Preface i ChAPtEr 1 Introduction 1 Introduction: Economics and Managerial Decision Making 2 A Brief Review of Important Economic Terms and Concepts 5 The Case of Global Foods, Inc.: Situations and Solutions 9 Summary of the Situations and Solutions 11 Global Application: The BRIC Countries 14 Summary 15 Important Concepts 16 Questions 16 ChAPtEr 2 the Firm and Its Goals 18 Introduction 19 Do Companies Really Try to Maximize Profits? 26 Maximizing the Wealth of Stockholders 29 Economic Profits 32 Global Application 34 Summary 35 Important Concepts 35 Questions 36 ChAPtEr 3 Supply and Demand 38 Introduction 39 Market Demand 39 Market Supply 42 Market Equilibrium 44 Comparative Statics Analysis 46 Supply, Demand, and Price: The Managerial Challenge 53 Global Application: The BRIC Countries and the Supply and Demand for Oil 53 Summary 56 Important Concepts 56 Questions 57 Problems 58 Appendix 3A The Mathematics of Supply and Demand 65 ChAPtEr 4 Demand Elasticity 68 The Economic Concept of Elasticity 69 The Price Elasticity of Demand 69 i Contents The Cross-Price Elasticity of Demand 86 Income Elasticity 87 Other Elasticity Measures 90 Elasticity of Supply 90 Global Application: Price Elasticities in Asia 91 Summary 93 Important Concepts 94 Questions 94 Problems 96 Appendix 4A Applications of Supply and Demand 100 ChAPtEr 5 Demand Estimation and Forecasting 114 Demand Estimation 115 Introduction 115 Introduction to Regression Analysis 117 Problems in the Use of Regression Analysis 125 Examples of Regression Analysis Across the Disciplines 129 Global Application: Food in Spain, Cigarettes in Chinese Taiwan 130 Forecasting 132 Introduction 132 Subjects of Forecasts 132 Prerequisites of a Good Forecast 133 Forecasting Techniques 133 Global Application: Forecasting Exchange Rates 156 Summary 159 Important Concepts 159 Questions 161 Problems 162 Appendix 5A The Demand for White Zinfandel in Los Angeles 167 ChAPtEr 6 the theory and Estimation of Production 175 The Production Function 176 A Short-Run Analysis of Total, Average, and Marginal Product 178 The Long-Run Production Function 188 The Estimation of Production Functions 191 The Importance of Production Functions in Managerial Decision Making 200 Going ”Beyond the Curves”: Current Production Issues and Challenges for Today’s Managers 202 Call Centers: Applying the Production Function to a Service 204 Global Application: Shifting Trends in Global Outsourcing 205 Summary 206 Important Concepts 207 Questions 208 Problems 209 Appendix 6A Productivity in Services 215 Appendix 6B The Multiple-Input Case 226 Contents ChAPtEr 7 the theory and Estimation of Cost 237 The Importance of Cost in Managerial Decisions 238 The Definition and Use of Cost in Economic Analysis 240 The Relationship Between Production and Cost 242 The Short-Run Cost Function 244 The Long-Run Cost Function 249 The Learning Curve 258 Economies of Scope 261 Economies of Scale: The Short Run Versus the Long Run 262 Supply Chain Management 262 Examples of Ways Companies Have Cut Costs to Remain Competitive 265 Cautionary Note to Managers About the Use of Cost-Cutting as a Strategy 268 Global Applications: Li & Fung Will Do It All for You 269 Summary 271 Important Concepts 271 Questions 272 Problems 274 Appendix 7A A Mathematical Restatement of the Short-Run Cost Function 280 Appendix 7B The Estimation of Cost 284 ChAPtEr 8 Pricing and Output Decisions: Perfect Competition and Monopoly 295 Introduction 296 Competition and Market Types in Economic Analysis 298 Pricing and Output Decisions in Perfect Competition 301 Pricing and Output Decisions in Monopoly Markets 314 The Implications of Perfect Competition and Monopoly for Managerial Decision Making 318 Global Application: The $736,000 Bluefin Tuna 320 Summary 323 Important Concepts 323 Questions 324 Problems 326 Appendix 8A The Use of Calculus in Pricing and Output Decisions 328 Appendix 8B Break-Even Analysis (Volume-Cost-Profit) 330 ChAPtEr 9 Pricing and Output Decisions: Monopolistic Competition and Oligopoly 346 Introduction 346 Monopolistic Competition 348 Oligopoly 350 Pricing in an Oligopolistic Market: Rivalry and Mutual Interdependence 352 Contents Competing in Imperfectly Competitive Markets 354 Strategy: The Fundamental Challenge for Firms in Imperfect Competition 357 Global Application: The World’s Market for Beer 363 Summary 365 Important Concepts 365 Questions 366 Problems 367 Appendix 9A A Mathematical Restatement of Monopolistic Competition 372 ChAPtEr 10 Special Pricing Practices 375 Introduction 376 Cartel Arrangements 376 Price Leadership 381 Revenue Maximization 383 Price Discrimination 384 Nonmarginal Pricing 395 Multiproduct Pricing 400 Transfer Pricing 405 Other Pricing Practices 407 Global Application: The Decline of European Cartels 408 Summary 411 Important Concepts 412 Questions 412 Problems 413 ChAPtEr 11 Game theory and Asymmetric Information 417 Introduction 418 Game Theory: Modeling the Strategy of Conflict 419 Asymmetric Information 428 Summary 438 Important Concepts 440 Questions 441 Problems 442 ChAPtEr 12 Capital Budgeting and risk 446 Introduction 447 The Capital Budgeting Decision 448 Time Value of Money 449 Methods of Capital Project Evaluation 449 Cash Flows 455 Cost of Capital 457 The Capital Budgeting Model 460 Capital Rationing 462 Risk Versus Uncertainty 462 Sources of Business Risk 463 Contents The Measures of Risk 463 Capital Budgeting Under Conditions of Risk 468 Two Other Methods for Incorporating Risk 469 Sensitivity and Scenario Analysis 471 Simulation 472 Decision Trees 473 Real Options in Capital Budgeting 475 Global Application 478 Summary 483 Important Concepts 483 Questions 484 Problems 485 Appendix 12A The Value of a Corporation 492 ChAPtEr 13 Government and Industry: Challenges and Opportunities for today’s Manager 494 Introduction 495 The Rationale for Government Involvement in a Market Economy 495 Stabilization of the Aggregate Economy: Monetary and Fiscal Policy 502 Subprime Loan Financial Crisis of 2007 to 2009 503 Government Deregulation, Mergers, and Acquisitions 507 Government Protection of Intellectual Property (IP) 512 Global Application: The Failed Attempt to Merge by General Electric and Honeywell 514 Summary 515 Important Concepts 515 Questions 516 Appendix A Statistical and Financial Tables 517