CONTENTS
Preface = xvi
CHAPTER 1 INTRODUCTION TO MANAGERIAL ECONOMICS = 1
Introduction = 2
The Methodology of Economic Analysis = 3
Topics = 5
Analysis = 7
Constructing Theories, Evaluating Theories, and the Scientific Methodology = 8
Mathematical Analysis = 10
The Methodology of the Book = 11
Topics to Review = 12
Study Problems = 12
Suggested Readings = 13
Suggested Solutions to Selected Study Problems = 13
CHAPTER 2 THE WAY MARKETS WORK = 15
Introduction = 16
Hypothetical Business Problem 2.1 = 16
Demand = 16
Effects due to the prices of related goods = 19
Effects due to changes in income = 20
Expectations = 20
Tastes and Preferences = 21
The Aggregation of Individual Demands to Market Demand = 22
Elasticity = 23
The Total Revenue Test = 25
Elasticity and Linear Demand = 29
Other Forms of Elasticity = 30
More on Elasticity = 31
Hypothetical Business Problem 2.2 = 32
Suggested Solution to Problem 2.2 = 33
Opportunity Cost = 34
Supply = 35
Stochastic or Random Events in Supply = 35
The Impact of Technology on Supply = 36
The Slope of Supply = 36
The Elasticity of Supply = 37
Demand and Supply Together = 38
Shortages = 39
Surpluses = 42
Suggested Solution to Problem 2.1 = 42
Comparative Statics = 43
Hypothetical Business Problem 2.3 = 43
Demand Shifts = 43
Supply Shifts = 46
An Application of the Supply and Demand Model to Sales Taxes = 48
Hypothetical Business Problem 2.4 = 48
Welfare Economics of Taxes = 51
Computing Tax Revenues = 52
An Economist's View of Price Gouging = 53
Suggested Solution to Problem 2.3 = 56
Suggested Solution to Problem 2.4 = 57
Topics to Review = 58
Study Problems = 60
Suggested Readings = 65
Suggested Solutions to Selected Study Problems = 66
APPENDIX-MATHEMATICS-REVIEW = 79
Functions = 80
Slopes = 81
Limits and Derivatives = 82
Advanced Differentiation = 84
Applications of Derivatives = 87
Elasticity = 87
Extremes, Maxima, and Minima = 89
Integration = 90
Multivariate Calculus = 93
Partial Derivatives = 93
Level Curves = 95
Homogeneous and Homothetic Functions and Euler's Theorem
Applications of Multivariate Calculus = 101
Uncostrained Maxima and Minima = 101
Constrained Maximum and Minimum = 101
Matrix Algebra = 104
Addition = 105
Determinants = 105
Multiplication and Cramer's Rule = 106
The Envelope Theorem = 108
The Unconstrained Case = 108
The Constrained Case = 108
Summary = 110
Topics to Review = 110
Study Problems = 111
Suggested Readings = 113
Suggested Solutions to Selected Study Problems = 113
CHAPTER 3 TOPICS IN CONSUMER BEHAVIOR = 115
Introduction = 116
Theoretical Micro Foundations of Demand = 116
Homo Economicus = 116
Axioms of Behavior = 118
Maximizing Utility = 119
Consumer's Response to a Price Change = 126
Hypothetical Business Problem 3.1 = 126
Suggested Solution to Problem 3.1 = 132
The Concept of Opportunity Cost = 132
Hypothetical Business Problem 3.2 = 132
Suggested Solution to Problem 3.2 = 134
The Empirical Basis for the First Law of Demand = 135
The Self-Interested Individual = 137
Applications of the First Law of Demand = 138
Hypothetical Business Problem 3.3 = 139
Suggested Solution to Problem 3.3 = 139
Household Production Functions = 143
Hypothetical Business Problem 3.4 = 143
Suggested Solution to Problem 3.4 = 147
Labor Supply The Demand for Leisure and Income = 148
The Impact of Wage Changes on the Supply of Labor = 149
Hypothetical Business Problem 3.5 = 149
The Impact of Nonwage Income on the Supply of Labor = 150
Eight-Hour Work Days = 151
Intertemporal Decisions = 152
The Second Law of Demand = 154
Consumer's Surplus = 154
A Note on Consumer Tastes = 156
Topics to Review = 157
Study Problems = 157
Suggested Readings = 163
Suggested Solutions to Selected Study Problems = 164
CHAPTER 4 ESTIMATING DEMAND FUNCTIONS = 173
Introduction = 174
Hypothetical Business Problem 4.1 = 174
Statistical Concepts = 174
Moments = 175
Hypothesis Testing = 178
Samples = 181
Errors = 182
Regression Analysis = 182
The Demand Function = 182
Estimating Elasticities = 190
Model Specification = 192
Forecasting = 198
The Technique of Dummy Variables = 200
Summary = 201
The Quality of the Estimates = 202
Simultaneous Equation Bias = 202
Multicollinearity = 204
Heteroskedasticity = 204
Autocorrelation = 206
Examining the Residuals = 206
Managing Econometric Studies = 210
Summary = 211
Suggested Solution to Problem 4.1 = 211
Topics to Review = 215
Study Problems = 217
Suggested Readings = 234
Suggested Solutions to Study Problems = 236
CHAPTER 5 TIMING, INTEREST DISCOUNTING AND ARBITRAGE = 241
Introduction = 242
Intertemporal Decision Making = 242
Theory of the Consumer Revisited = 243
The Budget Constraint = 244
Summary of Intertemporal Consumption = 246
Interest Rates = 246
Capital Goods = 246
The Concept of Value = 247
Capital Goods, Value, and the Consumer = 248
Discounting and Present Value = 248
Future Value = 249
Compounding = 249
Hypothetical Business Problem 5.1 = 252
Suggested Solution to Problem 5.1 = 253
Annuities = 253
The Future Value of an Annuity = 255
Hypothetical Business Problem 5.2 = 255
Suggested Solution to Problem 5.2 = 256
Perpetuities = 258
Interest Rate Determination - A Simple Exposition = 258
Certainty = 258
Uncertainty = 260
Risk and Interest Rates = 260
Inflation = 261
Applications = 262
Hypothetical Business Problem 5.3 = 262
The Fallacy of Automobile Rates of Depreciation and Value = 262
Interest Rates and Construction Materials = 264
When Is It Time to Drink the Wine? = 264
Manipulating the Price of a Capital Good = 266
Suggested Solution to Problem 5.3 = 268
Project Evaluation - Capital Budgeting = 268
The Pay-Back Period = 269
The Internal Rate of Return = 270
The Net Present Value Technique = 271
Other Considerations = 272
Putting the Principles into Practice : An Example Using Light Bulbs = 273
Managing Arbitrage Opportunities : A Study of Professional Basketball = 277
The On-Court Alternative investment Opportunities in Pro Basketball = 277
Topics to Review = 281
Study Problems = 282
Suggested Readings = 285
Suggested Solutions to Selected Study Problems = 285
APPENDIX-FINANCIAL TABLES = 292
Discount Factors( \Dn ,r) = 293
Annuity Compound Factors( \Cn ,r) = 294
Present Value of Annuity Factors( \An ,r) = 295
Compound Factors( \Fn ,r) = 296
CHAPTER 6 THE NEOCLASSICAL THEORY OF PRODUCTION AND COST = 297
Introduction = 298
The Firm = 298
Cost Minimization and Profit Maximization = 299
Production Functions = 300
The Long and the Short Run = 301
The Short-Run Production Function = 301
Short-Run Cost = 305
Long-Run Cost = 309
Economies of Scale = 310
On the Estimation of Production Functions = 312
The Firm's Response to an Input Price Change = 315
Cost Minimization - The Efficient Use of Inputs = 315
Classes of Inputs = 323
Changes in Marginal and Average Cost = 324
Derived Demand = 325
Learning, Rate, Volume, Intermittent Production, and the Multiproduct Firm = 325
Learning = 328
Rate and Volume = 318
Intermittent Production and the Multiproduct Firm = 329
The Assignment of Joint Cost = 334
The Multiplant Firm = 334
Topics to Review = 336
Study Questions = 337
Suggested Readings = 339
Suggested Solutions to Selected Study Problems = 339
Appendix-On the Estimation of Input Demand Functions = 346
CHAPTER 7 THE THEORY OF THE FIRM IN COMPETITION = 353
Introduction = 354
Opportunity Cost = 354
Hypothetical Business Problem 7. = 354
Suggested Solution to Problem 7.1 = 356
Output Decisions = 356
Shutdown = 359
Breakeven Analysis = 360
Linear Revenue and Cost Functions = 360
Relaxing the Assumption of Linearity = 362
The Competitive Industry = 365
Hypothetical Business Problem 7.2 = 365
The Constant Cost Industry = 372
Specialized Inputs and Economic Rent = 373
The Increasing Cost Industry = 375
The Decreasing Cost Industry = 377
The Heterogeneous Industry = 379
Suggested Solution to Problem 7.2 = 379
Topics to Review = 381
Study Problems = 382
Suggested Readings = 385
Suggested Solutions to Selected Study Problems = 385
CHAPTER 8 MONOPOLY, SEARCHING FOR THE BEST PRICE = 393
Introduction = 394
The Monopolist = 394
Marginal Revenue = 395
Determining Maximum Profits = 399
The Level of Profits = 401
Sources of Monopoly = 404
Patent = 405
Exclusive or Unique Asset = 405
Locational Advantage = 405
Regulation = 406
Collusion = 406
Economies of Scale - Natural Monopoly = 406
Accounting for Monopoly Profits = 407
The Study of Monopoly in a World Competition = 408
Topics to Review = 409
Study Problems = 409
Suggested Readings = 410
Suggested Solutions to Selected Study Problems = 411
CHAPTER 9 PRICING AND PRICE DISCRIMINATION = 415
Introduction = 416
Price Discrimination = 416
Hypothetical Business Problem 9.1 = 416
Market Segmentation = 416
Using Elasticities to Determine Prices = 426
Examples of Market Segmentation Price Discrimination = 428
Suggested Solution to Problem 9.1 = 429
A Digression on Consumer's Surplus = 430
Block Pricing = 431
Perfect Price Discrimination : All-or-Nothing Pricing = 436
Price Determination under All-or-Nothing Pricing = 437
Examples of All-or-Nothing Pricing = 438
Multipart Pricing = 440
Hypothetical Business Problem 9.2 = 440
The Three-Part Price = 445
Suggested Solution to Problem 9.2 = 446
Peak Load Pricing = 452
Topics to Review = 459
Study Problems = 459
Suggested Readings = 461
Suggested Solutions to Selected Study Problems = 461
CHAPTER 10 OTHER MARKET STRUCTURES - BETWEEN MONOPOLY AND COMPETITION = 463
Introduction = 464
Monopolistic Competition = 464
Oligopoly = 465
Cartels = 466
Apportioning Output across Firms = 468
The Advantage of Cartelization = 471
Cartel Stability = 471
Nonprice Competition = 476
The Dominant Firm = 477
Industrial Organization = 478
Topics to Review = 482
Study Problems = 482
Suggested Readings = 483
Suggested Solutions to Selected Study Problems = 484
CHAPTER 11 TOPICS IN INFORMATION AND INDUSTRIAL ORGANIZATION = 485
Introduction = 486
Measurement Costs and Block Booking = 486
Brand Names and Advertising as Quality Assuring Devices = 489
Designing the Correct Marketing／Advertising Program = 493
Dressing for the Job = 494
Initiations = 495
Durable Goods = 496
Hypothetical Business Problem 11.1 = 496
Suggested Solution to Problem 11.1 = 499
Topics to Review = 509
Study Problems = 509
Suggested Readings = 510
Suggested Solutions to Selected Study Problems = 511
CHAPTER 12 AN INTRODUCTION TO PUBLIC GOODS, PRIVATE GOOD AND COMMON ACCESS GOODS = 512
Introduction = 514
An Introduction to Public and Private Goods = 517
Aggregating Demand for Public Goods = 517
The Tragedy of the Commons = 519
Managing the Problem of the Commons = 524
Internalizing the Externality and the Coase Theorem = 539
Implications of Property Rights Assignment for Managers = 544
Property Rights to Intangible Assets = 545
The Reserve Clause in Major League Baseball = 547
Property Rights inside the Family : A Brief Case Study = 548
Topics to Review = 550
Study Problems = 551
Suggested Readings = 554
Suggested Solutions to Selected Study Problems = 555
CHAPTER 13 TEAM PRODUCTION, COORDINATION, AND CONTROL = 599
Introduction = 560
Team Production = 560
Coordination and Control in Processes in which Team Production Exists = 563
The Incentive Problem = 564
The Horizon Problem = 569
Hypothetical Business Problem 13.1 = 572
Suggested Solution to Problem 13.1 = 572
The Inalienability Problem = 576
Managing in the Not-for-Profit Organization = 577
The Role of Managers in Team Production = 581
Topics to Review = 584
Study Problems = 584
Suggested Readings = 585
Suggested Solutions to Study Problems = 587
CHAPTER 14 ADDITIONAL TOPICS IN PROPERTY RIGHTS AND THE ECONOMICS OF INFORMATION = 589
Introduction = 590
Opportunism = 590
Vertical Integration and Opportunism = 593
Transfer Pricing = 598
Additional Topics in Contracting = 602
Controlling Malfeasance : When Is It Useful to Overpay Employees? = 604
Rules of Conduct versus Discretionary Behavior = 607
Final Word on Public Goods, Brand Names, and Accountability = 609
An Extended Discussion on Incentives = 610
Topics to Review = 612
Study Problems = 612
Suggested Readings = 613
Suggested Solutions to Study Problems = 614
CHAPTER 15 THE ECONOMIC THEORY OF REGULATION = 617
Introduction = 618
The Pigouvian Tax = 618
The Logic of Government Intervention in the Marketplace = 620
Public Goods = 621
Monopoly／Monopsony = 622
Informational Failures = 626
Income Distribution／Discrimination = 627
An Introduction to the Reality of Regulation = 628
Rent Seeking = 630
The Economic Theory of Regulation = 634
Economic Theories = 634
Why Regulation? = 635
The Empirical Evidence = 637
Heterogeneous Interests = 641
The Regulatory Triad = 649
Antitrust Law = 650
Conclusions = 651
Some Important U. S. Government Regulatory Agencies = 651
The Occupational Safety and Health Administration = 651
The Federal Trade Commission = 652
The Securities and Exchange Commission = 654
The Environmental Protection Agency = 656
The Consumer Product Safety Commission = 657
Topics to Review = 658
Study Problems = 658
Suggested Readings = 660
Suggested Solutions to Study Problems = 663
CHAPTER 16 LINEAR PROGRAMMING = 665
Introduction = 666
Basic Concepts = 667
General Algebraic Solution Method = 672
The Dual Program = 675
Linear Programming and Production Planning : One Product = 679
The Assumption of Linearity = 682
Topics to Review = 683
Study Problems = 683
Suggested Readings = 684
Suggested Solutions to Selected Study Problems = 685
CHAPTER 17 PLANT LOCATION DECISION MAKING : A CASE STUDY = 689
Introduction = 690
Making Decisions in the Abstract = 691
General Case Description = 692
Objective Statement = 693
Decision Criteria = 693
Generating Alternative Sites = 693
Site Specific Decision Criteria = 697
Site Evaluation and Analysis = 697
Site Risk Analysis = 700
Conclusion of the Site Study = 702
Summary = 703
Topics to Review = 704
Suggested Readings = 704
Index = 705
