1. Study Chapters 9 and 10 (Monopoly and Market Power).2. Prepare a lecture note video in power point:A. Your video should be limited to no more than 10 minutesB. Include at least one solved problem in your video. Provide explanations of the problem you solved and discuss how you would apply the concepts in managerial decision making.
jeffrey_m._perloff__james_a._brander_managerial_economics_and_strategy_pearson_education__2013___1_.pdf

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Managerial Economics
and Strategy
THE P E ARS O N S ER IES IN EC ON OM IC S
Abel/Bernanke/Croushore
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Managerial Economics
and Strategy
Jeffrey M. Perloff
University of California, Berkeley
James A. Brander
Sauder School of Business,
University of British Columbia
Boston Columbus Indianapolis New York San Francisco Upper Saddle River
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Library of Congress Cataloging-in-Publication Data
Perloff, Jeffrey M.
Managerial economics and strategy/Jeffrey Perloff, James Brander. — First edition.
pages cm
Includes bibliographical references and index.
ISBN 978-0-321-56644-7
1. Managerial economics. I. Brander, James A. II. Title.
HD30.22.P436 2014
338.5024’658 — dc23
2013022387
10 9 8 7 6 5 4 3 2 1
www.pearsonhighered.com
ISBN 10: 0-321-56644-0
ISBN 13: 978-0-321-56644-7
Brief Contents
Preface
xiii
Chapter 1
Chapter 2
Chapter 3
Chapter 4
Chapter 5
Chapter 6
Chapter 7
Chapter 8
Chapter 9
Chapter 10
Chapter 11
Chapter 12
Chapter 13
Chapter 14
Chapter 15
Chapter 16
Chapter 17
Introduction
1
Supply and Demand
7
Empirical Methods for Demand Analysis
42
Consumer Choice
85
Production
124
Costs
154
Firm Organization and Market Structure
193
Competitive Firms and Markets
232
Monopoly
273
Pricing with Market Power
311
Oligopoly and Monopolistic Competition
354
Game Theory and Business Strategy
389
Strategies over Time
428
Managerial Decision Making Under Uncertainty
464
Asymmetric Information
500
Government and Business
533
Global Business
573
Answers to Selected Questions
E-1
Definitions
E-13
References
E-18
Sources for Managerial Problems, Mini-Cases, and Managerial Implications
E-24
Index
E-32
Credits
E-51
v
Contents
Preface
Chapter 1 Introduction
1.1 Managerial Decision Making
Profit
Trade-Offs
Other Decision Makers
Strategy
1.2 Economic Models
MINI-CASE Using an Income Threshold
Model in China
Simplifying Assumptions
Testing Theories
Positive and Normative Statements
Summary
Chapter 2 Supply and Demand
MANAGERIAL PROBLEM Carbon Taxes
2.1 Demand
The Demand Curve
The Demand Function
USING CALCULUS Deriving the Slope of a
Demand Curve
Summing Demand Curves
MINI-CASE Aggregating the Demand for
Broadband Service
2.2 Supply
The Supply Curve
The Supply Function
Summing Supply Curves
2.3 Market Equilibrium
Using a Graph to Determine the Equilibrium
Using Algebra to Determine the Equilibrium
Forces That Drive the Market to Equilibrium
2.4 Shocks to the Equilibrium
Effects of a Shift in the Demand Curve
Effects of a Shift in the Supply Curve
Q&A 2.1
MANAGERIAL IMPLICATION Taking Advantage
of Future Shocks
Effects of Shifts in Both Supply
and Demand Curves
MINI-CASE Genetically Modified Foods
Q&A 2.2
vi
xiii
1
1
2
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3
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2.5 Effects of Government Interventions
Policies That Shift Curves
MINI-CASE Occupational Licensing
Price Controls
MINI-CASE Disastrous Price Controls
Sales Taxes
Q&A 2.3
MANAGERIAL IMPLICATION Cost Pass-
26
26
26
27
29
31
33
Through
34
2.6 When to Use the Supply-and-Demand Model 34
MANAGERIAL SOLUTION Carbon Taxes
36
Summary 37 ■ Questions 38
Chapter 3 Empirical Methods
for Demand Analysis
42
MANAGERIAL PROBLEM Estimating the
Effect of an iTunes Price Change
3.1 Elasticity
The Price Elasticity of Demand
MANAGERIAL IMPLICATION Changing Prices to
Calculate an Arc Elasticity
Q&A 3.1
USING CALCULUS The Point Elasticity of
Demand
Q&A 3.2
Elasticity Along the Demand Curve
Other Demand Elasticities
MINI-CASE Substitution May Save Endangered
Species
Demand Elasticities over Time
Other Elasticities
Estimating Demand Elasticities
MINI-CASE Turning Off the Faucet
3.2 Regression Analysis
A Demand Function Example
MINI-CASE The Portland Fish Exchange
Multivariate Regression
Q&A 3.3
Goodness of Fit and the R2 Statistic
MANAGERIAL IMPLICATION Focus Groups
3.3 Properties and Statistical Significance of
Estimated Coefficients
Repeated Samples
Desirable Properties for Estimated
Coefficients
A Focus Group Example
Confidence Intervals
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Contents
Hypothesis Testing and Statistical
Significance
3.4 Regression Specification
Selecting Explanatory Variables
MINI-CASE Determinants of CEO Compensation
Q&A 3.4
Functional Form
MANAGERIAL IMPLICATION Experiments
3.5 Forecasting
Extrapolation
Theory-Based Econometric Forecasting
MANAGERIAL SOLUTION Estimating the
Effect of an iTunes Price Change
Summary 80 ■ Questions 81
Appendix 3 The Excel Regression Tool
Chapter 4 Consumer Choice
MINI-CASE How You Ask the Question Matters
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84
85
MANAGERIAL PROBLEM Paying Employees
to Relocate
4.1 Consumer Preferences
Properties of Consumer Preferences
MINI-CASE You Can’t Have Too Much Money
Preference Maps
4.2 Utility
Utility Functions
Ordinal and Cardinal Utility
Marginal Utility
USING CALCULUS Marginal Utility
Marginal Rates of Substitution
4.3 The Budget Constraint
Slope of the Budget Line
USING CALCULUS The Marginal Rate of
Transformation
Effects of a Change in Price on the
Opportunity Set
Effects of a Change in Income on the
Opportunity Set
Q&A 4.1
MINI-CASE Rationing
Q&A 4.2
4.4 Constrained Consumer Choice
The Consumer’s Optimal Bundle
Q&A 4.3
MINI-CASE Why Americans Buy More
E-Books Than Do Germans
Q&A 4.4
Promotions
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Consumer Choices
to Relocate
Summary 118 ■ Questions 119
Appendix 4A The Marginal Rate of Substitution
Appendix 4B The Consumer Optimum
Chapter 5 Production
116
122
122
124
MANAGERIAL PROBLEM Labor Productivity
During Recessions
5.1 Production Functions
5.2 Short-Run Production
The Total Product Function
The Marginal Product of Labor
USING CALCULUS Calculating the Marginal
Product of Labor
Q&A 5.1
The Average Product of Labor
Graphing the Product Curves
The Law of Diminishing Marginal Returns
MINI-CASE Malthus and the Green Revolution
5.3 Long-Run Production
Isoquants
MINI-CASE A Semiconductor Isoquant
Substituting Inputs
Q&A 5.2
USING CALCULUS Cobb-Douglas Marginal
Products
5.4 Returns to Scale
Constant, Increasing, and Decreasing
Returns to Scale
102
102
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102
103
103
105
Manufacturing
Varying Returns to Scale
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110
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116
MANAGERIAL SOLUTION Paying Employees
Q&A 5.3
MINI-CASE Returns to Scale in U.S.
106
107
108
114
115
MANAGERIAL IMPLICATION Simplifying
101
MANAGERIAL IMPLICATION Designing
Promotions
4.5 Deriving Demand Curves
4.6 Behavioral Economics
Tests of Transitivity
Endowment Effects
Salience
vii
MANAGERIAL IMPLICATION Small Is Beautiful
5.5 Productivity and Technological Change
Relative Productivity
MINI-CASE U.S. Electric Generation Efficiency
Innovation
MINI-CASE Tata Nano’s Technical and
Organizational Innovations
MANAGERIAL SOLUTION Labor Productivity
During Recessions
Summary 150 ■ Questions 151
Chapter 6 Costs
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125
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154
MANAGERIAL PROBLEM Technology Choice
at Home Versus Abroad
154
viii
Contents
6.1 The Nature of Costs
Opportunity Costs
MINI-CASE The Opportunity Cost of an MBA
Q&A 6.1
Costs of Durable Inputs
Sunk Costs
155
155
156
157
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158
MANAGERIAL IMPLICATION Ignoring
Sunk Costs
6.2 Short-Run Costs
Common Measures of Cost
USING CALCULUS Calculating Marginal Cost
Cost Curves
Production Functions and the Shapes of Cost
Curves
USING CALCULUS Calculating Cost Curves
Short-Run Cost Summary
6.3 Long-Run Costs
Input Choice
MANAGERIAL IMPLICATION Cost Minimization
by Trial and Error
MINI-CASE The Internet and Outsourcing
Q&A 6.2
The Shapes of Long-Run Cost Curves
MINI-CASE Economies of Scale in Nuclear Power
Plants
Q&A 6.3
Long-Run Average Cost as the Envelope of
Short-Run Average Cost Curves
MINI-CASE Long-Run Cost Curves in Beer
Manufacturing and Oil Pipelines
6.4 The Learning Curve
MINI-CASE Learning by Drilling
6.5 The Costs of Producing Multiple Goods
MINI-CASE Scope
MANAGERIAL SOLUTION Technology Choice
at Home Versus Abroad
Summary 187 ■ Questions 187
Appendix 6 Long-Run Cost Minimization
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Chapter 7 Firm Organization and Market
Structure
193
MANAGERIAL PROBLEM Clawing Back
Bonuses
7.1 Ownership and Governance of Firms
Private, Public, and Nonprofit Firms
MINI-CASE Chinese State-Owned Enterprises
Ownership of For-Profit Firms
Firm Governance
7.2 Profit Maximization
Profit
Two Steps to Maximizing Profit
USING CALCULUS Maximizing Profit
Q&A 7.1
MANAGERIAL IMPLICATION Marginal
Decision Making
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Profit over Time
204
MANAGERIAL IMPLICATION Stock Prices Versus
Profit
7.3 Owners’ Versus Managers’ Objectives
Consistent Objectives
Q&A 7.2
Conflicting Objectives
Q&A 7.3
MINI-CASE Company Jets
Monitoring and Controlling a Manager’s
Actions
Takeovers and the Market for Corporate
Control
MINI-CASE The Yahoo! Poison Pill
7.4 The Make or Buy Decision
Stages of Production
Vertical Integration
Profitability and the Supply Chain Decision
MINI-CASE Vertical Integration at American
Apparel
MINI-CASE Aluminum
Market Size and the Life Cycle of a Firm
7.5 Market Structure
The Four Main Market Structures
Comparison of Market Structures
Road Map to the Rest of the Book
MANAGERIAL SOLUTION Clawing Back
Bonuses
Summary 226 ■ Questions 227
Appendix 7 Interest Rates, Present Value, and
Future Value
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Chapter 8 Competitive Firms and Markets 232
MANAGERIAL PROBLEM The Rising Cost of
Keeping On Truckin’
8.1 Perfect Competition
Characteristics of a Perfectly Competitive
Market
Deviations from Perfect Competition
8.2 Competition in the Short Run
How Much to Produce
Q&A 8.1
USING CALCULUS Profit Maximization with a
Specific Tax
Whether to Produce
MINI-CASE Oil, Oil Sands, and Oil Shale
Shutdowns
The Short-Run Firm Supply Curve
The Short-Run Market Supply Curve
Short-Run Competitive Equilibrium
8.3 Competition in the Long Run
Long-Run Competitive Profit
Maximization
The Long-Run Firm Supply Curve
MINI-CASE The Size of Ethanol Processing Plants
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Contents
The Long-Run Market Supply Curve
MINI-CASE Fast-Food Firms’ Entry in Russia
MINI-CASE Upward-Sloping Long-Run Supply
Curve for Cotton
Long-Run Competitive Equilibrium
Zero Long-Run Profit with Free Entry
8.4 Competition Maximizes Economic
Well-Being
Consumer Surplus
MANAGERIAL IMPLICATION Willingness to
Pay on eBay
Producer Surplus
Q&A 8.2
Q&A 8.3
Competition Maximizes Total Surplus
MINI-CASE The Deadweight Loss of Christmas
Presents
Effects of Government Intervention
Q&A 8.4
MANAGERIAL SOLUTION The Rising Cost of
Keeping On Truckin’
Summary 268 ■ Questions
248
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Chapter 9 Monopoly
273
MANAGERIAL PROBLEM Brand-Name and
Generic Drugs
9.1 Monopoly Profit Maximization
Marginal Revenue
USING CALCULUS Deriving a Monopoly’s
Marginal Revenue Function
Q&A 9.1
Choosing Price or Quantity
Two Steps to Maximizing Profit
USING CALCULUS Solving for the ProfitMaximizing Output
Effects of a Shift of the Demand Curve
9.2 Market Power
Market Power and the Shape of the
Demand Curve
MANAGERIAL IMPLICATION Checking
Whether the Firm Is Maximizing Profit
MINI-CASE Cable Cars and Profit
Maximization
The Lerner Index
MINI-CASE Apple’s iPad
Q&A 9.2
Sources of Market Power
9.3 Market Failure Due to Monopoly
Pricing
Q&A 9.3
9.4 Causes of Monopoly
Cost-Based Monopoly
Q&A 9.4
Government Creation of Monopoly
MINI-CASE Botox
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9.5 Advertising
Deciding Whether to Advertise
How Much to Advertise
USING CALCULUS Optimal Advertising
Q&A 9.5
MINI-CASE Super Bowl Commercials
9.6 Networks, Dynamics, and Behavioral
Economics
Network Externalities
Network Externalities and Behavioral
Economics
Network Externalities as an Explanation for
Monopolies
MINI-CASE Critical Mass and eBay
MANAGERIAL IMPLICATION Introductory
Prices
MANAGERIAL SOLUTION Brand-Name and
Generic Drugs
Summary 307 ■ Questions 307
Chapter 10 Pricing with Market Power
MANAGERIAL PROBLEM Sale Prices
10.1 Conditions for Price Discrimination
Why Price Discrimination Pays
MINI-CASE Disneyland Pricing
Which Firms Can Price Discriminate
MANAGERIAL IMPLICATION Preventing Resale
MINI-CASE Preventing Resale of Designer Bags
Not All Price Differences Are Price
Discrimination
Types of Price Discrimination
10.2 Perfect Price Discrimination
How a Firm Perfectly Price Discriminates
Perfect Price Discrimination Is Efficient but
Harms Some Consumers
MINI-CASE Botox Revisited
Q&A 10.1
Individual Price Discrimination
MINI-CASE Dynamic Pricing at Amazon
10.3 Group Price Discrimination
Group Price Discrimination with Two
Groups
USING CALCULUS Maximizing Profit for a
Group Discriminating Monopoly
MINI-CASE Reselling Textbooks
Q&A 10.2
Identifying Groups
MANAGERIAL IMPLICATION Discounts
290
292
293
294
295
296
297
Effects of Group Price Discrimination on
Total Surplus
10.4 Nonlinear Price Discrimination
10.5 Two-Part Pricing
Two-Part Pricing with Identical Consumers
Two-Part Pricing with Differing Consumers
MINI-CASE Available for a Song
ix
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x
Contents
10.6 Bundling
Pure Bundling
Mixed Bundling
Q&A 10.3
Requirement Tie-In Sales
MANAGERIAL IMPLICATION Ties That Bind
10.7 Peak-Load Pricing
MI …
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