CONTENTS
PART l THE FlRM AND ITS ENVlRONMENT
1 Introduction, Environment, and Methodology
Managerial Economics and the Global Economy
Economics and the Management of Organizations
Our Approach to Problem Solving
Organization of This Book
Appendix l Demand, Supply, and Market Price:
A Brief Review
Demand and the Demand Curve
Supply and the Supply Curve
Determination of Market Price
Carryover to Analysis of Other Markets
2 Revenue of the Firm
Advertising, Consumer Demand, and Business Research
The Demand Function
De terminants of Demand
A Note on Determinants of Supply
Elasticity of Demand
Sununary
Appendix 2 Theory of Consumer Behavior
Cardinal Utility Approach
Ordinal Utility Theory
Marginal Rate of Substitution
Consumer Equilibrium
Deriving a Demand Curve
3 Topics in Demand Analysis and Estimation
Market Surveys
Demand Estimation with Regression Analysis
Market Experiments
Summary 108
Appendix 3 Linear Regression Analysis l l l
The Linear Regression Model and Underlying Assumptions l l l
Logarithmic Transformations 129
Summary 132
4 Economic Forecasting
Types of Economic Forecasts
Two Major Kinds of Data
Factors Affecting Economic Variables
Forecasting Methods
Accuracy of Forecasts
Summary
Integrating Case lA Are There Two Markets
for Microwave Ovens?
Integrating Case 1B Omega Distributing Company l
PART 2 PRODUCTlON, COST, AND PROFlT MAXlMlZATlON
5 Theory of Production
The Production Function and the Long Run
Total Product Curves and the Short Run
Summary
Appendix 5 Mathematics of Determining the Least
Cost Combination of Inputs
6 Cost of Production
Types of Costs
Costs in the Long Run
Costs in the Short Run
Relationship of Short-Run Cost Curves to Short-Run
Product Curves
Relation of Short-Run to Long-Run Average Costs
The Leaming Effect
Economies of Scope
Choosing the Optimal Plant Size: An Example
Estimation of Cost
Summary
Intemational Capsule l Some Intemational Dimensions
of Demand, Production, and Cost
The Basis for Intemational Trade
Payment for Exports
The Problem of Trade Barriers
7 profit Analysis of the Firm
Profit Maximization
Shut-Down Point
Break-Even Analysis
Profit Maximizahon versus Break-Even Analysis
Incremental Profit Analysis
Summary
8 Linear Programming and the Firm
Relationship between Linear Programming and
Calculus Techniques
The Primal Program
The Dual Program
Activity Analysis: One Product
Summary
Integrating Case 2A Frontier Concrete Products Company
Integrating Case 2B Shanghai Magnificent Harmony
Foundry l
PART 3 MARKETS AND THE BEHAVlOR OF THE FlRM
9 Perfect Competition and Monopoly: The Limiting Cases
Perfect Competition and Its Setting
Monopoly and Its Setting
Summary
10 Monopolistic Competition, Oligopoly, and Rivalrous
Market Structures
Monopolistic Competition: A Case of Many Firms
Duopoly: An Oligopoly with Two Firms
The Question of Entry
The Kinked Oligopoly Demand Curve: Price Rigidity
without Collusion
Tacit Collusion and Price Leadership
Perfect Collusion--The Cartel
Production with Multiple Plants
Summary
Appendix lO Game Theory in Oligopoly Analysis
11 Selected Topics in Pricing and Profit Strategy
Markup Pricing
Decisions Involving Multiple Products
Price Discrimination
Two-Part Pricing (Access Fees)
Bundling
Altematives to Profit Maximization
Summary
Appendix llA Transfer Pricing with a Less-Than-Perfectly
Competitive Market for the Intermediate Product
Appendix 11B Mathematics of Price Discrimination
Solution Procedure If Discrimination Is Permitted
Solution Procedure If Discrimination Is Not Permitted
Intemational Capsule ll Markets and Pricing Strategy
in Intemational Trade
Market Segmentation in intemational Trade
The Problem of Dumping
Webb-Pomerene and Export Trading Companies
The Effects of Trade Restrictions on Prices
Intemational Transfer Pricing
12 Factor Markets and Profit-Maximizing Employment
of Variable Inputs
Profit-Maximizing Employment of One Variable Input
Determination of Equilibrium Prices for Inputs:
Perfect Competition in the Input Market
Determination of Equilibrium Prices for Inputs:
Monopsony m the Input Market
Determination of Equilibrium Prices for Inputs:
Bilateral Monopoly in the Input Market
Summary
Integrating Case 3A German-American Metals Corporation
Integrating Case 3B Bonco, Incorporated: A Firm in Transition
Integrating Case 3C A Hare-Raising Decision
Integrating Case 3D Omega Distributing Company ll
13 Fundamentals of Project Evaluation
Capital Budgeting and Project Analysis
Costs in New Undertakings
Stream of Receipts or Retums
A Simple Capital Project Analysis
Project Yield or Rate of Retum
Project Ranking in Capital Budgeting Analysis
Cost of Capital and the Discount Rate
Summary
Appendix 13 Compounding and Discountmg
Compound Interest
Present Value and Discounting
Annuities
14 Risk in Project Analysis
Certainty versus Risk
Risk in Economic Analysis
Risk-Retum Indifference Curves
Probability and Uncertainty
Application of Probability Analysis to Risk
Evaluating Risky Streams of Receipts
Probability Approach to Multiple Project Altemahves
Acceptable Shortcuts to Risk Analysis
Risk Adjustment in Practice
Extemalities and Their Nature
An Example of Intemalization
Summary
Intemational Capsule lll Project Analysis in a Multinational
Setting
Intemational Dimensions of Project Analysis
Example of a Foreign Project
Integrating Case 4A A "Guaranteed" Foreign Investment
Proposal l
Proposal ll
Integrating Case 4B Shanghai Magnificent Hannony
Foundry ll
15 Economics of Public Sector Decisions
Micro- versus Macroeconomics in Public Sector Analysis
The Public Sector's Product
Resource Allocation and the Supply of Public Goods
Cost-Benefit Analysis: A Procedural Outline
Public Investment and the Discount Rate
Cost-Benefit Analysis and Divergent Public Objectives
Pitfalls of Cost-Benefit Analysis
The Future of Cost-Benefit Analysis
Summary
16 Legal and Regulatory Environment of the Firm
Managers and the Law
Types of Law Affecting the Firm
Antitrust and Business Practices Laws
Administrative Agencies and the Law
The Regulated Industries
Whose Interests Do Regulators Serve?
Regulation of "Unregulated Industries'
Laws, Regulations, and the Firm's Strategy
Summary
17 The Firm and the Future
Regulation, Deregulation, and Privatization
Developing Countries and the Eastem Bloc
Social Costs and "Accountability"
Structure and Organization of Firms
Economics and Tomorrow's Manager
Integrating Case 5 Bayville Convention Center
Appendix A Mathematical Appendix
Appendix B Interest Factor Tables
Appendix C Answers to Selected Odd-Numbered Problems
Glossary
Index
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