Managerial Economics: Theory, Applications, and Cases

, by Mansfield, Edwin; Allen, W. Bruce; Doherty, Neil A.; Weigelt, Keith; Mansfield, Edwin

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ISBN: 9780393976779 | 0393976777
Cover: Hardcover
Copyright: 1/1/2002

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Supplemental Materials

Preface

xix

Part One Introduction

(80)

Introduction to Managerial Economics

(34)

Boeing's Struggle to Retain Market Leadership

(1)

The Disney Corporation: Expansion of the Magic Kingdom

(1)

In What Size Production Runs Should Toyota Produce Its Cars?

(1)

Relationships of Managerial Economics to Other Disciplines

(2)

The Basic Process of Decision Making

(2)

The Theory of the Firm

(2)

The Role of Constraints

(1)

What Are Profits?

(2)

Reasons for the Existence of Profit

(1)

Organizational Factors and ``Satisficing''

(1)

Analyzing Managerial Decisions: Shell Gains by Giving Safe-Driving Advice

(1)

Managerial Interests and the Principal-Agent Problem

(1)

Demand and Supply: A First Look

(3)

Analyzing Managerial Decisions: How Disney Dealt with the Principal-Agent Problem

(2)

The Demand Side of a Market

(1)

The Supply Side of a Market

(2)

Equilibrium Price

(1)

Actual Price

(1)

What If the Demand Curve Shifts?

(2)

What If the Supply Curve Shifts?

(1)

How russia Glutted the Aluminum Market: A Case Study

(2)

Concepts in Context: Problems in the Potato Market

(1)

Summary

(1)

Problems

(6)

Optimization Techniques

(44)

Functional Relationships

(2)

Marginal Analysis

(2)

Relationships between Total, Marginal, and Average Values

(3)

The Concept of a Derivative

(4)

How to Find a Derivative

(9)

Concepts in Context: The Allocation of the TANG Brand Advertising Budget

(4)

Using Derivatives to Solve Maximization and Minimization Problems

(4)

Marginal-Cost Equals Marginal Revenue and the Calculus of Optimization

(4)

Analyzing Managerial Decisions: The Optimal Size of a Nursing Home

(2)

Concepts in Context: An Alleged Blunder in the Stealth Bomber's Design

(1)

Partial Differentiation and the Maximization of Multivariable Functions

(2)

Analyzing Managerial Decisions: The Effects of Advertising on the Sales of TANG

(1)

Constrained Optimization

(3)

Lagrangian Multipliers

(3)

Consultant's Corner: Planning to Meet Peak Engineering Requirements

(1)

Comparing Incremental Costs with Incremental Revenues

(2)

Summary

(1)

Problems

(4)

Part Two Demand and Forecasting

(152)

Demand Theory

(40)

Introduction

(1)

The Market Demand Curve

(4)

Industry and Firm Demand Functions

(2)

The Price Elasticity of Demand

(2)

Point and Are Elasticities

(1)

Using the Demand Function to Calculate the Price Elasticity of Demand

(3)

Concepts in Context: For Demand in Russia

(2)

Price Elasticity and Total Money Expenditure

(2)

Total Revenue, Marginal Revenue, and Price Elasticity

(4)

Analyzing Managerial Decisions: The Demand for Newsprint

100

(2)

Using Price Elasticity of Demand: Application to Philips Morris

102

(1)

Using Price Elasticity of Demand: Public Transit

102

(1)

Determinants of the Price Elasticity of Demand

102

(3)

Uses of the Price Elasticity of Demand

105

(1)

Price Elasticity and Pricing Policy

106

(1)

The Income Elasticity of Demand

107

(2)

Using the Demand Function to Calculate the Income Elasticity of Demand

109

(1)

Cross Elasticities of Demand

110

(3)

Consultant's Corner: Estimating the Demand for Rail Passenger Business by Amtrak

111

(2)

The Advertising Elasticity of Demand

113

(1)

The Constant-Elasticity Demand Function

113

(3)

Analyzing Managerial Decisions: Price Cutting at the London times

115

(1)

Summary

116

(1)

Problems

117

(6)

Consumer Behavior and Rational Choice

123

(26)

Indifference Curves

124

(2)

The Marginal Rate of Substitution

126

(2)

The Concept of Utility

128

(1)

The Budget Line

128

(3)

The Equilibrium Market Basket

131

(3)

Concepts in Context: Effect of a Time Constraint on Consumer Behavior

133

(1)

Maximizing Utility: A Closer Look

134

(1)

Corner Solutions

135

(1)

Representing the Process of Rational Choice

136

(1)

Deriving the Individual Demand Curve

137

(2)

Deriving the Market Demand Curve

139

(1)

Consumer Surplus

140

(2)

Summary

142

(2)

Consultant's Corner: The Trade-off between Risk and Return

143

(1)

Problems

144

(5)

Estimating Demand Functions

149

(48)

The Identification Problem

150

(3)

Consumer Interviews

153

(1)

Market Experiments

154

(1)

L'eggs: A Market Experiment

154

(1)

Regression Analysis

155

(2)

Simple Regression Model

157

(1)

Sample Regression Line

158

(2)

Method of Least Squares

160

(3)

Coefficient of Determination

163

(2)

Multiple Regression

165

(3)

Consultants Corner: Marketing Plans at the Stafford Company

166

(2)

Software Packages and Computer Printouts

168

(3)

Concepts in context: How the Japanese Motorcycle Makers Used the Coefficient of Determination

170

(1)

Interpreting the Computer Printout

171

(7)

Concepts in Context: Color Balance and Shelf-Life Performance of Polaroid Film

173

(1)

Analyzing Managerial Decisions: How Good Are Ward's Projections of Auto Output?

174

(4)

Multicollinearity

178

(1)

Serial Correlation

179

(2)

Further Analysis of the Residuals

181

(1)

Summary

182

(4)

Analyzing Managerial Decisions: How Fed Economists Forecast Auto Output

184

(2)

Problems

186

(6)

Appendix: The Coefficient of Determination and the Concept of Explained Variation

192

(5)

Business and Economic Forecasting

197

(36)

Survey Techniques

198

(1)

Taking Apart a Time Series

199

(3)

How to Estimate a Linear Trend

202

(2)

How to Estimage a Nonlinear Trend

204

(1)

Seasonal Variation

205

(1)

Calculation of Seasonal Variation

206

(3)

Analyzing Managerial Decisions: Forecasting the Demand for Blood Tests

208

(1)

Cyclical Variation

209

(3)

Elementary Forecasting Techniques

212

(2)

How Leading Indicators Are Used

214

(3)

Consultant's Corner: Deciding Whether to Finance the Purchase of an Oil Field

216

(1)

How Econometric Models Are Used

217

(1)

Analyzing Managerial Decisions: Forecasting Shipments of Cement by CEMCO

218

(1)

John Hancock and Timberland: A Case Study

218

(1)

The Purvere Corporation: A Numerical Example

219

(2)

``Study Your Residuals''

221

(1)

Summary

222

(1)

Problems

223

(4)

Appendix: Exponential Somoothing and Forecasting

227

(6)

Managerial Economics in Context: How to Forecast the Sales of Paper, According to McKinsey

230

(3)

Part Three Production and Coast

233

(138)

Production Theory

235

(54)

The Production Function with One Variable Input

236

(6)

Analyzing Managerial Decisions: Shaquille O'Neal Goes to Los Angeless

241

(1)

The Law of Diminishing Marginal Returens

242

(1)

The Optimal Level of Utilization of an Input

242

(2)

The Rondo Corporation: A Numerical Example

244

(2)

Analyzing Managerial Decisions: How to Determine the Optimal Horsepower for an Oil Pipeline

245

(1)

The Production Function with Two Variable Inputs

246

(3)

Analyzing Managerial Decisions: How Nucor Stays on the Production Function

248

(1)

Isoquants

249

(2)

The Marginal Rate of Technical Substitution

251

(3)

The Optimal Combination of Inputs

254

(3)

The Beiswanger Company: A Numerical Example

257

(2)

The Miller Company: Another Numerical Example

259

(1)

Optimal Lot Size

260

(4)

What Toyota Taught the World

264

(2)

Returns to Scale

266

(2)

Consultant's Corner: Choosing the Size of an Oil Tanker

267

(1)

The Output Elasticity

268

(1)

How Firms Obtain Information About the Production Function: Competitive Benchmarkeing at Xerox

269

(1)

Measurement of Production Functions

270

(2)

Three Types of Statistical Analysis

272

(1)

The Telephone Industry in Canada: A Case Study

273

(1)

Poultry Production in the United States: Another Case Study

274

(3)

Summary

277

(1)

Problems

278

(6)

Appendix: Lagrangian Multipliers and Optimal Input Combinations

284

(5)

Technological Change and Industrial Innovation

289

(32)

Technological Change

290

(1)

Labor Productivity

291

(1)

Total Factor Productivity

292

(2)

Using Total Factor Productivity to Truck Factory Performance

294

(2)

Research and Development: A Learning Process

296

(1)

Parallel Development Efforts

297

(2)

What Makes for Success?

299

(1)

Concepts in Context: Parallel Development Efforts at IBM

300

(1)

Project Selection

300

(1)

Innovation

301

(1)

Time-Cost Trade-offs

302

(2)

The Learning Curve

304

(2)

Analyzing Managerial Decisions: The Time-Cost Trade-off Function for Airliners

306

(1)

Applications of the Learning Curve

306

(2)

Henry Ford's Model T and Douglas Aircraft's DC-9

308

(1)

Diffusion Models

308

(5)

Consultant's Corner: How Robots Spread in Japan and the United States

312

(1)

Forecasting the Rate of Diffusion of Numericall Controlled Machine Tools

313

(2)

Analyzing Managerial Decisions: The Development and Introduction of Canon's Personal Copier

314

(1)

Summary

315

(1)

Problems

316

(5)

The Analysis of Costs

321

(50)

Introduction

321

(1)

Opportunity Costs

322

(1)

Concepts in Context: How Harley-Davidson Has Reduced Costs

323

(1)

Short-Run Cost Functions

323

(3)

Average and Marginal Costs

326

(6)

Analyzing Managerial Decisions: The Effects of Output on the cost of Producing Aircraft

331

(1)

Long-Run Cost Functions

332

(4)

The Crosby Corporation: A Numerical Example

336

(2)

Analyzing Managerial Decisions: Should We Continue to Make Autos from Steel?

337

(1)

Economies of Scale in Nursing Homes

338

(3)

Measurement of Short-Run Cost Functions: The Choice of a Mathematical Form

341

(1)

Nature and Limitations of Available Data

342

(3)

Key Steps in the Estimation Process

345

(1)

A Hostiery Mill's Short-Run Cost Functions

346

(2)

A Transportation Firm's Short-Run Cost Functions

348

(2)

Long-Run Statistical Cost Estimation

350

(2)

The Long-Run Average Cost Function for Electric Power: A Case Study

352

(1)

The Survivor Technique

353

(2)

The Importance of Flexibility

355

(1)

Economies of Scope

355

(3)

Concepts in Context: Economies of Scope in Advertising Agencies

357

(1)

Break-Even Analysis

358

(2)

Algebraic Break-Even Analysis

360

(1)

Consultant's Corner: Mr. Martin Gets Chewed Out by the Boss

361

(1)

Profit Contribution Analysis

361

(1)

Summary

362

(1)

Problems

363

(4)

Appendix: Break-Even Analysis and Operating Leverage

367

(4)

Part Four Market Structure, Strategic Behavior, and Pricing

371

(152)

Perfect Competition, Monopoly, and Monopolistic Competition

373

(54)

Market Structure

373

(2)

Market Price Under Perfect Competition

375

(2)

Shifts in Supply and Demand Curves

377

(1)

The Output Decision of a Perfectly Competitive Firm

378

(3)

Setting Marginal Cost Equal to Price

381

(4)

Consultant's Corner: Forecasting the Price of Salmon

384

(1)

Producer Surplus in the Short Run

385

(2)

Long-Run Equilibrium of the Firm

387

(3)

The Long-Run Adjustment Process: A Constant-Cost Industry

390

(1)

The Long-Run Adjustment Process: An Increasing-Cost Industry

391

(2)

How a Perfectly Competitive Economy Allocates Resources

393

(1)

Price and Output Decisions under Monopoly

394

(4)

The Newspaper Industry in Detroit

398

(1)

The Raleigh Company: A Numerical Example

399

(3)

Analyzing Managerial Decisions: Franchiser versus Franchisee?

400

(1)

Concepts in Context: Using Patents to Maintain Market Power

401

(1)

Two-Part Tariffs

402

(1)

Bunding

402

(6)

Concepts in Context: Verizon Local Calling Plans

403

(5)

Monopolistic Competition

408

(1)

Price and Output Decisions under Monopolistic Competition

409

(2)

Advertising Expenditures: A Simple Rule

411

(3)

Using Graphs to Help Determine Advertising Expenditure

414

(1)

Advertising, the Price Elasticity of Demand, and Brand Loyality: The Case of the Retail Coffee Market

415

(2)

Summary

417

(1)

Problems

418

(5)

Appendix: Allocation of Output among Plants

423

(4)

Oligopoly

427

(20)

The Emergence of Oligopolistic Industries

428

(2)

Maturity and Decline of Oligopolistic Industries

430

(1)

Collusive Agreements

430

(2)

The Breakdown of Collusive Aggreements

432

(1)

Dissension in the OPEC Oil Cartel

433

(2)

Concepts in Context: Cartels Come in Many Shapes and Sizes

434

(1)

Price Leadership

435

(2)

Analyzing Managerial Decisions: Price Cuts for Breakfast

437

(1)

Ajax, Inc.: A Numerical Example

437

(2)

Analyzing Managerial Decisions: Cranberries: Where 34 Percent of the Market Producers Are Price Takers

438

(1)

Summary

439

(1)

Problems

440

(7)

Game Theory

447

(30)

Two-Person Games

448

(1)

Nash Equilibrium

449

(2)

Carpenter Company and Hanover Corporation: A Numerical Example

451

(4)

The Prisoner's Dilemma

455

(1)

Does Cheating Pay?

456

(1)

A More Sophisticated Analysis

457

(1)

Most-Favored-Customer Clauses

458

(2)

The Thrust and Parry of Oligopolistic Rivalry

460

(1)

The Importance of Commitment

461

(2)

Consultant's Corner: Using a Price Announcement to Preempt a market

462

(1)

When Is a Threat Credible?

463

(2)

The Importance of Entry

465

(1)

The Deterrence of Entry

465

(3)

Analyzing Managerial Decisions: Difficulties in Formulating Effective Contracts

467

(1)

Du Pont's Attempt to Deter Entry into the Titanium Dioxide Industry

468

(1)

Advertising to Resist Entry: Maxwell House Versus Folders

468

(1)

Preemptive Strategies: The Case of Wall-Mart Stores

469

(1)

Representing Games with Game Trees

470

(2)

Summary

472

(1)

Problems

473

(4)

Pricing Techniques

477

(46)

Cost-Plus Pricing

478

(1)

Cost-Plus Pricing at Computron, Inc.: A Case Study

479

(1)

Cost-Plus Pricing at Internet Companies and Government-Regulated Industries

480

(1)

Does Cost-Plus Pricing Maximize Profit?

481

(2)

The Clawson Corporation: A Numerical Example

483

(1)

The Multiple-Product Firm: demand Interrelationships

483

(3)

Analyzing Managerial Decisions: Pricing Steaks at the Palm Restaurant

484

(2)

Pricing of Joint Productions: Fixed Proportions

486

(2)

The Avtech Company: A Numerical Example

488

(2)

Output of Joint Products: Variable Proportions

490

(2)

Price Discrimination

492

(2)

Airline Travel: A Case Study

494

(1)

Price Discrimination: A Pharmaceutical Example

495

(2)

The Different Types of Price Discrimination

497

(5)

Using Coupons and Rebates for Price Discrimination

502

(1)

Tying at IBM, Xerox, and Microsoft

503

(2)

Transfer Pricing

505

(4)

Concepts in Context: Why Do Women Pay More?

505

(1)

Analyzing Managerial Decisions: Yield Management at American Airlines

506

(3)

Transfer Pricing: A Perfectly Competitive Market for the Transferred Product

509

(1)

Transfer Pricing in Practice Around the World

510

(1)

Concepts in Context: Japan's Tax Man Leans on Foreign Firms

510

(1)

The Orion Corporation: A Numerical Example

511

(4)

Consultant's Corner: Setting Some Strife Over a Pricing Formula

513

(2)

Summary

515

(1)

Problems

516

(7)

Managerial Economics in Context: A Rocky Road for Caterpillar Tractor

520

(3)

Part Five Risk, Uncertainty, and Incentives

523

(112)

Risk Analysis

525

(40)

Risk and Probability

526

(1)

Probability Distributions and Expertac Values

527

(1)

Comparisons of Expected Profit

528

(1)

How to Construct a Decision Tree

529

(2)

Should Tomco Oil Corporation Drill a Well?

531

(3)

Concepts in Context: Bidding for the SS Kuniang

534

(1)

The Expected Value of Perfect Information

534

(2)

Evaluating an Investment in a New Chemical Plant: A Case Study

536

(2)

Consultant's Corner: Choosing Areas for Research Regarding Pollutions Costs

537

(1)

Measuring Attitudes Toward Risk: The Utility Approach

538

(1)

Constructing a Utility Function

538

(4)

Analyzing Managerial Decisions: Should Maxwell House Have Increased Its Price?

540

(2)

Using a Utility Function

542

(1)

Attitudes Toward Risk: Three Types

543

(2)

The Standard Deviation and coefficient of Variation: Measures of Risk

545

(3)

Analyzing Managerial Decisions: Deciding Whether to Buy an Option on a New Flight-Safety System

548

(1)

Adjusting the Valuation Model for Risk

548

(3)

Certainty Equivalence and the Market for Insurance

551

(1)

The Use of Risk-Adjusted Discount Rates

552

(1)

Simulation Techniques

553

(3)

Application of the Maximin rule

556

(3)

Concepts in Context: Using Simulation Techniques in the Computer Industry

557

(2)

Summary

559

(1)

Problems

560

(5)

Auctions

565

(27)

A Short History of Auctions

567

(1)

Types of Auction Mechanisms

568

(1)

Auction Mechanism and Revenue Generation

569

(2)

Bidding Strategies

571

(6)

Analyzing Managerial Decisions: Auction Design at Freemarkets, Inc.

574

(3)

Strategies for Sellers

577

(2)

Value of Information

579

(9)

Analyzing Managerial Decisions: The Use of Sophisticated Pricing within an Auction Format

582

(4)

Analyzing Managerial Decisions: The Winner's Curse in Bidding for Oil Rights

586

(2)

Summary

588

(1)

Problems

588

(4)

Managing Incentives: Principal-Agent Problems and Moral Hazard

592

(43)

Principal-Agent Problems

593

(5)

A Simple Model of the Principal-Agent Problem with No Risk

598

(10)

The Principal-Agent Problem: Output Is Risky and Efforts Is Not Observable

608

(4)

Illustration: Running the Family Farm

612

(7)

Concepts in Context: Call Options

617

(2)

Insurance and Moral Hazard

619

(1)

Analyzing Managerical Decisions: Do Directors Act on Behalf of Shareholders or Managers?

620

(1)

Principal-Agent Problems Between Shareholders and Creditors

620

(6)

Product Liability and the Sofety of Consumer Goods

626

(3)

Mangerial Economics in Context: The Composition of CEO Pay

628

(1)

Summary

629

(2)

Problems

631

(4)

Part Six Government-Business Relations and the Global Economy

635

Government and Business

637

(42)

Competition Versus Monopoly

638

(1)

Regulation of Monopoly

639

(4)

Analyzing Managerial Decisions: The Social Cost of Monopoly

642

(1)

The Trenton Gas Company: A Numerical Example

643

(1)

The Lone Star Gas Company: A Case Study

644

(1)

Effects of Regulation on Efficiency

645

(1)

Consultant's Corner: A Dispute Over a Requested Gas Rate Increase

646

(1)

The Concentration of Economic Power

646

(2)

The Sherman Act

648

(1)

The Clayton Act, the Robinson-Patman Act, and the Federal Trade Commission Act

649

(2)

The Interpretation of the Antitrust Laws

651

(1)

Antitrust Policy During the 1960s and 1970s

652

(1)

Antitrust Policy during the 1980s and 1990s

653

(1)

Du Point's Titanium Dioxide Pigments: A Case Study

654

(1)

The Patent System

655

(2)

Patents and the Rate of Innovation

657

(1)

Regulation of Environmental Pollution

658

(1)

External Economies and Diseconomies

659

(1)

The Genesis of the Pollution Problem

659

(1)

The Optimal Level of Pollution Control

660

(3)

Forms of Government Regulation

663

(2)

Effects of Regulation-Induced Cost Increase on Price and Output

665

(4)

Concepts in Context: Buying and Selling the Right to Emit Nitrogen Oxides

666

(2)

Analyzing Managerial Decisions: Auctioning Off Spectrum Rights: Australia and the United States

668

(1)

Public Goods

669

(1)

Concepts in Context: Entrance Fees to National Parks

670

(1)

Summary

670

(2)

Problems

672

(7)

Managerial Economics: Taking a Global View

679

Foreign Trade

680

(2)

Comparative Advantage

682

(2)

Changes in Comparative Advantage

684

(1)

Using Demand and Supply curves to Determine Which Country Will Export a Product

685

(2)

Analyzing the Gains from Trade

687

(3)

Exchange Rates

690

(3)

Determinants of Exchange Rates

693

(2)

Tariffs and Quotas

695

(1)

The Effects of a Quota: The Case of the Wilton Company's Product

696

(1)

Concepts in Context: Sweetening with Corn, Not Sugar

697

(1)

The Presence of Protectionism

697

(2)

Concepts in context: Why Bridgestone Paid $2.6 Billion for Firestone

698

(1)

Strategic Trade Policy

699

(1)

Airbus Vversus Boeing: Strategic Trade Policy in Action

700

(2)

International Trade disputes

702

(2)

Analyzing Managerial Decisions: Is Airbous Playing by the Rules?

703

(1)

Making Direct Investments Abroad

704

(1)

Establishing a Plant Abroad: Time-Cost Trade-offs

704

(2)

Channels of International Technology Transfer

706

(2)

Analyzing Managerial Decisions: Seagram Makes Vodka in Ukraine

707

(1)

Choice Among Transfer Channels

708

(1)

Consultant's Corner: Reorganizing a Firm's Global R and D Network

709

(1)

Strategic Alliances

709

(2)

Summary

711

(1)

Problems

712

Managerial Economics in Context: NAFTA: A Historic Agreement

713

Appendix A Discounting and Present Values

A-1

(1)

Present Value of a Series of Payments

A-3

(1)

The Use of Periods Other Than a Year

A-5

(1)

Determining the Internal Rate of Return

A-6

(1)

Appendix B The Normal, t, and F Distributions

A-9

(1)

Brief Ansers to Odd-Numbered End-of-Chapter Questions and Problems

A-14

(1)

Brief Answers to ``Consultant's Corner''

A-47

(1)

Brief Answers to ``Managerial Economics in Context''

A-54

(1)

Appendix Tables

A-57

(1)

Photo Credits

A-73

(1)

Index

A-75

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Managerial Economics: Theory, Applications, and Cases

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