Managerial Economics 7th Edition
Decision making lies at the heart of most important business and government problems. The range of business decisions is vast: Should a high-tech company undertake a promising but expensive research and development program? Should a petrochemical manufacturer cut the price of its best-selling industrial chemical in response to a new competitor’s entry into the market? What bid should company management submit to win a government telecommunications contract? Should management of a food products company launch a new product after mixed test-marketing results? Likewise, government decisions range far and wide: Should the Department of Transportation impose stricter rollover standards for sports utility vehicles? Should a city allocate funds for construction of a harbor tunnel to provide easy airport and commuter access? These are all interesting, important, and timely questions—with no easy answers. They are also all economic decisions. In each case, a sensible analysis of what decision to make requires a careful comparison of the advantages and disadvantages (often, but not always, measured in dollars) of alternative courses of action.
As the term suggests, managerial economics is the analysis of major management decisions using the tools of economics. Managerial economics applies many familiar concepts from economics—demand and cost, monopoly and competition, the allocation of resources, and economic trade-offs—to aid managers in making better decisions. This book provides the framework and the economic tools needed to fulfill this goal.
In this chapter, we begin our study of managerial economics by stressing decision-making applications. In the first section, we introduce seven decision examples, all of which we will analyze in detail later in the text. Although these examples cover only some applications of economic analysis, they represent the breadth of managerial economics and are intended to whet the reader’s appetite. Next, we present a basic model of the decision-making process as aframework in which to apply economic analysis. This model proposes six steps to help structure complicated decisions so that they may be clearly analyzed. After presenting the six steps, we outline a basic theory of the firm and of government decisions and objectives. In the concluding section, we present a brief overview of the topics covered in the chapters to come.
CHAPTER 1 Introduction to Economic Decision Making 1
SECTION I: Decisions within Firms 25
CHAPTER 2 Optimal Decisions Using Marginal Analysis 27
CHAPTER 3 Demand Analysis and Optimal Pricing 77
CHAPTER 4 Estimating and Forecasting Demand 128
CHAPTER 5 Production 190
CHAPTER 6 Cost Analysis 226
SECTION II: Competing within Markets 281
CHAPTER 7 Perfect Competition 283
CHAPTER 8 Monopoly 319
CHAPTER 9 Oligopoly 349
CHAPTER 10 Game Theory and Competitive Strategy 397
CHAPTER 11 Regulation, Public Goods, and Benefit-Cost Analysis 446
SECTION III: Decision-Making Applications 497
CHAPTER 12 Decision Making under Uncertainty 499
CHAPTER 13 The Value of Information 541
CHAPTER 14 Asymmetric Information and Organizational Design 581
CHAPTER 15 Bargaining and Negotiation 630
CHAPTER 16 Auctions and Competitive Bidding 668
CHAPTER 17 Linear Programming 707
Answers to Odd-Numbered Questions
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