Managerial Economics

Thomas J. Webster is professor of economics in the Department of Finance and Economics of Pace University’s Lubin School of Business.

• ContentsChapter 1 Managerial Economics and StrategyThe role of economics in business managementWhat is economics?What is managerial economics?Strategic behaviorQuantitative methodsThe role of a managerThe role of profitThe objective of the firmWhat’s a company worth?Types of profitConstraints on the operations of the firmConflicts of interestOther playersThinking at the marginDeriving marginal from total valuesChapter exercisesChapter 2 Demand and SupplyDemandIncome and substitution effectsDemand determinantsEstimating the market demand equationConsumer surplusSupplySupply determinantsProducer surplusMarket EquilibriumNet Social WelfareChanges in Demand and Supply: Price and Output DeterminationDemand shifts Demand and supply shifts Rationing Function of PricesPrice ceilingsPrice floorsAllocating Function of PricesChapter exercisesChapter 3 ElasticityPrice Elasticity of DemandCalculating the price elasticity of demandDefinitionsDeterminants of the price elasticity of demandTotal and marginal revenueFormal relationship between the price elasticity of demand and total revenueIncome Elasticity of DemandCross-Price Elasticity of DemandAdvertising Elasticity of DemandChapter exercisesChapter 4 Production and CostThe Production FunctionProduction relationshipsProductivity MeasuresAverage and marginal products of a variable inputLaw of Diminishing ReturnsIsoquantsCost in the Short RunTotal costAverage and marginal costs Functional form of the total cost equationIsocost LineLearning Curve EffectCost in the Long RunEconomies and diseconomies of scaleSources of economies of scaleSources of diseconomies of scaleMultiproduct Cost FunctionsEconomies of scopeCost complementaritiesChapter ExercisesChapter 5 Profit MaximizationProfit MaximizationOptimal input combinationsMaximizing profit in practiceOptimal input substitutionHow to Procure InputsSpot exchangeContractsVertical integrationSpecialized InvestmentsTypes of specialized investmentBargaining costsUnderinvestmentOpportunismProcuring Inputs Involving Specialized InvestmentsPromoting Maximum Effort: The Principal-Agent ProblemOwner-manager principal-agent problem Manager-worker principal-agent problemChapter ExercisesChapter 6 Corporate Structure and CultureThe Supply ChainTransaction costsVertical IntegrationHorizontal IntegrationEconomies of scaleEconomies of scopeDiversificationEconomies of scale and scopeLower transactions costsSmoother cash flowsInternal financingDiversifying shareholder investmentUndervalued firmsStrategic AlliancesFirm ArchitectureEvolution of the modern corporationOrganizational StructureTypes of Organizational StructureUnitary (functional) form (u-form)Multidivisional form (m-form)U-form/M-form hybridMatrix structureContractual networkStrategy or Structure: Chicken or Egg?Corporate CultureUnwritten rulesCreating a corporate cultureChapter ExercisesChapter 7 Industry OrganizationMarket StructureNumber, size, and distribution of rival firmsNumber, size, and distribution of buyersProduct differentiationEntry and exit conditionsThe Five ForcesThreat of entryThreat of substitutesCompetitive rivalryBargaining power of buyersBargaining power of suppliersIndustry TypesPerfect competitionImperfect competitionMonopolyIndustrial ConcentrationConcentration ratiosHerfindahl-Hirschman indexMarket Power and PricingLerner indexRothschild indexProfitabilityVariations in profits across firms and industriesOther Criteria for Classifying IndustriesProduction technologyNature of market demandDegree of industrial integrationResearch and developmentChapter ExercisesChapter 8 Perfect Competition and MonopolyPerfect CompetitionShort-run perfectly competitive equilibriumEconomic losses and shutdownLong-run perfectly competitive equilibriumMonopolySources of monopoly powerBarriers to entryWelfare implications of monopolyLandmark U.S. Antitrust LegislationSherman Act (1890)Clayton Act (1914)Federal Trade Commission Act (1914)Willis-Graham Act (1921)Robinson-Patman Act (1936)Wheeler-Lea Act (1938)Celler-Kefauver Act (1950)Hart-Scott-Rodino Act (1980)Contestable MarketsChapter ExercisesChapter 9 Imperfect CompetitionOligopolyOligopoly ModelsCournot modelStackelberg modelBertrand modelBertrand paradoxCollusionComparing oligopoly modelsMonopolistic CompetitionShort-run profit-maximizing price and outputLong-run profit-maximizing price and outputAdvertising and product differentiationProduct Differentiation and Strategic BehaviorChapter ExercisesChapter 10 Thinking StrategicallyWhat is Game Theory?Lexicon of game theoryRational versus actual behaviorStatic GamesNash equilibriumSecure strategyMixed StrategiesCooperationFinitely-repeated static gamesTit-for-tatInfinitely-repeated static gamesEvaluating payoffs in infinitely-repeated gamesDynamic GamesSubgame perfectionBackward inductionFirst-mover advantageChapter ExercisesChapter 11 Pricing StrategiesStandard Pricing RuleExtracting consumer surplusFirst-degree price discriminationSecond-degree price discriminationThird-degree price discriminationSpecial Pricing PracticesCapacity peak-load pricingMultiproduct pricingNon-Marginal PricingCost-plus pricingPrice fixingPrice matchingMost-favored customerPrice leadershipPenetration pricingTransfer PricingNo external marketPerfectly competitive external marketEntry DeterrenceLimit pricingChapter ExercisesChapter 12 BargainingThe Bargaining ProblemNash BargainingRubenstein BargainingLast-mover advantageSymmetric impatienceAsymmetric impatienceChapter ExercisesChapter 13 Economics of InformationRisk and UncertaintyMeanVarianceStandard deviationStatic Games with Uncertain PayoffsAttitudes toward RiskRisk aversionUnderstanding risk-averse behaviorManaging RiskDiversificationOptions contractsUncertainty and Search CostsDynamic Games with Uncertain PayoffsBayesian updatingAsymmetric InformationAdverse selectionMoral hazardSeparating and pooling strategiesScreeningChapter ExercisesChapter 14 ContractsContracting EnvironmentContracting PhaseImplementation PhaseSelf-enforcementExternal enforcementBreach RemediesExpectation damagesReliance damagesRestitution damagesChapter ExercisesChapter 15 AuctionsAuctions and the InternetTypes of AuctionsInformation StructuresIncomplete-Information Auctions with Independent Private ValuesSealed-bid, first-price auctionSealed-bid, second-price auctionEnglish auctionDutch auctionExpected revenues from incomplete-information auctions with independent private valuesIncomplete-Information Auctions with Correlated Value EstimatesCommon-value auctions and the winner’s curseIncomplete-Information Auctions and Risk AversionChapter ExercisesChapter 16 NetworksEvolutionary Game TheoryReproductive successEvolutionary equilibriumNetworksPositive feedback effectsNetwork gameImplicationsRestraint of Trade in Network IndustriesBottlenecksTechnical standardsB2B exchangesChapter ExercisesAppendixRegression AnalysisEstimationDiagnosticsConfidence intervals t-statisticp-valueCoefficient of determinationAdjusted coefficient of determinationRespecifying the regression equationGlossaryReferences

The bridge between microeconomic theory and business behavior is well paved. Thomas Webster's book is well-written, and the signposts from one topic to another are clearly visible. Students will appreciate the clear prose and interesting examples. Highly recommended.