Economics estrategy and tactics

Managerial Economics
Applications, Strategy, and Tactics
TWELFTH EDITION

TABLE OF CONTENTS

Brief

Preface, xvii About the Authors, xxi

13 13A 14

PART I
INTRODUCTION
1 2

Best-Practice Tactics: Game Theory Entry Deterrence and Accommodation Games Pricing Techniques and Analysis

444 488 499

1 2 26

Introduction and Goals of the Firm Fundamental Economic ConceptsPART V
ORGANIZATIONAL ARCHITECTURE AND REGULATION 545
15

PART II
DEMAND AND FORECASTING
3 4 4A 5 6 6A

61 62 95 126 137 175 227
15A 16 17

Demand Analysis Estimating Demand Problems in Applying the Linear Regression Model Business and Economic Forecasting Managing in the Global Economy Foreign Exchange Risk Management

Contracting, Governance, and Organizational Form Auction Design andInformation Economics Government Regulation Long-Term Investment Analysis
APPENDICES

546 580 610 644

A B C

The Time Value of Money Tables Differential Calculus Techniques in Management Check Answers to Selected End-of-Chapter Exercises Glossary Index Notes
WEB APPENDICES

A-1 B-1 C-1 D-1 G-1 I-1

PART III
PRODUCTION AND COST
7 7A 7B 8 8A 9

229 230 265 267 275 301 305
A B C D DProduction Economics Maximization of Production Output Subject to a Cost Constraint Production Economics of Renewable and Exhaustible Natural Resources Cost Analysis Long-Run Costs with a Cobb-Douglas Production Function Applications of Cost Theory

Consumer Choice Using Indifference Curve Analysis International Parity Conditions Linear-Programming Applications Capacity Planning and PricingAgainst a Low-Cost Competitor: A Case Study of Piedmont Airlines and People Express Pricing of Joint Products and Transfer Pricing Decisions Under Risk and Uncertainty
vii

PART IV
PRICING AND OUTPUT DECISIONS: STRATEGY AND TACTICS 333
10 11 12

Prices, Output, and Strategy: Pure and Monopolistic Competition Price and Output Determination: Monopoly and Dominant Firms Price and OutputDetermination: Oligopoly

334 382 409
E F

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Contents
Preface, xvii About the Authors, xxi Case Exercise: Designing a Managerial Incentives Contract Case Exercise: Shareholder Value of Wind Power at Hydro Co.: RE < C 1 2 2 2 4 5
5 2

21 23 26 26 26 27
30

PART IINTRODUCTION
1

Fundamental Economic Concepts Chapter Preview Managerial Challenge: Why Charge $25 per Bag on Airline Flights? Demand and Supply: A Review
The Diamond-Water Paradox and the Marginal Revolution Marginal Utility and Incremental Cost Simultaneously Determine Equilibrium Market Price Individual and Market Demand Curves The Demand Function Import-Export Traded Goods Individual and MarketSupply Curves Equilibrium Market Price of Gasoline

Introduction and Goals of the Firm Chapter Preview Managerial Challenge: How to Achieve Sustainability: Southern Company What is Managerial Economics? The Decision-Making Model
The Responsibilities of Management

The Role of Profits
Risk-Bearing Theory of Profit Temporary Disequilibrium Theory of Profit Monopoly Theory of Profit InnovationTheory of Profit Managerial Efficiency Theory of Profit

6
7 7 7 7 7

30 31 32 34 35 36

Objective of the Firm
The Shareholder Wealth-Maximization Model of the Firm

8
8

Marginal Analysis
Total, Marginal, and Average Relationships

41
41

The Net Present Value Concept
Determining the Net Present Value of an Investment Sources of Positive Net Present Value Projects Risk and the NPVRule

45
46 48 48

Separation of Ownership and Control: The Principal-Agent Problem
Divergent Objectives and Agency Conflict Agency Problems

9
10 11

What Went Right/What Went Wrong: Saturn Corporation Implications of Shareholder Wealth Maximization What Went Right/What Went Wrong: Eli Lilly Depressed by Loss of Prozac Patent
Caveats to Maximizing Shareholder Value Residual...