Managerial Economics: Theory, Applications, and Cases

by Mansfield, Edwin; Allen, W. Bruce; Doherty, Neil A.; Weigelt, Keith; Mansfield, Edwin

• ISBN13: 9780393976779
• ISBN10: 0393976777
• Edition: 5th
• Format: Hardcover
• Copyright: 2002-01-01
• Publisher: W W Norton & Co Inc

Table of Contents

Preface	xix
Part One Introduction	1	(80)
Introduction to Managerial Economics	3	(34)
Boeing's Struggle to Retain Market Leadership	4	(1)
The Disney Corporation: Expansion of the Magic Kingdom	5	(1)
In What Size Production Runs Should Toyota Produce Its Cars?	6	(1)
Relationships of Managerial Economics to Other Disciplines	6	(2)
The Basic Process of Decision Making	8	(2)
The Theory of the Firm	10	(2)
The Role of Constraints	12	(1)
What Are Profits?	12	(2)
Reasons for the Existence of Profit	14	(1)
Organizational Factors and ``Satisficing''	15	(1)
Analyzing Managerial Decisions: Shell Gains by Giving Safe-Driving Advice	16	(1)
Managerial Interests and the Principal-Agent Problem	16	(1)
Demand and Supply: A First Look	17	(3)
Analyzing Managerial Decisions: How Disney Dealt with the Principal-Agent Problem	18	(2)
The Demand Side of a Market	20	(1)
The Supply Side of a Market	21	(2)
Equilibrium Price	23	(1)
Actual Price	24	(1)
What If the Demand Curve Shifts?	25	(2)
What If the Supply Curve Shifts?	27	(1)
How russia Glutted the Aluminum Market: A Case Study	28	(2)
Concepts in Context: Problems in the Potato Market	29	(1)
Summary	30	(1)
Problems	31	(6)
Optimization Techniques	37	(44)
Functional Relationships	38	(2)
Marginal Analysis	40	(2)
Relationships between Total, Marginal, and Average Values	42	(3)
The Concept of a Derivative	45	(4)
How to Find a Derivative	49	(9)
Concepts in Context: The Allocation of the TANG Brand Advertising Budget	54	(4)
Using Derivatives to Solve Maximization and Minimization Problems	58	(4)
Marginal-Cost Equals Marginal Revenue and the Calculus of Optimization	62	(4)
Analyzing Managerial Decisions: The Optimal Size of a Nursing Home	63	(2)
Concepts in Context: An Alleged Blunder in the Stealth Bomber's Design	65	(1)
Partial Differentiation and the Maximization of Multivariable Functions	66	(2)
Analyzing Managerial Decisions: The Effects of Advertising on the Sales of TANG	67	(1)
Constrained Optimization	68	(3)
Lagrangian Multipliers	71	(3)
Consultant's Corner: Planning to Meet Peak Engineering Requirements	73	(1)
Comparing Incremental Costs with Incremental Revenues	74	(2)
Summary	76	(1)
Problems	77	(4)
Part Two Demand and Forecasting	81	(152)
Demand Theory	83	(40)
Introduction	83	(1)
The Market Demand Curve	84	(4)
Industry and Firm Demand Functions	88	(2)
The Price Elasticity of Demand	90	(2)
Point and Are Elasticities	92	(1)
Using the Demand Function to Calculate the Price Elasticity of Demand	93	(3)
Concepts in Context: For Demand in Russia	94	(2)
Price Elasticity and Total Money Expenditure	96	(2)
Total Revenue, Marginal Revenue, and Price Elasticity	98	(4)
Analyzing Managerial Decisions: The Demand for Newsprint	100	(2)
Using Price Elasticity of Demand: Application to Philips Morris	102	(1)
Using Price Elasticity of Demand: Public Transit	102	(1)
Determinants of the Price Elasticity of Demand	102	(3)
Uses of the Price Elasticity of Demand	105	(1)
Price Elasticity and Pricing Policy	106	(1)
The Income Elasticity of Demand	107	(2)
Using the Demand Function to Calculate the Income Elasticity of Demand	109	(1)
Cross Elasticities of Demand	110	(3)
Consultant's Corner: Estimating the Demand for Rail Passenger Business by Amtrak	111	(2)
The Advertising Elasticity of Demand	113	(1)
The Constant-Elasticity Demand Function	113	(3)
Analyzing Managerial Decisions: Price Cutting at the London times	115	(1)
Summary	116	(1)
Problems	117	(6)
Consumer Behavior and Rational Choice	123	(26)
Indifference Curves	124	(2)
The Marginal Rate of Substitution	126	(2)
The Concept of Utility	128	(1)
The Budget Line	128	(3)
The Equilibrium Market Basket	131	(3)
Concepts in Context: Effect of a Time Constraint on Consumer Behavior	133	(1)
Maximizing Utility: A Closer Look	134	(1)
Corner Solutions	135	(1)
Representing the Process of Rational Choice	136	(1)
Deriving the Individual Demand Curve	137	(2)
Deriving the Market Demand Curve	139	(1)
Consumer Surplus	140	(2)
Summary	142	(2)
Consultant's Corner: The Trade-off between Risk and Return	143	(1)
Problems	144	(5)
Estimating Demand Functions	149	(48)
The Identification Problem	150	(3)
Consumer Interviews	153	(1)
Market Experiments	154	(1)
L'eggs: A Market Experiment	154	(1)
Regression Analysis	155	(2)
Simple Regression Model	157	(1)
Sample Regression Line	158	(2)
Method of Least Squares	160	(3)
Coefficient of Determination	163	(2)
Multiple Regression	165	(3)
Consultants Corner: Marketing Plans at the Stafford Company	166	(2)
Software Packages and Computer Printouts	168	(3)
Concepts in context: How the Japanese Motorcycle Makers Used the Coefficient of Determination	170	(1)
Interpreting the Computer Printout	171	(7)
Concepts in Context: Color Balance and Shelf-Life Performance of Polaroid Film	173	(1)
Analyzing Managerial Decisions: How Good Are Ward's Projections of Auto Output?	174	(4)
Multicollinearity	178	(1)
Serial Correlation	179	(2)
Further Analysis of the Residuals	181	(1)
Summary	182	(4)
Analyzing Managerial Decisions: How Fed Economists Forecast Auto Output	184	(2)
Problems	186	(6)
Appendix: The Coefficient of Determination and the Concept of Explained Variation	192	(5)
Business and Economic Forecasting	197	(36)
Survey Techniques	198	(1)
Taking Apart a Time Series	199	(3)
How to Estimate a Linear Trend	202	(2)
How to Estimage a Nonlinear Trend	204	(1)
Seasonal Variation	205	(1)
Calculation of Seasonal Variation	206	(3)
Analyzing Managerial Decisions: Forecasting the Demand for Blood Tests	208	(1)
Cyclical Variation	209	(3)
Elementary Forecasting Techniques	212	(2)
How Leading Indicators Are Used	214	(3)
Consultant's Corner: Deciding Whether to Finance the Purchase of an Oil Field	216	(1)
How Econometric Models Are Used	217	(1)
Analyzing Managerial Decisions: Forecasting Shipments of Cement by CEMCO	218	(1)
John Hancock and Timberland: A Case Study	218	(1)
The Purvere Corporation: A Numerical Example	219	(2)
``Study Your Residuals''	221	(1)
Summary	222	(1)
Problems	223	(4)
Appendix: Exponential Somoothing and Forecasting	227	(6)
Managerial Economics in Context: How to Forecast the Sales of Paper, According to McKinsey	230	(3)
Part Three Production and Coast	233	(138)
Production Theory	235	(54)
The Production Function with One Variable Input	236	(6)
Analyzing Managerial Decisions: Shaquille O'Neal Goes to Los Angeless	241	(1)
The Law of Diminishing Marginal Returens	242	(1)
The Optimal Level of Utilization of an Input	242	(2)
The Rondo Corporation: A Numerical Example	244	(2)
Analyzing Managerial Decisions: How to Determine the Optimal Horsepower for an Oil Pipeline	245	(1)
The Production Function with Two Variable Inputs	246	(3)
Analyzing Managerial Decisions: How Nucor Stays on the Production Function	248	(1)
Isoquants	249	(2)
The Marginal Rate of Technical Substitution	251	(3)
The Optimal Combination of Inputs	254	(3)
The Beiswanger Company: A Numerical Example	257	(2)
The Miller Company: Another Numerical Example	259	(1)
Optimal Lot Size	260	(4)
What Toyota Taught the World	264	(2)
Returns to Scale	266	(2)
Consultant's Corner: Choosing the Size of an Oil Tanker	267	(1)
The Output Elasticity	268	(1)
How Firms Obtain Information About the Production Function: Competitive Benchmarkeing at Xerox	269	(1)
Measurement of Production Functions	270	(2)
Three Types of Statistical Analysis	272	(1)
The Telephone Industry in Canada: A Case Study	273	(1)
Poultry Production in the United States: Another Case Study	274	(3)
Summary	277	(1)
Problems	278	(6)
Appendix: Lagrangian Multipliers and Optimal Input Combinations	284	(5)
Technological Change and Industrial Innovation	289	(32)
Technological Change	290	(1)
Labor Productivity	291	(1)
Total Factor Productivity	292	(2)
Using Total Factor Productivity to Truck Factory Performance	294	(2)
Research and Development: A Learning Process	296	(1)
Parallel Development Efforts	297	(2)
What Makes for Success?	299	(1)
Concepts in Context: Parallel Development Efforts at IBM	300	(1)
Project Selection	300	(1)
Innovation	301	(1)
Time-Cost Trade-offs	302	(2)
The Learning Curve	304	(2)
Analyzing Managerial Decisions: The Time-Cost Trade-off Function for Airliners	306	(1)
Applications of the Learning Curve	306	(2)
Henry Ford's Model T and Douglas Aircraft's DC-9	308	(1)
Diffusion Models	308	(5)
Consultant's Corner: How Robots Spread in Japan and the United States	312	(1)
Forecasting the Rate of Diffusion of Numericall Controlled Machine Tools	313	(2)
Analyzing Managerial Decisions: The Development and Introduction of Canon's Personal Copier	314	(1)
Summary	315	(1)
Problems	316	(5)
The Analysis of Costs	321	(50)
Introduction	321	(1)
Opportunity Costs	322	(1)
Concepts in Context: How Harley-Davidson Has Reduced Costs	323	(1)
Short-Run Cost Functions	323	(3)
Average and Marginal Costs	326	(6)
Analyzing Managerial Decisions: The Effects of Output on the cost of Producing Aircraft	331	(1)
Long-Run Cost Functions	332	(4)
The Crosby Corporation: A Numerical Example	336	(2)
Analyzing Managerial Decisions: Should We Continue to Make Autos from Steel?	337	(1)
Economies of Scale in Nursing Homes	338	(3)
Measurement of Short-Run Cost Functions: The Choice of a Mathematical Form	341	(1)
Nature and Limitations of Available Data	342	(3)
Key Steps in the Estimation Process	345	(1)
A Hostiery Mill's Short-Run Cost Functions	346	(2)
A Transportation Firm's Short-Run Cost Functions	348	(2)
Long-Run Statistical Cost Estimation	350	(2)
The Long-Run Average Cost Function for Electric Power: A Case Study	352	(1)
The Survivor Technique	353	(2)
The Importance of Flexibility	355	(1)
Economies of Scope	355	(3)
Concepts in Context: Economies of Scope in Advertising Agencies	357	(1)
Break-Even Analysis	358	(2)
Algebraic Break-Even Analysis	360	(1)
Consultant's Corner: Mr. Martin Gets Chewed Out by the Boss	361	(1)
Profit Contribution Analysis	361	(1)
Summary	362	(1)
Problems	363	(4)
Appendix: Break-Even Analysis and Operating Leverage	367	(4)
Part Four Market Structure, Strategic Behavior, and Pricing	371	(152)
Perfect Competition, Monopoly, and Monopolistic Competition	373	(54)
Market Structure	373	(2)
Market Price Under Perfect Competition	375	(2)
Shifts in Supply and Demand Curves	377	(1)
The Output Decision of a Perfectly Competitive Firm	378	(3)
Setting Marginal Cost Equal to Price	381	(4)
Consultant's Corner: Forecasting the Price of Salmon	384	(1)
Producer Surplus in the Short Run	385	(2)
Long-Run Equilibrium of the Firm	387	(3)
The Long-Run Adjustment Process: A Constant-Cost Industry	390	(1)
The Long-Run Adjustment Process: An Increasing-Cost Industry	391	(2)
How a Perfectly Competitive Economy Allocates Resources	393	(1)
Price and Output Decisions under Monopoly	394	(4)
The Newspaper Industry in Detroit	398	(1)
The Raleigh Company: A Numerical Example	399	(3)
Analyzing Managerial Decisions: Franchiser versus Franchisee?	400	(1)
Concepts in Context: Using Patents to Maintain Market Power	401	(1)
Two-Part Tariffs	402	(1)
Bunding	402	(6)
Concepts in Context: Verizon Local Calling Plans	403	(5)
Monopolistic Competition	408	(1)
Price and Output Decisions under Monopolistic Competition	409	(2)
Advertising Expenditures: A Simple Rule	411	(3)
Using Graphs to Help Determine Advertising Expenditure	414	(1)
Advertising, the Price Elasticity of Demand, and Brand Loyality: The Case of the Retail Coffee Market	415	(2)
Summary	417	(1)
Problems	418	(5)
Appendix: Allocation of Output among Plants	423	(4)
Oligopoly	427	(20)
The Emergence of Oligopolistic Industries	428	(2)
Maturity and Decline of Oligopolistic Industries	430	(1)
Collusive Agreements	430	(2)
The Breakdown of Collusive Aggreements	432	(1)
Dissension in the OPEC Oil Cartel	433	(2)
Concepts in Context: Cartels Come in Many Shapes and Sizes	434	(1)
Price Leadership	435	(2)
Analyzing Managerial Decisions: Price Cuts for Breakfast	437	(1)
Ajax, Inc.: A Numerical Example	437	(2)
Analyzing Managerial Decisions: Cranberries: Where 34 Percent of the Market Producers Are Price Takers	438	(1)
Summary	439	(1)
Problems	440	(7)
Game Theory	447	(30)
Two-Person Games	448	(1)
Nash Equilibrium	449	(2)
Carpenter Company and Hanover Corporation: A Numerical Example	451	(4)
The Prisoner's Dilemma	455	(1)
Does Cheating Pay?	456	(1)
A More Sophisticated Analysis	457	(1)
Most-Favored-Customer Clauses	458	(2)
The Thrust and Parry of Oligopolistic Rivalry	460	(1)
The Importance of Commitment	461	(2)
Consultant's Corner: Using a Price Announcement to Preempt a market	462	(1)
When Is a Threat Credible?	463	(2)
The Importance of Entry	465	(1)
The Deterrence of Entry	465	(3)
Analyzing Managerial Decisions: Difficulties in Formulating Effective Contracts	467	(1)
Du Pont's Attempt to Deter Entry into the Titanium Dioxide Industry	468	(1)
Advertising to Resist Entry: Maxwell House Versus Folders	468	(1)
Preemptive Strategies: The Case of Wall-Mart Stores	469	(1)
Representing Games with Game Trees	470	(2)
Summary	472	(1)
Problems	473	(4)
Pricing Techniques	477	(46)
Cost-Plus Pricing	478	(1)
Cost-Plus Pricing at Computron, Inc.: A Case Study	479	(1)
Cost-Plus Pricing at Internet Companies and Government-Regulated Industries	480	(1)
Does Cost-Plus Pricing Maximize Profit?	481	(2)
The Clawson Corporation: A Numerical Example	483	(1)
The Multiple-Product Firm: demand Interrelationships	483	(3)
Analyzing Managerial Decisions: Pricing Steaks at the Palm Restaurant	484	(2)
Pricing of Joint Productions: Fixed Proportions	486	(2)
The Avtech Company: A Numerical Example	488	(2)
Output of Joint Products: Variable Proportions	490	(2)
Price Discrimination	492	(2)
Airline Travel: A Case Study	494	(1)
Price Discrimination: A Pharmaceutical Example	495	(2)
The Different Types of Price Discrimination	497	(5)
Using Coupons and Rebates for Price Discrimination	502	(1)
Tying at IBM, Xerox, and Microsoft	503	(2)
Transfer Pricing	505	(4)
Concepts in Context: Why Do Women Pay More?	505	(1)
Analyzing Managerial Decisions: Yield Management at American Airlines	506	(3)
Transfer Pricing: A Perfectly Competitive Market for the Transferred Product	509	(1)
Transfer Pricing in Practice Around the World	510	(1)
Concepts in Context: Japan's Tax Man Leans on Foreign Firms	510	(1)
The Orion Corporation: A Numerical Example	511	(4)
Consultant's Corner: Setting Some Strife Over a Pricing Formula	513	(2)
Summary	515	(1)
Problems	516	(7)
Managerial Economics in Context: A Rocky Road for Caterpillar Tractor	520	(3)
Part Five Risk, Uncertainty, and Incentives	523	(112)
Risk Analysis	525	(40)
Risk and Probability	526	(1)
Probability Distributions and Expertac Values	527	(1)
Comparisons of Expected Profit	528	(1)
How to Construct a Decision Tree	529	(2)
Should Tomco Oil Corporation Drill a Well?	531	(3)
Concepts in Context: Bidding for the SS Kuniang	534	(1)
The Expected Value of Perfect Information	534	(2)
Evaluating an Investment in a New Chemical Plant: A Case Study	536	(2)
Consultant's Corner: Choosing Areas for Research Regarding Pollutions Costs	537	(1)
Measuring Attitudes Toward Risk: The Utility Approach	538	(1)
Constructing a Utility Function	538	(4)
Analyzing Managerial Decisions: Should Maxwell House Have Increased Its Price?	540	(2)
Using a Utility Function	542	(1)
Attitudes Toward Risk: Three Types	543	(2)
The Standard Deviation and coefficient of Variation: Measures of Risk	545	(3)
Analyzing Managerial Decisions: Deciding Whether to Buy an Option on a New Flight-Safety System	548	(1)
Adjusting the Valuation Model for Risk	548	(3)
Certainty Equivalence and the Market for Insurance	551	(1)
The Use of Risk-Adjusted Discount Rates	552	(1)
Simulation Techniques	553	(3)
Application of the Maximin rule	556	(3)
Concepts in Context: Using Simulation Techniques in the Computer Industry	557	(2)
Summary	559	(1)
Problems	560	(5)
Auctions	565	(27)
A Short History of Auctions	567	(1)
Types of Auction Mechanisms	568	(1)
Auction Mechanism and Revenue Generation	569	(2)
Bidding Strategies	571	(6)
Analyzing Managerial Decisions: Auction Design at Freemarkets, Inc.	574	(3)
Strategies for Sellers	577	(2)
Value of Information	579	(9)
Analyzing Managerial Decisions: The Use of Sophisticated Pricing within an Auction Format	582	(4)
Analyzing Managerial Decisions: The Winner's Curse in Bidding for Oil Rights	586	(2)
Summary	588	(1)
Problems	588	(4)
Managing Incentives: Principal-Agent Problems and Moral Hazard	592	(43)
Principal-Agent Problems	593	(5)
A Simple Model of the Principal-Agent Problem with No Risk	598	(10)
The Principal-Agent Problem: Output Is Risky and Efforts Is Not Observable	608	(4)
Illustration: Running the Family Farm	612	(7)
Concepts in Context: Call Options	617	(2)
Insurance and Moral Hazard	619	(1)
Analyzing Managerical Decisions: Do Directors Act on Behalf of Shareholders or Managers?	620	(1)
Principal-Agent Problems Between Shareholders and Creditors	620	(6)
Product Liability and the Sofety of Consumer Goods	626	(3)
Mangerial Economics in Context: The Composition of CEO Pay	628	(1)
Summary	629	(2)
Problems	631	(4)
Part Six Government-Business Relations and the Global Economy	635
Government and Business	637	(42)
Competition Versus Monopoly	638	(1)
Regulation of Monopoly	639	(4)
Analyzing Managerial Decisions: The Social Cost of Monopoly	642	(1)
The Trenton Gas Company: A Numerical Example	643	(1)
The Lone Star Gas Company: A Case Study	644	(1)
Effects of Regulation on Efficiency	645	(1)
Consultant's Corner: A Dispute Over a Requested Gas Rate Increase	646	(1)
The Concentration of Economic Power	646	(2)
The Sherman Act	648	(1)
The Clayton Act, the Robinson-Patman Act, and the Federal Trade Commission Act	649	(2)
The Interpretation of the Antitrust Laws	651	(1)
Antitrust Policy During the 1960s and 1970s	652	(1)
Antitrust Policy during the 1980s and 1990s	653	(1)
Du Point's Titanium Dioxide Pigments: A Case Study	654	(1)
The Patent System	655	(2)
Patents and the Rate of Innovation	657	(1)
Regulation of Environmental Pollution	658	(1)
External Economies and Diseconomies	659	(1)
The Genesis of the Pollution Problem	659	(1)
The Optimal Level of Pollution Control	660	(3)
Forms of Government Regulation	663	(2)
Effects of Regulation-Induced Cost Increase on Price and Output	665	(4)
Concepts in Context: Buying and Selling the Right to Emit Nitrogen Oxides	666	(2)
Analyzing Managerial Decisions: Auctioning Off Spectrum Rights: Australia and the United States	668	(1)
Public Goods	669	(1)
Concepts in Context: Entrance Fees to National Parks	670	(1)
Summary	670	(2)
Problems	672	(7)
Managerial Economics: Taking a Global View	679
Foreign Trade	680	(2)
Comparative Advantage	682	(2)
Changes in Comparative Advantage	684	(1)
Using Demand and Supply curves to Determine Which Country Will Export a Product	685	(2)
Analyzing the Gains from Trade	687	(3)
Exchange Rates	690	(3)
Determinants of Exchange Rates	693	(2)
Tariffs and Quotas	695	(1)
The Effects of a Quota: The Case of the Wilton Company's Product	696	(1)
Concepts in Context: Sweetening with Corn, Not Sugar	697	(1)
The Presence of Protectionism	697	(2)
Concepts in context: Why Bridgestone Paid $2.6 Billion for Firestone	698	(1)
Strategic Trade Policy	699	(1)
Airbus Vversus Boeing: Strategic Trade Policy in Action	700	(2)
International Trade disputes	702	(2)
Analyzing Managerial Decisions: Is Airbous Playing by the Rules?	703	(1)
Making Direct Investments Abroad	704	(1)
Establishing a Plant Abroad: Time-Cost Trade-offs	704	(2)
Channels of International Technology Transfer	706	(2)
Analyzing Managerial Decisions: Seagram Makes Vodka in Ukraine	707	(1)
Choice Among Transfer Channels	708	(1)
Consultant's Corner: Reorganizing a Firm's Global R and D Network	709	(1)
Strategic Alliances	709	(2)
Summary	711	(1)
Problems	712
Managerial Economics in Context: NAFTA: A Historic Agreement	713
Appendix A Discounting and Present Values	A-1	(1)
Present Value of a Series of Payments	A-3	(1)
The Use of Periods Other Than a Year	A-5	(1)
Determining the Internal Rate of Return	A-6	(1)
Appendix B The Normal, t, and F Distributions	A-9	(1)
Brief Ansers to Odd-Numbered End-of-Chapter Questions and Problems	A-14	(1)
Brief Answers to ``Consultant's Corner''	A-47	(1)
Brief Answers to ``Managerial Economics in Context''	A-54	(1)
Appendix Tables	A-57	(1)
Photo Credits	A-73	(1)
Index	A-75