CONTENTS
1. Introduction to Managerial Economics = 1
Definition and Scope = 1
The Economic Problem and Economic Analysis = 1
Managerial Economics as a Course of Study = 2
Models in Economic Analysis = 4
Danger in Using Models = 5
Evaluating a Model = 8
An Overview of the Text = 8
Studying Managerial Economics = 9
Questions = 10
References = 10
2. Analytical Review = 13
Representing Functions = 13
Verbal Representation = 13
Tabular Representation 14
Graphs = 141
Equations = 16
Total, Average and Marginal Relationships = 16
Equations = 20
Linear Functions = 2l
Non-Linear Functions = 24
Polynomial Functions = 24
Exponents = 25
Growth Functions = 29
Implicit Functions = 31
Statistical Functions = 31
Calculus Techniques = 36
The Derivatiue = 37
Power Functions = 38
Exponential Functions = 39
Logarithmic Functions = 40
Combining Functions = 40
Functions of Many Variables = 45
Finding Extreme Values of Functions = 46
Summary = 54
Questions = 54
Problems = 55
References = 59
3.Profits in a Market Economy = 61
Profits as a Residual Payment = 61
The Relative Size of Profits = 62
The Role of Profits in a Market Economy = 63
Sources of Profits = 65
Uncertainty = 65
Innovations = 66
Resource Immobility = 67
Monopoly = 68
On Profit Maximization = 69
The Theory of the Firm = 71
Summary = 72
Questions = 73
Problems = 74
References = 75
4. Profits, Risk, and Uncertainty = 77
Expected Profits = 78
Deviations About Expected Profits = 80
Risk Aversion = 84
Risk in a Planning Environment = 87
Approaches to Decision Making Under Uncertainty = 91
The Criterion of Pessimism = 93
The Criterion of Optimism = 93
The Criterion of Regret = 94
The Criterion of Rationality = 96
The Theory of Games = 98
Decision Trees = 100
Summary = 104
Questions = 104
Problems = 105
References = 110
5. The Firm's Revenue : Demand Theory = 113
The Law of Demand = 114
Demand Functions and Demand Curves = 115
Tastes and Preferences = 117
Money Incomes = 119
Prices of Related Commodities = 119
The Number of Potential Buyers = 120
Buyer's Expectations 120
Demand Versus Change in Quantity Demanded 121
Special Cases of Demand Curves = 122
Measuring the Price Responsiveness of Demand : Slope and Elasticity = 123
Slope = 123
Elasticity = 124
Determinants of Price Elasticity = 127
Demand and Total Revenue = 130
Other Elasticities = 134
Two Widely Used Forms for Demand Functions = 136
Summary = 138
Questions = 139
Problems = 139
References = 143
Appendix 5.1 Indifference Curve Analysis = 144
Appendix 5.2 Mathematical Appendix = 149
6. Demand Estimation and Forecasting = 157
A Typology of Forecasting Methods = 158
Subjective Forecasts = 158
Deterministic Models = 159
Ad Hoc Forecasting Formulas = 162
Time-Series Analysis = 165
Econometric Models = 168
Classical Least Squares Regression = 168
The Identification Problem = 175
Some Additional Concerns = 178
Two Examples = 180
A Word of Caution = 185
Forecasting with an Econometric Model = 186
Concluding Remarks = 191
Summary = 194
Questions = 195
Problems = 196
References = 199
Appendix 6.1 Box Jenkins Time-Series Analysis = 200
Appendix 6.2 Sources of Economic Data = 203
Appendix 6.3 Classical Least Squares Estimators = 205
Appendix 6.4 Empirical Studies of Demand = 206
7. Production Theory = 213
The Production Function = 214
Production with One Variable Input = 215
The Land of Diminishing Returns = 216
Applications = 217
Production with Many Variable Inputs = 221
Depicting the Production Function = 222
Special Cases = 226
Producing an Output for the Lowest Possible Cost = 227
Extensions = 230
Summary = 238
Questions = 238
Problems = 240
References = 244
Appendix 7.1 Mathematical Appendix = 245
8. Linear Programming and Production Theory = 249
An Overview of Linear Programming Problems = 249
The Geometry of Linear Programming = 251
Least-Cost Production = 253
Input Availability Constrained = 254
The Marginal Product of an input = 258
Several Outputs and Several Inputs = 258
The Concept of Duality = 267
Reflections on Linear Programming = 270
Computer Algorithms for Solving Linear Programming Problems = 270
Methodological Caveats = 274
Summary = 277
Questions = 278
Problems = 279
References = 281
9. Costs, Optimal Output, and Input Demand = 283
The Nature and Role of Costs = 283
Implicit and Explicit Costs = 284
Sunk Costs = 286
Fixed and Variable Costs = 287
Costs and the Production Function = 288
Per Unit Costs = 291
Cost and Linear Programming Production Functions = 293
Choosing the Optimal Output = 295
The Optimal Employment of Resources = 298
Monopsony = 301
Summary = 304
Questions = 304
Problems = 305
References = 310
Appendix 9.1 Mathematical Appendix = 311
10. Statistical Cost Analysis = 319
Short-Run Cost Estimation = 320
Data = 320
Statistical Cost Functions = 323
Empirical Estimates of Statistical Cost Functions = 327
Estimation of Long-Run Costs = 332
Long-Run, Cost Studies = 335
Alternative Approaches to Estimating Cost Functions = 339
The Engineering Approach = 339
The Survivorship Principle = 340
Forecasting Costs = 343
Input Production = 343
Input Prices = 344
Summary = 345
Questions = 345
Problems = 346
References = 347
11. Applications of Cost Theory and Pricing Theory = 349
Profit Contribution Analysis = 349
The Multiplant Firm = 352
Pricing Theory = 354
Markup Pricing = 355
Price Discrimination = 358
Pricing Related Products = 368
Products Related by Demand = 368
Products Related by Production = 368
Transfer Pricing = 374
Summary = 378
Questions = 378
Problems = 379
References = 384
Appendix 11.1 Consumer's Surplus = 386
Appendix 11.2 Mathematical Appendix = 387
12.Market Structure and Price Theory Ⅰ Perfect Competition = 397
Perfect Competition = 398
Assumptions of the Competitive Model = 399
The Price-Taking Firm = 400
The Firm's Supply Curve = 401
Firm Supply and Industry Supply in the Short Run = 402
Long-Run Adjustments in a Competitive Industry = 406
Long-Run Industry Supply = 407
Observations on Competitive Markets = 410
Summary = 413
Questions = 414
Problems = 415
References = 420
Appendix 12.1 Mathematical Appendix = 421
13. Market Structure and Price Theory Ⅱ : Imperfect Competition = 425
Monopoly = 425
Monopolistic Competition = 428
Evaluating the Monopolistic Competition Model = 432
Oligopoly = 432
The Cournot Model = 433
Other Models = 435
Summary = 439
Questions = 440
Problems = 441
References = 444
Appendix 13.1 Mathematical Appendix = 445
14. Public Policy and Markets = 451
Public Policy and Monopoly = 451
Antitrust Laws = 452
Use of Economic Analysis in Antitrust Investigations = 456
Regulation of Natural Monopolies = 458
The Question of Imperfect Competition = 462
Other Sources of Market Failure = 464
External Benefits = 464
External Costs = 466
Common Property Resources = 468
Summary = 472
Questions = 472
Problems = 473
References = 475
Appendix 14.1 Antitrust Laws = 477
15. Government Decision Making = 485
Production by Government = 485
Evaluating Government Projects : Benefit-Cost Analysis = 490
Benefits = 491
Costs = 492
The Discount Rate = 492
Some Misconceptions Surrounding Benefit-Cost Analysis = 493
The Theory of Public Choice = 495
Policy Implications of Public Choice Theory = 499
Summary = 501
Questions = 501
Problems = 502
References = 504
Appendix 15.1 An application of Benefit-Cost Analysis = 505
16. Taxation = 513
Elements of Tax Analysis = 513
Personal Income Taxes = 519
Social Security Taxes = 520
Sales Taxes = 524
Specific Sales Tax = 524
General Sales Tax = 524
Corporate Income Tax and Property Taxes = 525
Corporate Income Taxes = 526
Summary = 529
Questions = 532
Problems = 532
References = 534
17. The Capital Budgeting Process = 537
The Essentials of Capital Budgeting = 538
Present Value = 538
Internal Rate of Return = 540
Profitability Index = 541
An Example = 541
A Summary and Some Complications = 543
Project Ranking with Capital Rationing = 548
A Recapitulation = 549
Product Demand = 549
Production and Marketing Costs = 549
Capital Costs = 549
Arbitrage Pricing Model = 551
A Survey of Capital Budgeting Techniques Used by U.S. Firms = 553
Summary = 555
Questions = 556
Problems = 556
References = 559
Appendix 17.1 Compounding, Discounting, and Present Value = 561
Appendices
A. Interest Factor Tables = 565
B. Mathematical Tables = 573
C. Statistical Tables = 575
Index = 579
