Description
Book SynopsisTable of Contents1 Introduction To Economic Decision Making 1
Seven Examples of Managerial Decisions 2
Six Steps to Decision Making 4
Step 1: Define the Problem 5
Step 2: Determine the Objective 6
Step 3: Explore the Alternatives 6
Step 4: Predict the Consequences 7
Step 5: Make a Choice 8
Step 6: Perform Sensitivity Analysis 9
Private and Public Decisions: an Economic View 10
Public Decisions 12
Things to Come 13
2 Optimal Decisions Using Marginal Analysis 17
A Simple Model 18
A Microchip Manufacturer 19
Marginal Analysis 24
Marginal Analysis and Calculus 25
Marginal Revenue and Marginal Cost 27
Marginal Revenue 27
Marginal Cost 29
Profit Maximization Revisited 29
Sensitivity Analysis 31
Asking What If 32
Appendix to Chapter 2: Calculus and Optimization Techniques 42
Special Appendix to Chapter 2: Optimization Using Spreadsheets 50
3 Demand Analysis and Optimal Pricing 53
Determinants of Demand 54
The Demand Function 54
The Demand Curve and Shifting Demand 55
General Determinants of Demand 57
Elasticity of Demand 58
Price Elasticity 58
Factors Affecting Price Elasticity 61
Other Elasticities 61
Price Elasticity and Prediction 62
Demand Analysis and Optimal Pricing 63
Price Elasticity, Revenue, and Marginal Revenue 63
Maximizing Revenue 66
Optimal Markup Pricing 67
Price Discrimination 69
Information Goods 72
Appendix to Chapter 3: Consumer Preferences and Demand 84
4 Estimating and Forecasting Demand 90
Collecting Data 91
Consumer Surveys 91
Controlled Market Studies 92
Uncontrolled Market Data 93
Regression Analysis 94
Ordinary Least-Squares Regression 94
Interpreting Regression Statistics 100
Potential Problems in Regression 104
Forecasting 107
Time-Series Models 107
Fitting a Simple Trend 109
Barometric Models 115
Forecasting Performance 116
Final Thoughts 118
Appendix to Chapter 4: Regression Using Spreadsheets 129
Special Appendix to Chapter 4: Statistical Tables 133
5 Production 135
Basic Production Concepts 136
Production in the Short Run 136
Optimal Use of an Input 140
Production in the Long Run 142
Returns to Scale 142
Least-Cost Production 143
Measuring Production Functions 148
Linear Production 148
Production with Fixed Proportions 149
Polynomial Functions 149
The Cobb-Douglas Function 150
Other Production Decisions 151
Multiple Plants 151
Multiple Products 152
6 Cost Analysis 163
Relevant Costs 164
Opportunity Costs and Economic Profits 164
Fixed and Sunk Costs 167
The Cost of Production 169
Short-Run Costs 170
Long-Run Costs 173
Returns to Scale and Scope 177
Returns to Scale 177
Economies of Scope 181
Cost Analysis and Optimal Decisions 183
A Single Product 183
The Shut-Down Rule 184
Multiple Products 186
Appendix to Chapter 6: Transfer Pricing 195
7 Perfect Competition 198
The Basics of Supply and Demand 199
Shifts in Demand and Supply 201
Competitive Equilibrium 203
Decisions of the Competitive Firm 203
Market Equilibrium 206
Market Efficiency 208
Private Markets: Benefits and Costs 208
International Trade 215
Tariffs and Quotas 215
President Trump’s Tariffs 218
8 Monopoly 227
Pure Monopoly 228
Monopoly Behavior 228
Barriers to Entry 230
Perfect Competition versus Pure Monopoly 232
Cartels 234
Natural Monopolies 237
Monopolistic Competition 239
9 Oligopoly 248
Oligopoly 249
Five-Forces Framework 250
Industry Concentration 251
Concentration and Prices 255
Quantity Competition 257
A Dominant Firm 257
Competition among Symmetric Firms 257
Price Competition 261
Price Rigidity and Kinked Demand 261
Price Wars and the Prisoner’s Dilemma 262
Other Dimensions of Competition 267
Strategic Commitments 267
Advertising 269
Appendix to Chapter 9: Bundling and Tying 278
10 Game Theory and Competitive Strategy 282
Sizing Up Competitive Situations 283
Analyzing Payoff Tables 286
Equilibrium Strategies 288
Competitive Strategy 292
Market Entry 294
Bargaining 295
Sequential Competition 296
Repeated Competition 299
Appendix to Chapter 10: Mixed Strategies 312
11 Regulation, Public Goods, and Benefit-Cost Analysis 317
I. Market Failures and Regulation 318
Market Failure Due to Monopoly 318
Government Responses 319
Market Failure Due to Externalities 324
Remedying Externalities 326
Promoting Positive Externalities 330
Market Failure Due to Imperfect Information 332
II. Benefit-Cost Analysis and Public Goods Provision 333
Public Goods 333
Public Goods and Efficiency 333
The Basics of Benefit-Cost Analysis 335
Applying the Net Benefit Rule 335
Dollar Values 336
Efficiency versus Equity 336
Evaluating a Public Project 337
Public Investment in a Bridge 337
Valuing Benefits and Costs 339
Market Values 339
Nonmarketed Benefits and Costs 339
12 The Economics of Non-Profit Organizations 350
The World of Non-Profits 351
A Simple Model of the Non-Profit Firm 353
Production and Pricing 353
Potential Differences between Non-Profits and For-Profits 357
The Non-Profit’s Goal when the World is Uncertain 358
When do Non-Profits and For-Profits Take Identical Actions? 360
Appendix to Chapter 12: The Firm’s Long-Term Value 368
13 Decision Making Under Uncertainty 373
Uncertainty, Probability, and Expected Value 374
Probability 374
Expected Value 375
Decision Trees 376
An Oil Drilling Decision 377
Features of the Expected-Value Criterion 378
Sequential Decisions 382
Risk Aversion 388
Expected Utility 390
Why the Expected-Utility Method Works 392
Expected Utility and Risk Aversion 394
14 The Value of Information 404
The Value of Information 405
The Oil Wildcatter Revisited 405
Imperfect Information 406
Revising Probabilities 408
Bayes’ Theorem 409
Other Applications 411
Predicting Credit Risks 412
Business Behavior and Decision Pitfalls 414
Auctions and Competitive Bidding 417
Private-Value Auctions 418
Common-Value Auctions 419
Expected Auction Revenue 421
15 Asymmetric Information and Organizational Design 433
Asymmetric Information 434
Adverse Selection 434
Signaling 435
Principals, Agents, and Moral Hazard 436
Organizational Design 440
The Nature of the Firm 440
The Boundaries of the Firm 441
Assigning Decision-Making Responsibilities 442
Monitoring and Rewarding Performance 446
Separation of Ownership and Control in the Modern Corporation 449
16 Bargaining and Negotiation 460
The Economic Sources of Beneficial Agreements 461
Resolving Disputes 463
Differences in Values 465
Contingent Contracts 467
Multiple-Issue Negotiations 468
Negotiation Strategy 472
Perfect Information 473
Imperfect Information 474
Repetition and Reputation 475
17 Linear Programming 485
Linear Programs 486
Graphing the LP Problem 488
A Minimization Problem 490
Sensitivity Analysis and Shadow Prices 493
Changes in the Objective Function 493
Shadow Prices 495
Optimal Decisions and Shadow Prices 497
Formulation and Computer Solution for Larger LP Problems 499
Production Decisions 499
Computer Solutions 502
18 Auctions and Competitive Bidding Available Online
The Advantages of Auctions
Bidder Strategies
English and Dutch Auctions
Sealed-Bid Auctions
Common Values and the Winner’s Curse
Optimal Auctions
Expected Auction Revenue
Competitive Procurement
Index I-1
