Managerial Economics : Theory, Applications and Cases (ISE) (5TH ED)

Managerial Economics : Theory, Applications and Cases (ISE) (5TH ED)

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Full Description


Economic decisions are at the heart and soul of modern business and almost every business process has been subjected to economic analysis. Much of this analysis is applied microeconomics, in one form or another. Recently the emphasis in managerial economics courses has swung towards business studies and this new edition reflects this shift. Two chapters on traditional topics have been dropped and new chapters have been intorduced on important and contemporary subjects.

Table of Contents

Preface                                            xix
Part One Introduction 1 (80)
Introduction to Managerial Economics 3 (34)
Boeing's Struggle to Retain Market 4 (1)
Leadership
The Disney Corporation: Expansion of the 5 (1)
Magic Kingdom
In What Size Production Runs Should Toyota 6 (1)
Produce Its Cars?
Relationships of Managerial Economics to 6 (2)
Other Disciplines
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 16 (1)
Gains by Giving Safe-Driving Advice
Managerial Interests and the 16 (1)
Principal-Agent Problem
Demand and Supply: A First Look 17 (3)
Analyzing Managerial Decisions: How 18 (2)
Disney Dealt with the Principal-Agent
Problem
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 28 (2)
Case Study
Concepts in Context: Problems in the 29 (1)
Potato Market
Summary 30 (1)
Problems 31 (6)
Optimization Techniques 37 (44)
Functional Relationships 38 (2)
Marginal Analysis 40 (2)
Relationships between Total, Marginal, and 42 (3)
Average Values
The Concept of a Derivative 45 (4)
How to Find a Derivative 49 (9)
Concepts in Context: The Allocation of 54 (4)
the TANG Brand Advertising Budget
Using Derivatives to Solve Maximization and 58 (4)
Minimization Problems
Marginal-Cost Equals Marginal Revenue and 62 (4)
the Calculus of Optimization
Analyzing Managerial Decisions: The 63 (2)
Optimal Size of a Nursing Home
Concepts in Context: An Alleged Blunder 65 (1)
in the Stealth Bomber's Design
Partial Differentiation and the 66 (2)
Maximization of Multivariable Functions
Analyzing Managerial Decisions: The 67 (1)
Effects of Advertising on the Sales of
TANG
Constrained Optimization 68 (3)
Lagrangian Multipliers 71 (3)
Consultant's Corner: Planning to Meet 73 (1)
Peak Engineering Requirements
Comparing Incremental Costs with 74 (2)
Incremental Revenues
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 93 (3)
Price Elasticity of Demand
Concepts in Context: For Demand in Russia 94 (2)
Price Elasticity and Total Money Expenditure 96 (2)
Total Revenue, Marginal Revenue, and Price 98 (4)
Elasticity
Analyzing Managerial Decisions: The 100 (2)
Demand for Newsprint
Using Price Elasticity of Demand: 102 (1)
Application to Philips Morris
Using Price Elasticity of Demand: Public 102 (1)
Transit
Determinants of the Price Elasticity of 102 (3)
Demand
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 109 (1)
Income Elasticity of Demand
Cross Elasticities of Demand 110 (3)
Consultant's Corner: Estimating the 111 (2)
Demand for Rail Passenger Business by
Amtrak
The Advertising Elasticity of Demand 113 (1)
The Constant-Elasticity Demand Function 113 (3)
Analyzing Managerial Decisions: Price 115 (1)
Cutting at the London times
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 133 (1)
Constraint on Consumer Behavior
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 143 (1)
between Risk and Return
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 166 (2)
the Stafford Company
Software Packages and Computer Printouts 168 (3)
Concepts in context: How the Japanese 170 (1)
Motorcycle Makers Used the Coefficient of
Determination
Interpreting the Computer Printout 171 (7)
Concepts in Context: Color Balance and 173 (1)
Shelf-Life Performance of Polaroid Film
Analyzing Managerial Decisions: How Good 174 (4)
Are Ward's Projections of Auto Output?
Multicollinearity 178 (1)
Serial Correlation 179 (2)
Further Analysis of the Residuals 181 (1)
Summary 182 (4)
Analyzing Managerial Decisions: How Fed 184 (2)
Economists Forecast Auto Output
Problems 186 (6)
Appendix: The Coefficient of Determination 192 (5)
and the Concept of Explained Variation
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: 208 (1)
Forecasting the Demand for Blood Tests
Cyclical Variation 209 (3)
Elementary Forecasting Techniques 212 (2)
How Leading Indicators Are Used 214 (3)
Consultant's Corner: Deciding Whether to 216 (1)
Finance the Purchase of an Oil Field
How Econometric Models Are Used 217 (1)
Analyzing Managerial Decisions: 218 (1)
Forecasting Shipments of Cement by CEMCO
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 227 (6)
Forecasting
Managerial Economics in Context: How to 230 (3)
Forecast the Sales of Paper, According to
McKinsey
Part Three Production and Coast 233 (138)
Production Theory 235 (54)
The Production Function with One Variable 236 (6)
Input
Analyzing Managerial Decisions: Shaquille 241 (1)
O'Neal Goes to Los Angeless
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 245 (1)
Determine the Optimal Horsepower for an
Oil Pipeline
The Production Function with Two Variable 246 (3)
Inputs
Analyzing Managerial Decisions: How Nucor 248 (1)
Stays on the Production Function
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 259 (1)
Example
Optimal Lot Size 260 (4)
What Toyota Taught the World 264 (2)
Returns to Scale 266 (2)
Consultant's Corner: Choosing the Size of 267 (1)
an Oil Tanker
The Output Elasticity 268 (1)
How Firms Obtain Information About the 269 (1)
Production Function: Competitive
Benchmarkeing at Xerox
Measurement of Production Functions 270 (2)
Three Types of Statistical Analysis 272 (1)
The Telephone Industry in Canada: A Case 273 (1)
Study
Poultry Production in the United States: 274 (3)
Another Case Study
Summary 277 (1)
Problems 278 (6)
Appendix: Lagrangian Multipliers and 284 (5)
Optimal Input Combinations
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 294 (2)
Factory Performance
Research and Development: A Learning Process 296 (1)
Parallel Development Efforts 297 (2)
What Makes for Success? 299 (1)
Concepts in Context: Parallel Development 300 (1)
Efforts at IBM
Project Selection 300 (1)
Innovation 301 (1)
Time-Cost Trade-offs 302 (2)
The Learning Curve 304 (2)
Analyzing Managerial Decisions: The 306 (1)
Time-Cost Trade-off Function for Airliners
Applications of the Learning Curve 306 (2)
Henry Ford's Model T and Douglas Aircraft's 308 (1)
DC-9
Diffusion Models 308 (5)
Consultant's Corner: How Robots Spread in 312 (1)
Japan and the United States
Forecasting the Rate of Diffusion of 313 (2)
Numericall Controlled Machine Tools
Analyzing Managerial Decisions: The 314 (1)
Development and Introduction of Canon's
Personal Copier
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 323 (1)
Has Reduced Costs
Short-Run Cost Functions 323 (3)
Average and Marginal Costs 326 (6)
Analyzing Managerial Decisions: The 331 (1)
Effects of Output on the cost of
Producing Aircraft
Long-Run Cost Functions 332 (4)
The Crosby Corporation: A Numerical Example 336 (2)
Analyzing Managerial Decisions: Should We 337 (1)
Continue to Make Autos from Steel?
Economies of Scale in Nursing Homes 338 (3)
Measurement of Short-Run Cost Functions: 341 (1)
The Choice of a Mathematical Form
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 348 (2)
Functions
Long-Run Statistical Cost Estimation 350 (2)
The Long-Run Average Cost Function for 352 (1)
Electric Power: A Case Study
The Survivor Technique 353 (2)
The Importance of Flexibility 355 (1)
Economies of Scope 355 (3)
Concepts in Context: Economies of Scope 357 (1)
in Advertising Agencies
Break-Even Analysis 358 (2)
Algebraic Break-Even Analysis 360 (1)
Consultant's Corner: Mr. Martin Gets 361 (1)
Chewed Out by the Boss
Profit Contribution Analysis 361 (1)
Summary 362 (1)
Problems 363 (4)
Appendix: Break-Even Analysis and Operating 367 (4)
Leverage
Part Four Market Structure, Strategic Behavior, 371 (152)
and Pricing
Perfect Competition, Monopoly, and 373 (54)
Monopolistic Competition
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 378 (3)
Competitive Firm
Setting Marginal Cost Equal to Price 381 (4)
Consultant's Corner: Forecasting the 384 (1)
Price of Salmon
Producer Surplus in the Short Run 385 (2)
Long-Run Equilibrium of the Firm 387 (3)
The Long-Run Adjustment Process: A 390 (1)
Constant-Cost Industry
The Long-Run Adjustment Process: An 391 (2)
Increasing-Cost Industry
How a Perfectly Competitive Economy 393 (1)
Allocates Resources
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: 400 (1)
Franchiser versus Franchisee?
Concepts in Context: Using Patents to 401 (1)
Maintain Market Power
Two-Part Tariffs 402 (1)
Bunding 402 (6)
Concepts in Context: Verizon Local 403 (5)
Calling Plans
Monopolistic Competition 408 (1)
Price and Output Decisions under 409 (2)
Monopolistic Competition
Advertising Expenditures: A Simple Rule 411 (3)
Using Graphs to Help Determine Advertising 414 (1)
Expenditure
Advertising, the Price Elasticity of 415 (2)
Demand, and Brand Loyality: The Case of the
Retail Coffee Market
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 430 (1)
Industries
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 434 (1)
Shapes and Sizes
Price Leadership 435 (2)
Analyzing Managerial Decisions: Price 437 (1)
Cuts for Breakfast
Ajax, Inc.: A Numerical Example 437 (2)
Analyzing Managerial Decisions: 438 (1)
Cranberries: Where 34 Percent of the
Market Producers Are Price Takers
Summary 439 (1)
Problems 440 (7)
Game Theory 447 (30)
Two-Person Games 448 (1)
Nash Equilibrium 449 (2)
Carpenter Company and Hanover Corporation: 451 (4)
A Numerical Example
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 460 (1)
Rivalry
The Importance of Commitment 461 (2)
Consultant's Corner: Using a Price 462 (1)
Announcement to Preempt a market
When Is a Threat Credible? 463 (2)
The Importance of Entry 465 (1)
The Deterrence of Entry 465 (3)
Analyzing Managerial Decisions: 467 (1)
Difficulties in Formulating Effective
Contracts
Du Pont's Attempt to Deter Entry into the 468 (1)
Titanium Dioxide Industry
Advertising to Resist Entry: Maxwell House 468 (1)
Versus Folders
Preemptive Strategies: The Case of 469 (1)
Wall-Mart Stores
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 479 (1)
Case Study
Cost-Plus Pricing at Internet Companies and 480 (1)
Government-Regulated Industries
Does Cost-Plus Pricing Maximize Profit? 481 (2)
The Clawson Corporation: A Numerical Example 483 (1)
The Multiple-Product Firm: demand 483 (3)
Interrelationships
Analyzing Managerial Decisions: Pricing 484 (2)
Steaks at the Palm Restaurant
Pricing of Joint Productions: Fixed 486 (2)
Proportions
The Avtech Company: A Numerical Example 488 (2)
Output of Joint Products: Variable 490 (2)
Proportions
Price Discrimination 492 (2)
Airline Travel: A Case Study 494 (1)
Price Discrimination: A Pharmaceutical 495 (2)
Example
The Different Types of Price Discrimination 497 (5)
Using Coupons and Rebates for Price 502 (1)
Discrimination
Tying at IBM, Xerox, and Microsoft 503 (2)
Transfer Pricing 505 (4)
Concepts in Context: Why Do Women Pay 505 (1)
More?
Analyzing Managerial Decisions: Yield 506 (3)
Management at American Airlines
Transfer Pricing: A Perfectly Competitive 509 (1)
Market for the Transferred Product
Transfer Pricing in Practice Around the 510 (1)
World
Concepts in Context: Japan's Tax Man 510 (1)
Leans on Foreign Firms
The Orion Corporation: A Numerical Example 511 (4)
Consultant's Corner: Setting Some Strife 513 (2)
Over a Pricing Formula
Summary 515 (1)
Problems 516 (7)
Managerial Economics in Context: A Rocky 520 (3)
Road for Caterpillar Tractor
Part Five Risk, Uncertainty, and Incentives 523 (112)
Risk Analysis 525 (40)
Risk and Probability 526 (1)
Probability Distributions and Expertac 527 (1)
Values
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 534 (1)
Kuniang
The Expected Value of Perfect Information 534 (2)
Evaluating an Investment in a New Chemical 536 (2)
Plant: A Case Study
Consultant's Corner: Choosing Areas for 537 (1)
Research Regarding Pollutions Costs
Measuring Attitudes Toward Risk: The 538 (1)
Utility Approach
Constructing a Utility Function 538 (4)
Analyzing Managerial Decisions: Should 540 (2)
Maxwell House Have Increased Its Price?
Using a Utility Function 542 (1)
Attitudes Toward Risk: Three Types 543 (2)
The Standard Deviation and coefficient of 545 (3)
Variation: Measures of Risk
Analyzing Managerial Decisions: Deciding 548 (1)
Whether to Buy an Option on a New
Flight-Safety System
Adjusting the Valuation Model for Risk 548 (3)
Certainty Equivalence and the Market for 551 (1)
Insurance
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 557 (2)
Techniques in the Computer Industry
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 574 (3)
Design at Freemarkets, Inc.
Strategies for Sellers 577 (2)
Value of Information 579 (9)
Analyzing Managerial Decisions: The Use 582 (4)
of Sophisticated Pricing within an
Auction Format
Analyzing Managerial Decisions: The 586 (2)
Winner's Curse in Bidding for Oil Rights
Summary 588 (1)
Problems 588 (4)
Managing Incentives: Principal-Agent Problems 592 (43)
and Moral Hazard
Principal-Agent Problems 593 (5)
A Simple Model of the Principal-Agent 598 (10)
Problem with No Risk
The Principal-Agent Problem: Output Is 608 (4)
Risky and Efforts Is Not Observable
Illustration: Running the Family Farm 612 (7)
Concepts in Context: Call Options 617 (2)
Insurance and Moral Hazard 619 (1)
Analyzing Managerical Decisions: Do 620 (1)
Directors Act on Behalf of Shareholders
or Managers?
Principal-Agent Problems Between 620 (6)
Shareholders and Creditors
Product Liability and the Sofety of 626 (3)
Consumer Goods
Mangerial Economics in Context: The 628 (1)
Composition of CEO Pay
Summary 629 (2)
Problems 631 (4)
Part Six Government-Business Relations and the 635
Global Economy
Government and Business 637 (42)
Competition Versus Monopoly 638 (1)
Regulation of Monopoly 639 (4)
Analyzing Managerial Decisions: The 642 (1)
Social Cost of Monopoly
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 646 (1)
Requested Gas Rate Increase
The Concentration of Economic Power 646 (2)
The Sherman Act 648 (1)
The Clayton Act, the Robinson-Patman Act, 649 (2)
and the Federal Trade Commission Act
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 654 (1)
Case Study
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 665 (4)
on Price and Output
Concepts in Context: Buying and Selling 666 (2)
the Right to Emit Nitrogen Oxides
Analyzing Managerial Decisions: 668 (1)
Auctioning Off Spectrum Rights: Australia
and the United States
Public Goods 669 (1)
Concepts in Context: Entrance Fees to 670 (1)
National Parks
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 685 (2)
Which Country Will Export a Product
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 696 (1)
Wilton Company's Product
Concepts in Context: Sweetening with 697 (1)
Corn, Not Sugar
The Presence of Protectionism 697 (2)
Concepts in context: Why Bridgestone Paid 698 (1)
$2.6 Billion for Firestone
Strategic Trade Policy 699 (1)
Airbus Vversus Boeing: Strategic Trade 700 (2)
Policy in Action
International Trade disputes 702 (2)
Analyzing Managerial Decisions: Is 703 (1)
Airbous Playing by the Rules?
Making Direct Investments Abroad 704 (1)
Establishing a Plant Abroad: Time-Cost 704 (2)
Trade-offs
Channels of International Technology 706 (2)
Transfer
Analyzing Managerial Decisions: Seagram 707 (1)
Makes Vodka in Ukraine
Choice Among Transfer Channels 708 (1)
Consultant's Corner: Reorganizing a 709 (1)
Firm's Global R and D Network
Strategic Alliances 709 (2)
Summary 711 (1)
Problems 712
Managerial Economics in Context: NAFTA: A 713
Historic Agreement
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 A-14(1)
Questions and Problems
Brief Answers to ``Consultant's Corner'' A-47(1)
Brief Answers to ``Managerial Economics in A-54(1)
Context''
Appendix Tables A-57(1)
Photo Credits A-73(1)
Index A-75

039397678.TOC0393976785



1. Microeconomics? For Managers? 1 (24)

1.1. A Sales Pitch: Why Study Microeconomics? 1 (6)

1.2. What Is Microeconomics? 7 (2)

1.3. Models and Analysis 9 (10)

1.4. Learning Economics 19 (3)

Executive Summary 22 (1)

Problems 23 (2)

2. The Most Famous Picture in Economics 25 (17)

2.1. Supply and Demand 26 (1)

2.2. Equilibrium 27 (1)

2.3. (How) Does It Really Work? Market 27 (9)

Institutions and Figure 2.1

2.4. Back to the GM Truck Coupons 36 (3)

2.5. Supply Equals Demand as a Model 39 (1)

Executive Summary 40 (1)

Problems 40 (2)

3. Marginal This and Marginal That 42 (31)

3.1. Think Like an Economist: Think Margins 43 (2)

3.2. A Simple Example 45 (7)

3.3. Recalling Why We Are Doing This: Margins 52 (2)

Are Not Always What You First Think

3.4. Discrete Optimization and "Margins" 54 (3)

3.5. Multivariable Optimization 57 (6)

3.6. Puzzle 2: Constrained Maximization 63 (4)

Executive Summary 67 (1)

Problems 68 (5)

4. Demand Functions 73 (29)

4.1. Demand and Inverse Demand Functions 76 (7)

4.2. Do Firms Know Their Demand Functions? 83 (1)

4.3. Elasticity 84 (7)

4.4. Demand by Groups and in the Aggregate 91 (3)

Executive Summary 94 (1)

Problems 95 (7)

5. Modeling Consumer Behavior 102(30)

5.1. The Model: Utility Maximization 102(4)

5.2. The Consumer's Problem: Equating Bangs for 106(11)

the Buck

5.3. Pictures: Indifference Curves and Budget 117(5)

Sets

5.4. Individual Demand Functions 122(3)

5.5. (Why) Are You Supposed to Believe This 125(2)

Model of Behavior?

Executive Summary 127(1)

Problems 127(5)

6. Channels of Distribution and the Problem of 132(21)

Double Marginalization

6.1. A Story about Porsche 133(2)

6.2. A Simple Model of Two-Step Distribution 135(14)

6.3. Back to Porsche 149(1)

6.4. Why Do Laws to Protect Franchisees Exist? 150(1)

Executive Summary 151(1)

Problems 152(1)

7. Price Discrimination (and Surplus Extraction) 153(31)

7.1. Discrimination by Group Membership 155(3)

7.2. Discrimination (Nearly) by Group 158(3)

Membership: From Buyers' Clubs to Coupons

7.3. Third-Degree Price Discrimination: Product 161(6)

Differentiation

7.4. Second-Degree Price Discrimination 167(3)

7.5. The Extraction of Surplus 170(5)

7.6. First-Degree Price Discrimination 175(4)

7.7. Closing Remarks 179(1)

Executive Summary 179(1)

Problems 180(4)

8. Averages and Margins 184(20)

8.1. Average Cost for a Single-Product Firm 185(6)

8.2. Adding Average Revenue (Inverse Demand) 191(2)

and Marginal Revenue to the Picture

8.3. From Average to Marginal Cost but Not Back 193(2)

8.4. Efficient Scale 195(1)

8.5. Multiproduct Firms and Cost Functions 196(2)

8.6. Why Spend All This Time on Average Cost? 198(1)

Executive Summary 199(1)

Problems 200(4)

9. Technology and Cost Minimization 204(33)

9.1. Modeling Technology 204(7)

9.2. From Technology to Cost Functions: The 211(9)

Cost-Minimization Problem

9.3. Allocating Production among 220(6)

Cost-Independent Production Processes

9.4. Constrained Maximization: Pulling Threads 226(2)

Together

Executive Summary 228(1)

Problems 229(8)

10. Multiperiod Production and Cost 237(25)

10.1. Profits Today, Tomorrow, and Next Year 238(1)

10.2. Friction 239(9)

10.3. Durable Assets 248(5)

10.4. Know-How 253(5)

Executive Summary 258(1)

Problems 259(3)

11. Competitive Firms and Perfect Competition 262(29)

11.1. The Supply Decision of a Competitive Firm 264(6)

11.2. Equilibrium with Competitive Firms 270(5)

11.3. Short- and Medium-Run Analysis 275(2)

11.4. The Long Run, Entry, and Exit 277(7)

11.5. Why Do We Care about Perfect Competition? 284(1)

11.6. Monopolistic Competition 285(2)

Executive Summary 287(1)

Problems 288(3)

12. Market Efficiency 291(24)

12.1. Consumer and Producer Surplus 293(1)

12.2. Producer Surplus 294(5)

12.3. Consumer Surplus 299(4)

12.4. Competitive Markets Maximize Total Surplus 303(4)

12.5. Efficiency versus Equity 307(2)

12.6. Other Aspects of Welfare and Efficiency 309(2)

Executive Summary 311(1)

Problems 312(3)

13. Taxes, Subsidies, Administered Prices, and 315(26)

Quotas

13.1. Taxes 317(7)

13.2. Price Supports 324(4)

13.3. Price Ceilings and Rent Control 328(6)

13.4. Quotas and Tariffs 334(1)

Executive Summary 335(1)

Problems 336(5)

14. Externalities 341(22)

14.1. What Are Externalities? 342(2)

14.2. Why Do Externalities Lead to Inefficiency? 344(1)

14.3. Dealing with Externalities 345(2)

14.4. On the Regulation of Pollution 347(8)

14.5. Externalities within Organizations 355(3)

Executive Summary 358(1)

Problems 359(4)

15. Risk Aversion and Expected Utility 363(24)

15.1. How Do Individuals React to Uncertainty? 363(7)

15.2. The Expected Utility Model 370(9)

15.3. Concluding Remarks 379(3)

Executive Summary 382(1)

Problems 383(4)

16. Expected Utility as a Normative Decision Aid 387(19)

16.1. Justifying the Expected Utility Procedure 388(3)

16.2. Assessing Your Utility Function 391(8)

16.3. What Sort of Behavior Is Sensible? 399(2)

16.4. Reasons to Be Suspicious 401(3)

Executive Summary 404(1)

Problems 405(1)

17. Risk Sharing and Spreading: Securities and 406(17)

Insurance Markets

17.1 The Basic Idea 407(4)

17.2. Why Risk Is Not Always Spread Thinly 411(2)

17.3. Correlation between Gambles: Why 413(1)

Conclusion 2 Can Fail Even When 1 Holds

17.4. Efficient Risk Sharing 414(3)

Executive Summary 417(1)

Problems 418(5)

18. Hidden Information, Signaling, and Screening 423(25)

18.1. Hidden information and Adverse Selection 424(4)

18.2. Hidden Information on the Buyer's Side: 428(1)

Insurance and Contract Fulfillment

18.3. Problems of Average Selection 429(1)

18.4. Signals and Screens 429(3)

18.5. Equilibrium Signaling 432(5)

18.6. The Winner's Curse 437(2)

Executive Summary 439(1)

Problems 440(8)

19. Incentives 448(29)

19.1. A Basic Trade-off: Risk Sharing versus 449(11)

Motivation

19.2. Sundry Comments, Qualifications, 460(11)

Extensions, and Variations

Executive Summary 471(1)

Problems 472(5)

20. Porter's Five Forces and Economics with 477(15)

Identities

20.1. What Is the Industry? What Are Important 479(2)

Niches?

20.2. Substitute and Complementary Products 481(1)

20.3. The Bargaining Power of Customers and 482(2)

Suppliers

20.4. Potential Entrants (and Barriers to Entry 484(6)

and Mobility)

20.5. Rivalry 490(1)

20.6. Coming Attractions 490(1)

Executive Summary 491(1)

Problems 491(1)

21. Noncooperative Game Theory 492(38)

21.1. Modeling Situations as Games 495(6)

21.2. Dominance and Strategic-Form Games 501(5)

21.3. Nash Equilibrium 506(10)

21.4. Backward Induction in Extensive-Form 516(5)

Games of Complete and Perfect Information

21.5. Nash Equilibrium in General 521(2)

Extensive-Form Games

Executive Summary 523(3)

Problems 526(4)

22. Reciprocity and Collusion 530(26)

22.1. A Game-Theoretic Analysis of Reciprocity: 532(8)

The Folk Theorem

22.2. Collusion in an Oligopoly 540(10)

22.3. Other Applications of the Folk Theorem 550(3)

Executive Summary 553(1)

Problems 554(2)

23. Credibility and Reputation 556(34)

23.1. Credibility 557(11)

23.2. Reputation 568(11)

23.3. The Tribulations (and Salvation) of 579(8)

Monopolists

Executive Summary 587(1)

Problems 588(2)

24. Transaction Cost Economics and the Theory 590(26)

of the Firm

24.1. Transaction Cost Economics 594(14)

24.2. The Firm 608(4)

24.3. Transaction Costs and Ethical Behavior 612(2)

Executive Summary 614(2)

25. Economics and Organizational Behavior 616(15)

25.1. Thirty Takeaways and the Big Picture 616(6)

25.2. What Motivates Workers? 622(3)

25.3. Beliefs, Perceptions, and Tastes 625(6)

Index 631