329	(1)
KNOW THE CONCEPTS	330	(1)
Terms for Study	330	(1)
Do you Know the Basics?	330	(1)
Practical Application	331	(1)
ANSWERS	331	(2)
APPENDIX I	333	(6)
Sources of General Economic Information: Aggregate Economic Data	333	(6)
APPENDIX II	339	(8)
Table 1: Future Value of $1 = T1(i,n) = FVIF	339	(1)
Table 2: Future Value of an Annuity of $1 = T2 (i,n) = FVIFA	340	(1)
Table 3: Present Value of $1 = T3(i,n) = PVIF	341	(1)
Table 4: Present Value of an Annuity of $1 = T4(i,n) = PVIFA	342	(1)
Table 5: Critical Values for the t-Statistic	343	(1)
Table 6: Critical Values for the F-Statistic	344	(1)
Table 7: Learning Curve Coefficients	345	(2)
GLOSSARY	347	(8)
INDEX	355