Managerial Economics: Applications, Strategy, and Tactics

764 Pages·2010·15.72 MB·English

by  James R. McGuigan

Managerial Economics
Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part.
Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part.
Managerial Economics
Applications, Strategy, and Tactics
TWELFTH EDITION
JAMES R. MCGUIGAN
JRM Investments
R. CHARLES MOYER
University of Louisville
FREDERICK H. deB. HARRIS
Schools of Business
Wake Forest University
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Brief
TABLEOFCONTENTS
Preface, xvii 13 Best-Practice Tactics: Game Theory 444
About the Authors, xxi 13A Entry Deterrence and Accommodation
Games 488
PART I
14 Pricing Techniques and Analysis 499
INTRODUCTION 1
PART V
1 Introduction and Goals of the Firm 2
ORGANIZATIONAL ARCHITECTURE
2 Fundamental Economic Concepts 26
AND REGULATION 545
PART II
15 Contracting, Governance, and
Organizational Form 546
DEMAND AND FORECASTING 61
15A Auction Design and Information
3 Demand Analysis 62
Economics 580
4 Estimating Demand 95
16 Government Regulation 610
4A Problems in Applying the Linear
17 Long-Term Investment Analysis 644
Regression Model 126
5 Business and Economic Forecasting 137 APPENDICES
6 Managing in the Global Economy 175 A The Time Value of Money A-1
6A Foreign Exchange Risk Management 227
B Tables B-1
PART III
C Differential Calculus Techniques in
Management C-1
PRODUCTION AND COST 229
7 Production Economics 230 D Check Answers to Selected
End-of-Chapter Exercises D-1
7A Maximization of Production Output
Subject to a Cost Constraint 265 Glossary G-1
7B Production Economics of Renewable and
Index I-1
Exhaustible Natural Resources 267
Notes
8 Cost Analysis 275
8A Long-Run Costs with a Cobb-Douglas WEBAPPENDICES
Production Function 301
A Consumer Choice Using
9 Applications of Cost Theory 305 Indifference Curve Analysis
PART IV B International Parity Conditions
PRICING AND OUTPUT DECISIONS: C Linear-Programming Applications
STRATEGY AND TACTICS 333
D Capacity Planning and Pricing Against a
10 Prices, Output, and Strategy: Pure and Low-Cost Competitor: A Case Study of
Monopolistic Competition 334 Piedmont Airlines and People Express
11 Price and Output Determination:
E PricingofJointProductsandTransferPricing
Monopoly and Dominant Firms 382
F Decisions Under Risk and Uncertainty
12 Price and Output Determination:
Oligopoly 409
vii
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Contents
Preface, xvii Case Exercise: Designing a Managerial
About the Authors, xxi Incentives Contract 21
Case Exercise: Shareholder Value of
PART I Wind Power at Hydro Co.: RE < C 23
INTRODUCTION 1 2 Fundamental Economic Concepts 26
Chapter Preview 26
1 Introduction and Goals of the Firm 2 Managerial Challenge: Why Charge
$25 per Bag on Airline Flights? 26
Chapter Preview 2
Managerial Challenge: How to Achieve Demand and Supply: A Review 27
TheDiamond-WaterParadox and the
Sustainability: Southern Company 2
Marginal Revolution 30
What is Managerial Economics? 4
MarginalUtilityand IncrementalCost
The Decision-Making Model 5
Simultaneously DetermineEquilibrium
TheResponsibilities ofManagement 5
MarketPrice 30
The Role of Profits 6
Individualand MarketDemandCurves 31
Risk-Bearing TheoryofProfit 7
TheDemandFunction 32
Temporary Disequilibrium TheoryofProfit 7
Import-Export TradedGoods 34
MonopolyTheoryofProfit 7
Individualand MarketSupplyCurves 35
InnovationTheory ofProfit 7
Equilibrium MarketPriceofGasoline 36
Managerial Efficiency TheoryofProfit 7
Marginal Analysis 41
Objective of the Firm 8
Total,Marginal,andAverage Relationships 41
TheShareholder Wealth-Maximization
The Net Present Value Concept 45
ModeloftheFirm 8
DeterminingtheNetPresent Valueofan
Separation of Ownership and Control: The
Investment 46
Principal-Agent Problem 9
Sourcesof PositiveNetPresent Value
DivergentObjectivesand AgencyConflict 10 Projects 48
AgencyProblems 11 Riskand theNPVRule 48
What Went Right/What Went Wrong: Meaning and Measurement of Risk 49
Saturn Corporation 13 ProbabilityDistributions 49
Implications of Shareholder Wealth ExpectedValues 50
Maximization 13 StandardDeviation: AnAbsolute Measure
ofRisk 51
What Went Right/What Went Wrong:
NormalProbabilityDistribution 51
Eli Lilly Depressed by Loss of
CoefficientofVariation: ARelative Measure
Prozac Patent 14 ofRisk 53
CaveatstoMaximizingShareholder Value 16
What Went Right/What Went Wrong:
ResidualClaimants 17
Long-Term Capital Management
GoalsinthePublicSector andNot-for-Profit
(LTCM) 53
Enterprises 18
Not-for-ProfitObjectives 18 Risk and Required Return 54
TheEfficiency Objective inNot-for-Profit Summary 56
Organizations 19 Exercises 56
Summary 19 Case Exercise: Revenue Management at
Exercises 20 American Airlines 58
viii
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Contents ix
ConsumerSurveys 98
PART II
ConsumerFocusGroups 98
MarketExperiments inTestStores 99
DEMAND AND FORECASTING 61
Statistical Estimation of the Demand
Function 99
3 Demand Analysis 62 Specification oftheModel 99
A Simple Linear Regression Model 101
Chapter Preview 62
Assumptions UnderlyingtheSimple Linear
Managerial Challenge: Health Care
Regression Model 102
Reform and Cigarette Taxes 62
EstimatingthePopulationRegression
Demand Relationships 64
Coefficients 103
TheDemand ScheduleDefined 64
Using the Regression Equation to Make
Constrained UtilityMaximization and
Predictions 106
ConsumerBehavior 65
Inferences aboutthePopulationRegression
What Went Right/What Went Wrong: Coefficients 108
Chevy Volt 69 CorrelationCoefficient 111
The Price Elasticity of Demand 69 TheAnalysis ofVariance 112
PriceElasticityDefined 70 Multiple Linear Regression Model 114
ArcPrice Elasticity 72 UseofComputerPrograms 115
PointPriceElasticity 73 EstimatingthePopulationRegression
Interpreting thePriceElasticity: Coefficients 115
TheRelationship between thePrice UsingtheRegressionModeltoMake
ElasticityandRevenues 73 Forecasts 115
TheImportance ofElasticity-Revenue Inferences aboutthePopulationRegression
Relationships 78 Coefficients 115
Factors AffectingthePriceElasticityof TheAnalysis ofVariance 118
Demand 80 Summary 118
International Perspectives: Free Trade Exercises 119
and the Price Elasticity of Demand: Case Exercise: Soft Drink Demand
Nestlé Yogurt 82 Estimation 124
The Income Elasticity of Demand 83
IncomeElasticityDefined 83 4A Problems in Applying the Linear
ArcIncomeElasticity 84 Regression Model 126
PointIncomeElasticity 85
Introduction 126
Cross Elasticity of Demand 87
Nonlinear Regression Models 132
CrossPrice ElasticityDefined 87
Interpreting theCrossPriceElasticity 87 Summary 135
Antitrustand CrossPriceElasticities 87 Exercises 135
AnEmpirical IllustrationofPrice, Income,
andCross Elasticities 89 5 Business and Economic Forecasting 137
The Combined Effect of Demand
Chapter Preview 137
Elasticities 89
Managerial Challenge: Excess Fiber
Summary 90
Optic Capacity at Global
Exercises 91
Crossing Inc. 137
Case Exercise: Polo Golf Shirt Pricing 93
The Significance of Forecasting 139
Selecting a Forecasting Technique 139
4 Estimating Demand 95
Hierarchy ofForecasts 139
Chapter Preview 95 CriteriaUsedtoSelect aForecasting
Managerial Challenge: Global Warming Technique 140
and the Demand for Public EvaluatingtheAccuracy ofForecasting
Transportation 95 Models 140
Estimating Demand Using Marketing What Went Right/What Went Wrong:
Research Techniques 98 Crocs Shoes 140
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