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Managerial economics and business strategy

Author: Baye, Michael R. Publisher: McGraw-Hill, 2003.Edition: 4th international ed.Language: EnglishDescription: 578 p. : Graphs ; 24 cm.ISBN: 0071151397Type of document: BookBibliography/Index: Includes bibliographical references and index
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Book Europe Campus
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Print HD30.28 .B39 2003
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001274493
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Includes bibliographical references and index

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Managerial economics and business strategy Table of contents CHAPTER ONE The Fundamentals of Managerial Economics 1 Headline: Amcott Loses $3.5 Million; Manager Fired 1 Introduction 2 The Manager 3 Economics 3 Managerial Economics Defined 3 The Economics of Effective Management 4 Identify Goals and Constraints 4 Recognize the Nature and Importance of Profits 5 Economic versus Accounting Profits 5 The Role of Profits 6 Understand Incentives 8 Understand Markets 9 Consumer­Producer Rivalry 10 Consumer­Consumer Rivalry 10 Producer­Producer Rivalry 11 Government and the Market 11 Recognize the Time Value of Money 12 Present Value Analysis 13 Present Value of Indefinitely-Lived Assets 15 Use Marginal Analysis 17 Discrete Decisions 18 Continuous Decisions 21 Incremental Decisions 23 Learning Managerial Economics 24 Answering the Headline 25 Key Terms and Concepts 25 Conceptual and Computational Questions 26 Problems and Applications 27 Selected Readings 30 Appendix: The Calculus of Maximizing Net Benefits 31 Inside Business 1-1: What Are the Goals of Firms? 7 Inside Business 1-2: Profits and the Computer Industry 8 Inside Business 1-3: Joining the Jet Set 18 Inside Business 1-4: The Five Forces Model: The Link between Strategic Management and Managerial Economics 25 CHAPTER TWO Market Forces: Demand and Supply 33 Headline: Samsung and Hyundai Electronics to Cut Chip Production 33 Introduction 34 Demand 34 Demand Shifters 35 Income 36 Prices of Related Goods 37 Advertising and Consumer Tastes 38 Population 38 Consumer Expectations 39 Other Factors 39 The Demand Function 39 Consumer Surplus 41 Supply 43 Supply Shifters 44 Input Prices 44 Technology or Government Regulations 44 Number of Firms 45 Substitutes in Production 45 Taxes 45 Producer Expectations 46 The Supply Function 47 Producer Surplus 49 Market Equilibrium 50 Price Restrictions and Market Equilibrium 52 Price Ceilings 52 Price Floors 55 Comparative Statics 57 Changes in Demand 57 Changes in Supply 58 Simultaneous Shifts in Supply and Demand 59 Answering the Headline 63 Summary 63 Key Terms and Concepts 64 Conceptual and Computational Questions 64 Problems and Applications 66 Selected Readings 69 Inside Business 2-1: Asahi Breweries Ltd. and the Asian Recession Inside Business 2-2: NAFTA and the Supply Curve 45 Inside Business 2-3: Changes in the Supply and Demand for DVD Players 37 62 CHAPTER THREE Quantitative Demand Analysis 70 Headline: Winners of Wireless Auction to Pay $7 Billion 70 Introduction 71 The Elasticity Concept 71 Own Price Elasticity of Demand 72 Elasticity and Total Revenue 73 Factors Affecting the Own Price Elasticity 77 Available Substitutes 78 Time 79 Expenditure Share 79 Marginal Revenue and the Own Price Elasticity of Demand 80 Cross-Price Elasticity 82 Income Elasticity 85 Other Elasticities 87 Obtaining Elasticities from Demand Functions 87 Elasticities for Linear Demand Functions 88 Elasticities for Nonlinear Demand Functions 89 Regression Analysis 92 Evaluating the Statistical Significance of Estimated Coefficients 95 Confidence Intervals 96 The t-Statistic 96 Evaluating the Overall Fit of the Regression Line 97 The R-Square 97 The F-Statistic 99 Nonlinear and Multiple Regressions 99 Nonlinear Regressions 99 Multiple Regression 100 Answering the Headline 103 Summary 104 Key Terms and Concepts 105 Conceptual and Computational Questions 105 Problems and Applications 107 Selected Readings 110 Inside Business 3-1: Calculating and Using the Arc Elasticity: An Application to the Housing Market 76 Inside Business 3-2: Inelastic Demand for Prescription Drugs 80 Inside Business 3-3: Using Cross-Price Elasticities to Improve New Car Sales in the Wake of Increasing Gasoline Prices 84 CHAPTER FOUR The Theory of Individual Behavior 1 1 1 Headline: Packaging Firm Uses Overtime Pay to Overcome Labor Shortage 111 Introduction 112 Consumer Behavior 112 Constraints 116 The Budget Constraint 117 Changes in Income 120 Changes in Prices 121 Consumer Equilibrium 123 Comparative Statics 124 Price Changes and Consumer Behavior 124 Income Changes and Consumer Behavior 126 Substitution and Income Effects 127 Applications of Indifference Curve Analysis 129 Choices by Consumers 129 Buy One, Get One Free 129 Cash Gifts, In-Kind Gifts, and Gift Certificates 132 Choices by Workers and Managers 135 A Simplified Model of Income--Leisure Choice 135 The Decisions of Managers 137 The Relationship between Indifference Curve Analysis and Demand Curves Individual Demand 139 Market Demand 139 Answering the Headline 141 Summary 142 Key Terms and Concepts 143 Conceptual and Computational Questions 143 Problems and Applications 146 Selected Readings 148 Appendix: A Calculus Approach to Individual Behavior 148 Inside Business 4-1: Indifference Curves and Risk Preferences 116 Inside Business 4-2: Price Changes and Inventory Management for Multiproduct Firms 129 The Production Function 151 Inside Business 4-3: Long-Run Decisionsthe Business Cycle Income Effects and 130 Short-Run versus 151 Inside Businessof Productivity 4-4: The "Deadweight Loss" of In-Kind Gifts 131 Measures 153 Total Product 153 Average Product 154 CHAPTER FIVE 155 The Production ProcessMarginal Product and Costs 150 The Role of the Manager in the Production Process 157 Produce on the Production Function 157 Headline: GM and UAW Butt Heads over Jobs 150 Introduction 151 139 Use the Right Level of Inputs 157 Algebraic Forms of Production Functions 159 Algebraic Measures of Productivity 161 Isoquants 163 Isocosts 166 Cost Minimization 169 Optimal Input Substitution 171 The Cost Function 173 Short-Run Costs 174 Average and Marginal Costs 175 Relations among Costs 178 Fixed and Sunk Costs 179 Algebraic Forms of Cost Functions 180 Long-Run Costs 181 Economies of Scale 183 A Reminder: Economic Costs versus Accounting Costs 184 Multiple-Output Cost Functions 185 Economies of Scope 185 Cost Complementarity 185 Answering the Headline 188 Summary 188 Key Terms and Concepts 189 Conceptual and Computational Questions 189 Problems and Applications 191 Selected Readings 195 Appendix: The Calculus of Production and Costs 195 Inside Business 5-1: Where Does Technology Come From? 152 Inside Business 5-2: A Cobb-Douglas Production Function for Water Desalination 168 Inside Business 5-3: Fringe Benefits and Input Substitution 173 CHAPTER SIX T h e O r g a n i z a t Headline:hIncentives at8Saturn: Will a New Kind of Car Company ion of t e Firm 19 Continue to Roll? 198 Introduction 199 Methods of Procuring Inputs 200 Purchase the Inputs Using Spot Exchange 200 Acquire Inputs Under a Contract 201 Produce the Inputs Internally 201 Transaction Costs 202 Types of Specialized Investments 203 Site Specificity 203 Physical-Asset Specificity 203 Dedicated Assets 203 Human Capital 204 Implications of Specialized Investments 204 Costly Bargaining 204 Underinvestment 204 Opportunism and the "Hold-Up Problem" 205 Optimal Input Procurement 206 Spot Exchange 206 Contracts 208 Vertical Integration 211 The Economic Trade-Off 212 Managerial Compensation and the Principal-Agent Problem 214 Forces That Discipline Managers 217 Incentive Contracts 217 External Incentives 218 Reputation 218 Takeovers 218 The Manager-Worker Principal-Agent Problem 219 Solutions to the Manager-Worker Principal-Agent Problem 220 Profit Sharing 220 Revenue Sharing 220 Piece Rates 220 Time Clocks and Spot Checks 222 Answering the Headline 222 Summary 223 Key Terms and Concepts 223 Conceptual and Computational Questions 224 Problems and Applications 225 Selected Readings 226 Appendix: An Indifference Curve Approach to Managerial Incentives 227 Inside Business 6-1: The Cost of Using an Inefficient Method of Procuring Inputs 206 Inside Business 6-2: Factors Affecting the Length of Coal and Natural-Gas Contracts 211 Inside Business 6-3: The Evolution of Input Decisions in the Automobile Industry 213 Inside Business 6-4: Compensation in Fast-Food Restaurants 219 Inside Business 6-5: Paying for Performance 221 CHAPTER SEVEN T h e N a t u r e o fHeadline:r Microsoft Puts Halt to Intuit Merger Indust y 230 230 Introduction 231 Market Structure 231 Firm Size 231 Industry Concentration 232 Measures of Industry Concentration 233 The Concentration of U.S. Industry 234 Limitations of Concentration Measures 236 Technology 238 Demand and Market Conditions 238 Potential for Entry 240 Conduct 241 Pricing Behavior 242 Integration and Merger Activity 243 Vertical Integration 244 Horizontal Integration 244 Conglomerate Mergers 246 Trends in Mergers, Takeovers, and Acquisitions 246 Research and Development 246 Advertising 247 Performance 247 Profits 247 Social Welfare 248 The Structure-Conduct-Performance Paradigm 249 The Causal View 249 The Feedback Critique 249 Overview of the Remainder of the Book 250 Perfect Competition 250 Monopoly 250 Monopolistic Competition 250 Oligopoly 252 Answering the Headline 252 Summary 252 Key Terms and Concepts 253 Conceptual and Computational Questions 253 Problems and Applications 254 Selected Readings 256 Appendix: Data Sources for Managers 257 Inside Business 7-1: The North American Industry Classification System ( NAICS) 237 Inside Business 7-2: The Elasticity of Demand at the Firm and Market Levels 241 Inside Business 7-3: The Language of Corporate Takeovers 245 Inside Business 7-4: The Evolution of Market Structure in the Computer Industry 251 CHAPTER EIGHT Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets 259 Headline: McDonald's Adds New Tastes and Products to Menu Boards 259 Introduction 260 Perfect Competition 260 Demand at the Market and Firm Levels 261 Short-Run Output Decisions 262 Maximizing Profits 262 Minimizing Losses 266 The Short-Run Finn and Industry Supply Curves 268 Long-Run Decisions 270 Monopoly 273 Monopoly Power 273 Sources of Monopoly Power 274 Economies of Scale 275 Economies of Scope 276 Cost Complementarity 277 Patents and Other Legal Bathers 278 Maximizing Profits 278 Marginal Revenue 279 The Output Decision 283 The Absence of a Supply Curve 286 Multiplant Decisions 286 Implications of Entry Bathers 288 Monopolistic Competition 290 Conditions for Monopolistic Competition 290 Profit Maximization 291 LongRun Equilibrium 293 Implications of Product Differentiation 295 Optimal Advertising Decisions 296 Answering the Headline 298 Summary 299 Key Terms and Concepts 299 Conceptual and Computational Questions 300 Problems and Applications 302 Selected Readings 305 Appendix: The Calculus of Profit Maximization 305 Appendix: The Algebra of Perfectly Competitive Supply Functions 306 Inside Business 8-1: Competition in the PC Component Market 273 Inside Business 8-2: Minimum Efficient Scale and Monopoly Power 277 Inside Business 8-3: Patent, Trademark, and Copyright Protection 280 CHAPTER NINE Headline: Crude Oil Prices Fall, but Consumers in Some Areas See No Relief at the Basic Oligopoly Models 308 Pump 308 Introduction 309 Conditions for Oligopoly 309 The Role of Beliefs and Strategic Interaction 309 Profit Maximization in Four Oligopoly Settings 311 Sweezy Oligopoly 311 Cournot Oligopoly 313 Reaction Functions and Equilibrium 313 Isoprofit Curves 319 Changes in Marginal Costs 322 Collusion 324 Stackelberg Oligopoly 325 Bertrand Oligopoly 331 Comparing Oligopoly Models 332 Cournot 334 Stackelberg 335 Bertrand 335 Collusion 335 Contestable Markets 337 Answering the Headline 338 Summary 339 Key Terms and Concepts 340 Conceptual and Computational Questions 340 Problems and Applications 342 Selected Readings 344 Appendix: Differentiated-Product Bertrand Oligopoly 345 Inside Business 9-1: Using Experiments to Understand Oligopoly Behavior 318 Inside Business 9-2: Stackelberg Oligopoly and International Trade 329 Inside Business 9-3: Managerial Compensation in Bertrand and Cournot Oligopoly 333 Inside Business 9-4: Using a Spreadsheet to Calculate Cournot, Stackelberg, and Collusive Outcomes 336 CHAPTER TEN Game Theory: Inside Oligopoly 347 Headline: Airline Seeks Government Regulation of Carry-On Baggage 347 Introduction 348 Overview of Games and Strategic Thinking 348 Simultaneous-Move, One-Shot Games 349 Theory 349 Applications of One-Shot Games 352 Pricing Decisions 352 Advertising and Quality Decisions 355 Coordination Decisions 356 Monitoring Employees 358 Nash Bargaining 359 Infinitely Repeated Games 361 Theory 361 Review of Present Value 361 Supporting Collusion with Trigger Strategies 361 Factors Affecting Collusion in Pricing Games 364 Number of Firms 365 Firm Size 365 History of the Market 365 Punishment Mechanisms 366 An Application of Infinitely Repeated Games to Product Quality 366 Finitely Repeated Games 368 Games with an Uncertain Final Period 369 Repeated Games with a Known Final Period: The End-of-Period Problem 371 Applications of the End-of-Period Problem 373 Resignations and Quits 373 The "Snake-Oil" Salesman 374 Multistage Games 374 Theory 374 Applications of Multistage Games 377 The Entry Game 377 Innovation 378 Sequential Bargaining 379 Answering the Headline 381 Summary 382 Key Terms and Concepts 383 Conceptual and Computational Questions 383 Problems and Applications 386 Selected Readings 389 Inside Business 10-1: Hollywood's (not so) Beautiful Mind: Nash or "Opie" Equilibrium? 353 Inside Business 10-2: Coordinating Activities: How Hard Is It? 357 Inside Business 10-3: Trigger Strategies in the Waste Industry 366 Inside Business 10-4: Collusion on NASDAQ? 368 CHAPTER ELEVEN Pricing Strategies for FirmsMickey Mouse Lets You Ride "For Free" at Disney World 391 Headline: with Market Power 391 Introduction 392 Basic Pricing Strategies 392 Review of the Basic Rule of Profit Maximization 392 A Simple Pricing Rule for Monopoly and Monopolistic Competition 393 A Simple Pricing Rule for Cournot Oligopoly 396 Strategies That Yield Even Greater Profits 398 Extracting Surplus from Consumers 398 Price Discrimination 398 Two-Part Pricing 404 Block Pricing 406 Commodity Bundling 408 Pricing Strategies for Special Cost and Demand Structures 411 Peak-Load Pricing 411 Cross-Subsidies 412 Transfer Pricing 413 Pricing Strategies in Markets with Intense Price Competition 415 Price Matching 415 Inducing Brand Loyalty 417 Randomized Pricing 418 Answering the Headline 419 Summary 420 Key Terms and Concepts 421 Conceptual and Computational Questions 421 Problems and Applications 423 Selected Readings 425 Inside Business 11-1: Pricing Markups as Rules of Thumb 394 Inside Business 11-2: The Prevalence of Price-Matching Policies and Other Low-Price Guarantees 417 Inside Business 11-3: Randomized Pricing in the Airline Industry 419 CHAPTER TWELVE Headline: ormat ion 427 The Econom ics of InfFirm Chickens Out in the FCC Spectrum Auction 427 Introduction 428 The Mean and the Variance 428 Uncertainty and Consumer Behavior 431 Risk Aversion 431 Managerial Decisions with Risk-Averse Consumers 432 Consumer Search 434 Uncertainty and the Firm 437 Risk Aversion 437 Producer Search 440 Profit Maximization 441 Uncertainty and the Market 442 Asymmetric Information 442 Adverse Selection 444 Moral Hazard 445 Signaling and Screening 446 Auctions 449 Types of Auction 450 English Auctions 450 First-Price, Sealed-Bid Auction 450 Second-Price, Sealed-Bid Auction 450 Dutch Auction 451 Information Structures 451 Independent Private Values 452 Correlated Value Estimates 452 Optimal Bidding Strategies for Risk-Neutral Bidders 453 Strategies for Independent Private Values Auctions 453 Strategies of Correlated Values Auctions 455 Expected Revenues in Alternative Types of Auctions 457 Answering the Headline 459 Summary 459 Key Terms and Concepts 460 Conceptual and Computational Questions 461 Problems and Applications 463 Selected Readings 465 Inside Business 12-1: The Likelihood of Business Failure 433 Inside Business 12-2: Risk Aversion and the Value of Selling the Firm: The St. Petersburg Paradox 434 Inside Business 12-3: Searching for Workers 440 Inside Business 12-4: Auctions with Risk-Averse Bidders 458 CHAPTER THIRTEEN Advanced Topics in Business Strategy Sharpe to Announce Plans at Trade Show 466 Headline: Barkley and 466 Introduction 467 Limit Pricing to Prevent Entry 468 Theoretical Basis for Limit Pricing 468 Limit Pricing May Fail to Deter Entry 470 Linking the Pre-Entry Price to Post-Entry Profits 470 Commitment Mechanisms 471 Learning Curve Effects 472 Incomplete Information 472 Reputation Effects 473 Dynamic Considerations 473 Predatory Pricing to Lessen Competition 476 Raising Rivals' Costs to Lessen Competition 478 Strategies Involving Marginal Cost 479 Strategies Involving Fixed Costs 480 Strategies for Vertically Integrated Firms 481 Vertical Foreclosure 481 The Price-Cost Squeeze 482 Price Discrimination as a Strategic Tool 482 Changing the Timing of Decisions or the Order of Moves 483 First-Mover Advantages 483 Second-Mover Advantages 485 Penetration Pricing to Overcome Network Effects 486 What Is a Network? 486 Network Externalities 487 First-Mover Advantages Due to Consumer Lock-In 488 Using Penetration Pricing to "Change the Game" 490 Answering the Headline 492 Summary 492 Key Terms and Concepts 493 Conceptual and Computational Questions 493 Problems and Applications 496 Selected Readings 497 Inside Business 13-1: Business Strategy at Microsoft 467 Inside Business 13-2: Dynamic Limit Pricing 476 Inside Business 13-3: First to Market, First to Succeed? Or First to Fail? 485 Inside Business 13-4: Network Externalities and Penetration Pricing by Yahoo! Auctions 490 CHAPTER FOURTEEN A Manager's Guide to Government in the Marketplace 499 $10.3 Billion Merger 499 Headline: FTC Conditionally Approves Introduction 500 Market Failure 500 Market Power 500 Antitrust Policy 501 Price Regulation 505 Externalities 508 The Clean Air Act 510 Public Goods 512 Incomplete Information 517 Rules Against Insider Trading 517 Certification 518 Truth in Lending 519 Truth in Advertising 519 Enforcing Contracts 520 Rent Seeking 521 Government Policy and International Markets 523 Quotas 523 Tariffs 525 Lump-Sum Tariffs 525 Excise Tariffs 528 Answering the Headline 529 Summary 529 Key Terms and Concepts 529 Conceptual and Computational Questions 530 Problems and Applications 533 Selected Readings 535 Inside Business 14-1: False Advertisements 520 Inside Business 14-2: Motorcycle Tariffs 527 Appendix A Answers to Selected End-of-Chapter Problems 536 Appendix B Additional Readings and References 539 Name Index 557 General Index 565

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