CONTENTSPART 1 THE FIRM AND ITS ENVIRONMENT 1
1 Introduction,Environment,and Methodology 2
Managerial Economics and the Global Economy 2
Economics and the Management of Organizations 7
Our Approach to Problem Solving 15
Organization of This Book 16
Appendix 1 Demand,Supply,and Market Price:A Brief Review 23
Demand and the Demand Curve 23
Supply and the Supply Curve 27
Determination of Market Price 28
Carryover to Analysis of Other Markets 32
2 Revenue of the Firm 33
Advertising,Consumer Demand,and Business Research 35
The Demand Function 38
Determinants of Demand 48
A Note on Determinants of Supply 51
Elasticity of Demand 51
Summary 70
Appendix 2 Theory of Consumer Behavior 81
Cardinal Utility Approach 81
Ordinal Utility Theory 83
Marginal Rate of Substitution 85
Consumer Equilibrium 87
Deriving a Demand Curve 89
3 Topics in Demand Analysis and Estimation 93
Market Surveys 95
Demand Estimation with Regression Analysis 96
Market Experiments 104
Summary 108
Appendix 3 Linear Regression Analysis 111
The Linear Regression Model and Underlying Assumptions 111
Logarithmic Transformations 129
Summary 132
Types of Economic Forecasts 137
4 Economic Forecasting 137
Two Major Kinds of Data 139
Factors Affecting Economic Variables 139
Forecasting Methods 141
Accuracy of Forecasts 164
Summary 171
Integrating Case 1A Are There Two Marketsfor Microwave Ovens? 174
Integrating Case 1B Omega Distributing Company Ⅰ 177
PART 2 PRODUCTION,COST,AND PROFIT MAXIMIZATION 181
5 Theory of Production 182
The Production Function and the Long Run 186
Total Product Curves and the Short Run 205
Summary 214
Appendix 5 Mathematics of Determining the LeastCost Combination of Inputs 225
6 Cost of Production 228
Types of Costs 232
Costs in the Long Run 235
Costs in the Short Run 241
Relationship of Short-Run Cost Curves to Short-RunProduct Curves 247
Relation of Short-Run to Long-Run Average Costs 254
The Learning Effect 258
Economies of Scope 259
Choosing the Optimal Plant Size:An Example 261
Estimation of Cost 265
Summary 270
International Capsule I Some International Dimensionsof Demand,Production,and Cost 281
The Basis for International Trade 283
Payment for Exports 283
The Problem of Trade Barriers 285
7 Profit Analysis of the Firm 291
Profit Maximization 295
Shut-Down Point 302
Break-Even Analysis 306
Profit Maximization versus Break-Even Analysis 310
Incremental Profit Analysis 310
Summary 315
Relationship between Linear Programming andCalculus Techniques 330
8 Linear Programming and the Firm 330
The Primal Program 331
The Dual Program 345
Activity Analysis:One Product 351
Summary 356
Integrating Case 2A Frontier Concrete Products Company 363
Integrating Case 2B Shanghai Magnificent HarmonyFoundry Ⅰ 366
PART 3 MARKETS AND THE BEHAVIOR OF THE FIRM 369
9 Perfect Competition and Monopoly:The Limiting Cases 370
Perfect Competition and Its Setting 370
Monopoly and Its Setting 383
Summary 391
10 Monopolistic Competition,Oligopoly,and RivalrousMarket Structures 400
Monopolistic Competition:A Case of Many Firms 402
Duopoly:An Oligopoly with Two Firms 407
The Question of Entry 412
The Kinked Oligopoly Demand Curve:Price Rigiditywithout Collusion 415
Tacit Collusion and Price Leadership 422
Perfect Collusion—The Cartel 428
Production with Multiple Plants 431
Summary 433
Appendix 10 Game Theory in Oligopoly Analysis 445
Markup Pricing 448
11 Selected Topics in Pricing and Profit Strategy 448
Decisions Involving Multiple Products 451
Price Discrimination 465
Two-Part Pricing(Access Fees) 474
Bundling 478
Alternatives to Profit Maximization 481
Summary 483
Appendix 11A Transfer Pricing with a Less-Than-PerfectlyCompetitive Market for the Intermediate Product 495
Appendix 11B Mathematics of Price Discrimination 498
Solution Procedure If Discrimination Is Permitted 499
Solution Procedure If Discrimination Is Not Permitted 500
Market Segmentation in International Trade 503
International Capsule Ⅱ Markets and Pricing Strategyin International Trade 503
The Problem of Dumping 505
Webb-Pomerene and Export Trading Companies 506
The Effects of Trade Restrictions on Prices 507
International Transfer Pricing 509
12 Factor Markets and Profit-Maximizing Employmentof Variable Inputs 511
Profit-Maximizing Employment of One Variable Input 512
Determination of Equilibrium Prices for Inputs:Perfect Competition in the Input Market 521
Determination of Equilibrium Prices for Inputs:Monopsony in the Input Market 526
Determination of Equilibrium Prices for Inputs:Bilateral Monopoly in the Input Market 528
Summary 530
Integrating Case 3A German-American Metals Corporation 538
Integrating Case 3B Bonco,Incorporated:A Firm in Transition 540
Integrating Case 3C A Hare-Raising Decision 543
Integrating Case 3D Omega Distributing Company Ⅱ 545
PART 4 ANALYSIS OF PROJECT DECISIONS 547
13 Fundamentals of Project Evaluation 548
Capital Budgeting and Project Analysis 550
Costs in New Undertakings 551
Stream of Receipts or Returns 551
A Simple Capital Project Analysis 558
Project Yield or Rate of Return 561
Project Ranking in Capital Budgeting Analysis 563
Cost of Capital and the Discount Rate 566
Summary 569
Appendix 13 Compounding and Discounting 577
Compound Interest 577
Present Value and Discounting 578
Annuities 579
14 Risk in Project Analysis 583
Certainty versus Risk 583
Risk in Economic Analysis 584
Risk-Return Indifference Curves 584
Probability and Uncertainty 587
Application of Probability Analysis to Risk 588
Evaluating Risky Streams of Receipts 598
Probability Approach to Multiple Project Alternatives 599
Acceptable Shortcuts to Risk Analysis 600
Risk Adjustment in Practice 604
Externalities and Their Nature 607
An Example of Internalization 609
Summary 610
International Capsule Ⅲ Project Analysis in a MultinationalSetting 618
International Dimensions of Project Analysis 618
Example of a Foreign Project 620
Integrating Case 4A A Guaranteed Foreign Investment 624
Proposal Ⅰ 624
Proposal Ⅱ 625
Integrating Case 4B Shanghai Magnificent HarmonyFoundry Ⅱ 627
PART 5 THE FIRM AND THE PUBLIC SECTOR 629
15 Economics of Public Sector Decisions 630
Micro-versus Macroeconomics in Public Sector Analysis 630
The Public Sector s Product 631
Resource Allocation and the Supply of Public Goods 632
Cost-Benefit Analysis:A Procedural Outline 637
Public Investment and the Discount Rate 645
Cost-Benefit Analysis and Divergent Public Objectives 649
Pitfalls of Cost-Benefit Analysis 650
Summary 655
The Future of Cost-Benefit Analysis 655
16 Legal and Regulatory Environment of the Firm 661
Managers and the Law 662
Types of Law Affecting the Firm 663
Antitrust and Business Practices Laws 666
Administrative Agencies and the Law 672
The Regulated Industries 674
Whose Interests Do Regulators Serve? 679
Regulation of Unregulated Industries 683
Laws,Regulations,and the Firm s Strategy 685
Summary 686
Regulation,Deregulation,and Privatization 690
17 The Firm and the Future 690
Developing Countries and the Eastern Bloc 693
Social Costs and Accountability 695
Structure and Organization of Firms 697
Economics and Tomorrow s Manager 699
Integrating Case 5 Bayville Convention Center 700
Appendix A Mathematical Appendix 703
Appendix B Interest Factor Tables 725
Appendix C Answers to Selected Odd-Numbered Problems 734
Glossary 740
Index 747