Managerial Economics in a Global Economy

Geometric Derivation of the Average- and Marginal-Cost Curves; 3-3. OPTIMIZATION ANALYSIS; Profit Maximization by the Total-Revenue and Total-Cost Approach; Optimization by Marginal Analysis; 3-4. CONSTRAINED OPTIMIZATION; 3-5. NEW MANAGEMENT TOOLS FOR OPTIMIZATION; Benchmarking; Total Quality Management; Reengineering; The Learning Organization; 3-6. OTHER MANAGEMENT TOOLS FOR OPTIMIZATION; 3-7. NEW MANAGEMENT TOOLS AND FUNCTIONAL SPECIALIZATION; SUMMARY * DISCUSSION QUESTIONS * PROBLEMS * SPREADSHEET PROBLEMS; APPENDIX 1: OPTIMIZATION USING SPREADSHEETS; APPENDIX PROBLEM; APPENDIX 2: DIFFERENTIAL CALCULUS AND OPTIMIZATION TECHNIQUES; THE DERIVATIVE AND RULES OF DIFFERENTIATION; The Concept of the Derivative; Rules of Differentiation; OPTIMIZATION WITH CALCULUS; Determining a Maximum or a Minimum by Calculus; Distinguishing between a Maximum and a Minimum: The Second Derivative; MULTIVARIATE OPTIMIZATION; Partial Derivatives; Maximizing a Multivariable Function; CONSTRAINED OPTIMIZATION; Constrained Optimization by Substitution; Constrained Optimization by the Lagrangian Multiplier Method; APPENDIX PROBLEMS * SUPPLEMENTARY READINGS; INTEGRATING CASE STUDY 1: THE DECADE OF STEVE: HOW APPLE'S IMPERIOUS, BRILLIANT CEO TRANSFORMED AMERICAN BUSINESS; The Decade of Steve; Apple's Future; PART TWO. DEMAND ANALYSIS; CHAPTER 4. DEMAND THEORY; 4-1. THE DEMAND FOR A COMMODITY; An Individual's Demand for a Commodity; From Individual to Market Demand; The Demand Faced by a Firm; 4-2. PRICE ELASTICITY OF DEMAND; Point Price Elasticity of Demand; Arc Price Elasticity of Demand; Price Elasticity, Total Revenue, and Marginal Revenue; Factors Affecting the Price Elasticity of Demand; 4-3. INCOME ELASTICITY OF DEMAND; 4-4. CROSS-PRICE ELASTICITY OF DEMAND; 4-5. USING ELASTICITIES IN MANAGERIAL DECISION MAKING; 4-6. INTERNATIONAL CONVERGENCE OF TASTES; 4-7 ELECTRONIC COMMERCE; SUMMARY * DISCUSSION QUESTIONS * PROBLEMS * SPREADSHEET PROBLEMS; APPENDIX: BEHIND THE MARKET DEMAND CURVE--THE THEORY OF CONSUMER CHOICE; The Consumer's Tastes: Indifference Curves; The Consumer's Constraints: The Budget Line; The Consumer's Equilibrium; Derivation of the Consumer's Demand Curve; Income and Substitution Effects of a Price Change; The Theory of Consumer Choice Mathematically; APPENDIX PROBLEMS * SUPPLEMENTARY READINGS; CHAPTER 5. DEMAND ESTIMATION; 5-1. THE IDENTIFICATION PROBLEM; 5-2. MARKETING RESEARCH APPROACHES TO DEMAND ESTIMATION; Consumer Surveys and Observational Research; Consumer Clinics; Market Experiments; Virtual Shopping and Virtual Management; 5-3. INTRODUCTION TO REGRESSION ANALYSIS; 5-4. SIMPLE REGRESSION ANALYSIS; The Ordinary Least-Squares Method; Tests of Significance of Parameter Estimates; Other Aspects of Significance Tests and Confidence Intervals; Test of Goodness of Fit and Correlation; 5-5. MULTIPLE REGRESSION ANALYSIS; The Multiple Regression Model; The Coefficient of Determination and Adjusted R2; Analysis of Variance; Point and Interval Estimates; 5-6. PROBLEMS IN REGRESSION ANALYSIS; Multicollinearity; Heteroscedasticity; Autocorrelation; 5-7. DEMAND ESTIMATION BY REGRESSION ANALYSIS; Model Specification; Collecting Data on the Variables; Specifying the Form of the Demand Equation; Testing the Econometric Results; 5-8. ESTIMATING THE DEMAND FOR U.S. IMPORTS AND EXPORTS; SUMMARY * DISCUSSION QUESTIONS * PROBLEMS; APPENDIX: REGRESSION ANALYSIS WITH EXCEL; Simple Regression; Multiple Regression Analysis; APPENDIX PROBLEMS * SUPPLEMENTARY READINGS; CHAPTER 6. DEMAND FOREUASTING; 6-1. QUALITATIVE FORECASTS; Survey Techniques; Opinion Polls; Soliciting a Foreign Perspective; 6-2. TIME-SERIES ANALYSIS; Reasons for Fluctuations in Time-Series Data; Trend Projection; Seasonal Variations; 6-3. SMOOTHING TECHNIQUES; Moving Averages; Exponential Smoothing; 6-4. BAROMETRIC METHODS; 6-5. ECONOMETRIC MODELS; Single-Equation Models; Multiple-Equation Models; 6-6. INPUT-OUTPUT FORECASTING; SUMMARY * DISCUSSION QUESTIONS * PROBLEMS; APPENDIX: FORECASTING FLUCTUATIONS IN TIME-SERIES ANALYSIS USING EXCEL; Forecasting New-Housing Starts with Regression Analysis; Adjusting the Trend Forecasts of New-Housing Starts for Seasonal Variations by the Ratio-to-Trend Method; Adjusting the Trend Forecasts of New-Housing Starts for Seasonal Variations by Using Seasonal Dummies; APPENDIX PROBLEMS * SUPPLEMENTARY READINGS; INTEGRATING CASE STUDY 2: FORD'S BET: IT'S A SMALL WORLD AFTER ALL; INTEGRATING CASE STUDY 3: ESTIMATING AND FORECASTING THE U.S. DEMAND FOR ELECTRICITY; PART THREE. PRODUCTION AND COST ANALYSIS; CHAPTER 7. PRODUCTION THEORY AND ESTIMATION; 7-1. THE ORGANIZATION OF PRODUCTION AND THE PRODUCTION FUNCTION; The Organization of Production; The Production Function; 7-2. THE PRODUCTION FUNCTION WITH ONE VARIABLE INPUT; Total, Average, and Marginal Product; The Law of Diminishing Returns and Stages of Production; 7-3. OPTIMAL USE OF THE VARIABLE INPUT; 7-4. THE PRODUCTION FUNCTION WITH TWO VARIABLE INPUTS; Production Isoquants; Economic Region of Production; Marginal Rate of Technical Substitution; Perfect Substitutes and Complementary Inputs; 7-5. OPTIMAL COMBINATION OF INPUTS; Isocost Lines; Optimal Input Combination for Minimizing Costs or Maximizing Output; Profit Maximization; Effect of Change in Input Prices; 7-6. RETURNS TO SCALE; 7-7. EMPIRICAL PRODUCTION FUNCTIONS; 7-8. THE INNOVATION PROCESS; Meaning and Importance of Innovations; The Open Innovation Model; The Next Step in Open Innovation; 7-9. INNOVATION AND GLOBAL COMPETITIVENESS; Innovations and the International Competitiveness of U.S. Firms; The New Computer-Aided Production Revolution and the International Competitiveness of U.S. Firms; SUMMARY * DISCUSSION QUESTIONS * PROBLEMS * SPREADSHEET PROBLEMS; APPENDIX: PRODUCTION ANALYSIS WITH CALCULUS; Constrained Output Maximization; Constrained Cost Minimization; Profit Maximization; APPENDIX PROBLEMS * SUPPLEMENTARY READINGS; CHAPTER 8. COST THEORY AND ESTIMATION; 8-1. THE NATURE OF COSTS; 8-2. SHORT-RUN COST FUNCTIONS; Short-Run Total and Per-Unit Cost Functions; Short-Run Total and Per-Unit Cost Curves; 8-3. LONG-RUN COST CURVES; Long-Run Total Cost Curves; Long-Run Average and Marginal Cost Curves; 8-4. PLANT SIZE AND ECONOMIES OF SCALE; 8-5. LEARNING CURVES; 8-6. MINIMIZING COSTS INTERNATIONALLY--THE NEW ECONOMIES OF SCALE; International Trade in Inputs; The New International Economies of Scale; Immigration of Skilled Labor; 8-7. LOGISTICS OR SUPPLY-CHAIN MANAGEMENT; 8-8. COST-VOLUME-PROFIT ANALYSIS AND OPERATING LEVERAGE; Cost-Volume-Profit Analysis; Operating Leverage; 8-9. EMPIRICAL ESTIMATION OF COST FUNCTIONS; Data and Measurement Problems in Estimating Short-Run Cost Functions; The Functional Form of Short-Run Cost Functions; Estimating Long-Run Cost Functions with Cross-Sectional Regression Analysis; Estimating Long-Run Cost Functions with Engineering and Survival Techniques; SUMMARY * DISCUSSION QUESTIONS * PROBLEMS * SPREADSHEET PROBLEMS; APPENDIX: COST ANALYSIS WITH CALCULUS 3; APPENDIX PROBLEMS * SUPPLEMENTARY READINGS; INTEGRATING CASE STUDY 4: PRODUCTION AND COST FUNCTIONS IN THE PETROLEUM INDUSTRY; INTEGRATING CASE STUDY 5: TOYOTA: THE MACHINE THAT RAN TOO HOT; INTEGRATING CASE STUDY 6: STREAMLINED PLANE MAKING; PART FOUR. MARKET STRUCTURE AND PRICING PRACTICES; CHAPTER 9. MARKET STRUCTURE: PERFECT COMPETITION, MONOPOLY, AND MONOPOLISTIC COMPETITION; 9-1. MARKET STRUCTURE AND DEGREE OF COMPETITION; 9-2. PERFECT COMPETITION; Meaning and Importance of Perfect Competition; Price Determination under Perfect Competition; Short-Run Analysis of a Perfectly Competitive Firm; Short-Run Supply Curve of the Competitive Firm and Market; Long-Run Analysis of a Perfectly Competitive Firm; 9-3. COMPETITION IN THE GLOBAL ECONOMY; Domestic Demand and Supply, Imports, and Prices; The Dollar Exchange Rate and the International Competitiveness of U.S. Firms; 9-4. MONOPOLY; Sources of Monopoly; Short-Run Price and Output Determination under Monopoly; Long-Run Price and Output Determination under Monopoly; Comparison of Monopoly and Perfect Competition; 9-5. MONOPOLISTIC COMPETITION; Meaning and Importance of Monopolistic Competition; Short-Run Price and Output Determination under Monopolistic Competition; Long-Run Price and Output Determination under Monopolistic Competition; Product Variation and Selling Expenses under Monopolistic Competition; SUMMARY * DISCUSSION QUESTIONS * PROBLEMS * SPREADSHEET PROBLEMS; APPENDIX: PROFIT MAXIMIZATION WITH CALCULUS; APPENDIX PROBLEMS * SUPPLEMENTARY READINGS; CHAPTER 10. OLIGOPOLY AND FIRM ARCHITECTURE; 10-1. OLIGOPOLY AND MARKET CONCENTRATION; Oligopoly: Meaning and Sources; Concentration Ratios, the Herfindahl Index, and Contestable Markets; 10-2. OLIGOPOLY MODELS; The Cournot Model; The Kinked Demand Curve Model; Cartel Arrangements; PRICE LEADERSHIP; 10-3. PROFITABILITY AND EFFICIENCY IMPLICATIONS OF OLIGOPOLY; Porter's Strategic Framework; Efficiency Implications of Oligopoly; 10-4. THE SALES MAXIMIZATION MODEL; 10-5. MARCH OF GLOBAL OLIGOPOLISTS; 10-6. THE ARCHITECTURE OF THE IDEAL FIRM AND THE CREATIVE COMPANY; The Architecture of the Ideal Firm; The Evolution of the Creative Company; 10-7. THE VIRTUAL CORPORATION AND RELATIONSHIP ENTERPRISES; The Virtual Corporation; Relationship Enterprises; SUMMARY * DISCUSSION QUESTIONS * PROBLEMS * SPREADSHEET PROBLEMS; APPENDIX: OLIGOPOLY THEORY MATHEMATICALLY; The Cournot Model; The Kinked Demand Curve Model; The Centralized Cartel Model; The Market-Sharing Cartel; The Sales Maximization Model; APPENDIX PROBLEMS * SUPPLEMENTARY READINGS; CHAPTER 11. GAME THEORY AND STRATEGIC BEHAVIOR; 11-1. STRATEGIC BEHAVIOR AND GAME THEORY; 11-2. DOMINANT STRATEGY AND NASH EQUILIBRIUM; Dominant Strategy; Nash Equilibrium; 11-3. THE PRISONERS' DILEMMA; 11-4. PRICE AND NONPRICE COMPETITION, CARTEL CHEATING, AND THE PRISONERS' DILEMMA; Price Competition and the Prisoners' Dilemma; Nonprice Competition, Cartel Cheating, and the Prisoners' Dilemma; 11-5. REPEATED GAMES AND TIT-FOR-TAT STRATEGY; 11-6. STRATEGIC MOVES; Threat, Commitments, and Credibility; Entry Deterrence; 11-7. STRATEGIC BEHAVIOR AND INTERNATIONAL COMPETITIVENESS; 11-8. SEQUENTIAL GAMES AND DECISION TREES; SUMMARY * DISCUSSION QUESTIONS * PROBLEMS * SPREADSHEET PROBLEMS * SUPPLEMENTARY READINGS; CHAPTER 12. PRICING PRACTICES; 12-1. PRICING OF MULTIPLE PRODUCTS; Pricing of Products with Interrelated Demands; Plant Capacity Utilization and Optimal Product Pricing; Optimal Pricing of Joint Products Produced in Fixed Proportions; Optimal Pricing and Output of Joint Products Produced in Variable Proportions; 12-2. PRICE DISCRIMINATION; Meaning of and Conditions for Price Discrimination; First- and Second-Degree Price Discrimination; Third-Degree Price Discrimination Graphically; Third-Degree Price Discrimination Algebraically; 12-3. INTERNATIONAL PRICE DISCRIMINATION AND DUMPING; 12-4. TRANSFER PRICING; Meaning and Nature of Transfer Pricing; Transfer Pricing with No External Market for the Intermediate Product; Transfer Pricing with a Perfectly Competitive Market for the Intermediate Product; Transfer Pricing with an Imperfectly Competitive Market for the Intermediate Product; 12-5. PRICING IN PRACTICE; Cost-Plus Pricing; Evaluation of Cost-Plus Pricing; Incremental Analysis in Pricing; Peak-Load Pricing, Two-Part Tariff, Tying, and Bundling; Other Pricing Practices; SUMMARY * DISCUSSION QUESTIONS * PROBLEMS * SPREADSHEET PROBLEMS; APPENDIX: THIRD-DEGREE PRICE DISCRIMINATION WITH CALCULUS; APPENDIX PROBLEMS * SUPPLEMENTARY READINGS; INTEGRATING CASE STUDY 7: EBAY AND COMPETITION ON THE INTERNET; INTEGRATING CASE STUDY 8: E-BOOKS REWRITE BOOKSELLING; INTEGRATING CASE STUDY 9: THE ART OF DEVISING AIRFARES; PART FIVE. REGULATION, RISK ANALYSIS, AND CAPITAL BUDGETING; CHAPTER 13. REGULATION AND ANTITRUST: THE ROLE OF GOVERNMENT IN THE ECONOMY; 13-1. GOVERNMENT REGULATION TO SUPPORT BUSINESS AND TO PROTECT CONSUMERS, WORKERS, AND THE ENVIRONMENT; Government Regulations that Restrict Competition; Government Regulations to Protect Consumers, Workers, and the Environment; 13-2. EXTERNALITIES AND REGULATION; The Meaning and Importance of Externalities; Policies to Deal with Externalities; 13-3. PUBLIC UTILITY REGULATION; Public Utilities as Natural Monopolies; Difficulties in Public Utility Regulation; 13-4. ANTITRUST: GOVERNMENT REGULATION OF MARKET STRUCTURE AND CONDUCT; Sherman Act (1890); Clayton Act (1914); Federal Trade Commission Act (1914); Robinson-Patman Act (1936); Wheeler-Lea Act (1938); Celler-Kefauver Antimerger Act (1950); 13-5. ENFORCEMENT OF ANTITRUST LAWS AND THE DEREGULATION MOVEMENT; Enforcement of Antitrust Laws: Some General Observations; Enforcement of Antitrust Laws: Structure; Enforcement of Antitrust Laws: Conduct; The Deregulation Movement; 13-6. REGULATION OF INTERNATIONAL COMPETITION; 13-7. THE EFFECT OF TAXATION ON BUSINESS DECISIONS; SUMMARY * DISCUSSION QUESTIONS * PROBLEMS * SPREADSHEET PROBLEMS * SUPPLEMENTARY READINGS; CHAPTER 14. RISK ANALYSIS; 14-1. RISK AND UNCERTAINTY IN MANAGERIAL DECISION MAKING; 14-2. MEASURING RISK WITH PROBABILITY DISTRIBUTIONS; Probability Distributions; An Absolute Measure of Risk: The Standard Deviation; Measuring Probabilities with the Normal Distribution; A Relative Measure of Risk: The Coefficient of Variation; 14-3. UTILITY THEORY AND RISK AVERSION; 14-4. ADJUSTING THE VALUATION MODEL FOR RISK; Risk-Adjusted Discount Rates; Certainty-Equivalent Approach; 14-5. OTHER TECHNIQUES FOR INCORPORATING RISK INTO DECISION MAKING; Decision Trees; Simulation; 14-6. DECISION MAKING UNDER UNCERTAINTY; The Maximin Criterion; The Minimax Regret Criterion; Other Methods of Dealing with Uncertainty; 14-7. FOREIGN-EXCHANGE RISKS AND HEDGING; 14-8. INFORMATION AND RISK; Asymmetric Information and the Market for Lemons; The Insurance Market and Adverse Selection; The Problem of Moral Hazard; The Principal-Agent Problem; Auctions; SUMMARY * DISCUSSION QUESTIONS * PROBLEMS * SPREADSHEET PROBLEMS * SUPPLEMENTARY READINGS; CHAPTER 15. LONG-RUN INVESTMENT DECISIONS: CAPITAL BUDGETING; 15-1. CAPITAL BUDGETING: AN OVERVIEW; Meaning and Importance of Capital Budgeting; Overview of the Capital Budgeting Process; 15-2. THE CAPITAL BUDGETING PROCESS; Projecting Cash Flows; Net Present Value (NPV); Internal Rate of Return (IRR); Comparison of NPV and IRR; 15-3. CAPITAL RATIONING AND THE PROFITABILITY INDEX; 15-4. THE COST OF CAPITAL; The Cost of Debt; The Cost of Equity Capital: The Risk-Free Rate Plus Premium; The Cost of Equity Capital: The Dividend Valuation Model; The Cost of Equity Capital: The Capital Asset Pricing Model (CAPM); The Weighted Cost of Capital; 15-5. REVIEWING INVESTMENT PROJECTS AFTER IMPLEMENTATION; 15-6. THE COST OF CAPITAL AND INTERNATIONAL COMPETITIVENESS; SUMMARY * DISCUSSION QUESTIONS * PROBLEMS * SPREADSHEET PROBLEMS * SUPPLEMENTARY READINGS; INTEGRATING CASE STUDY 10: HOW SILICON VALLEY CONQUERED THE CARRIERS; INTEGRATING CASE STUDY 11: PHONE FIGHT!; APPENDIXES; APPENDIX A. COMPOUNDING, DISCOUNTING, AND PRESENT VALUE; A-1. Future Value and Compounding; A-2. Present Value and Discounting; A-3. Future Value of an Annuity; A-4. Present Value of an Annuity; A-5. Compounding and Discounting Periods; A-6. Determining the Interest Rate; A-7. Perpetuities; APPENDIX B. INTEREST FACTOR TABLES; Table B-1. Compound Value of $1; Table B-2. Present Value of $1; Table B-3. Future Value of an Annuity of $1 for n Periods; Table B-4. Present Value of an Annuity of $1 for n Periods; APPENDIX C. STATISTICAL TABLES; Table C-1. Areas under the Standard Normal Distribution; Table C-2. Areas in the Tails of the t Distribution; Table C-3. F Distribution for 5 Percent Significance; Table C-4. Durbin-Watson Statistic for 5 Percent Significance Points of dL and dU; APPENDIX D. ANSWERS TO SELECTED (ASTERISKED) PROBLEMS; GLOSSARY; SUBJECT INDEX