Managerial Economics - Cengage

1 Cengage Learning. All rights reserved. No distribution allowed without express authorization. Managerial Economics Applications, Strategy, and Tactics TWELFTH EDITION. JAMES R. MCGUIGAN. JRM Investments R. CHARLES MOYER. University of Louisville FREDERICK H. deB. HARRIS. Schools of Business Wake Forest University Not For Sale Australia Brazil Japan Korea Mexico Singapore Spain United Kingdom United States Not For Sale Managerial Economics : Applications, 2011, 2008 South-Western, Cengage Learning Strategy, and Tactics, 12th Edition ALL RIGHTS RESERVED.

2 No part of this work covered by the copyright James R. McGuigan, R. Charles Moyer, herein may be reproduced, transmitted, stored, or used in any form or Frederick H. deB. Harris by any means graphic, electronic, or mechanical, including but not limited to photocopying, recording, scanning, digitizing, taping, web Vice President of Editorial, Business: Jack distribution, information networks, or information storage and retrieval W. Calhoun systems, except as permitted under Section 107 or 108 of the 1976. Publisher: Joe Sabatino United States Copyright Act, without the prior written permission of Sr.

3 Acquisitions Editor: Steven Scoble the publisher. Sr. Developmental Editor: Jennifer Thomas Cengage Learning. All rights reserved. No distribution allowed without express authorization. For product information and technology assistance, contact us at Marketing Manager: Betty Jung Cengage Learning Customer & Sales Support, 1-800-354-9706. Assoc. Content Project Manager: For permission to use material from this text or product, submit all Jana Lewis requests online at Manager of Technology, Editorial: Further permissions questions can be emailed to Matthew McKinney Media Editor: Deepak Kumar Sr.

4 Frontlist Buyer, Manufacturing: ExamView is a registered trademark of eInstruction Corp. Windows is a registered trademark of the Microsoft Corporation used herein under license. Sandra Milewski Macintosh and Power Macintosh are registered trademarks of Apple Production Service: KnowledgeWorks Computer, Inc. used herein under license. Global Limited 2008 Cengage Learning. All Rights Reserved. Compositor: KnowledgeWorks Global Limited Library of Congress Control Number: 2010929867. Sr. Art Director: Michelle Kunkler Package ISBN-13: 978-1-4390-7923-2.

5 Production Technology Analyst: Package ISBN-10: 1-4390-7923-4. Starratt Scheetz Student Edition ISBN 13: 978-1-4390-7939-3. Student Edition ISBN 10: 1-4390-7939-0. Internal Designer: Juli Cook/Plan-It- Publishing South-Western Cengage Learning Cengage Learning Cover Designer: Rokusek Design 5191 Natorp Boulevard Cover Image: Media Bakery Mason, OH 45040. USA. Text Permissions Manager: Mardell Glinski-Schultz Photography Permissions Manager: Cengage Learning products are represented in Canada by Deanna Ettinger Nelson Education, Ltd. Photo Researcher: Scott Rosen, Bill Smith For your course and learning solutions, visit Group Purchase any of our products at your local college store or at our preferred online store Printed in the United States of America 1 2 3 4 5 6 7 14 13 12 11 10.

6 Cengage Learning. All rights reserved. No distribution allowed without express authorization. To my family To Sally, Laura, and Craig To my family, Roger Sherman, and Ken Elzinga Not For Sale Not For Sale Cengage Learning. All rights reserved. No distribution allowed without express authorization. Brief TABLE OF CONTENTS. Preface, xvii 13 Best-Practice Tactics: Game Theory 444. About the Authors, xxi 13A Entry Deterrence and Accommodation Games 488. Cengage Learning. All rights reserved. No distribution allowed without express authorization.

7 PART I 14 Pricing Techniques and Analysis 499. INTRODUCTION 1. PART V. 1 Introduction and Goals of the Firm 2. 2 Fundamental Economic Concepts 26 ORGANIZATIONAL ARCHITECTURE. AND REGULATION 545. PART II 15 Contracting, Governance, and Organizational Form 546. DEMAND AND FORECASTING 61. 15A Auction Design and Information 3 Demand Analysis 62. Economics 580. 4 Estimating Demand 95. 16 Government Regulation 610. 4A Problems in Applying the Linear 17 Long-Term Investment Analysis 644. Regression model 126. 5 Business and Economic Forecasting 137 APPENDICES.

8 6 Managing in the Global Economy 175 A The Time Value of Money A-1. 6A Foreign Exchange Risk Management 227. B Tables B-1. PART III C Differential Calculus Techniques in PRODUCTION AND COST 229 Management C-1. 7 Production Economics 230 D Check Answers to Selected 7A Maximization of Production Output End-of-Chapter Exercises D-1. Subject to a Cost Constraint 265 Glossary G-1. 7B Production Economics of Renewable and Index I-1. Exhaustible Natural Resources 267. Notes 8 Cost Analysis 275. 8A Long-Run Costs with a Cobb-Douglas WEB APPENDICES.

9 Production Function 301 A Consumer Choice Using 9 Applications of Cost Theory 305 Indifference Curve Analysis PART IV B International Parity Conditions PRICING AND OUTPUT DECISIONS: C Linear-Programming Applications STRATEGY AND TACTICS 333. D Capacity Planning and Pricing Against a 10 Prices, Output, and Strategy: Pure and Low-Cost Competitor: A Case Study of Monopolistic Competition 334 Piedmont Airlines and People Express 11 Price and Output Determination: Not For Sale E Pricing of Joint Products and Transfer Pricing Monopoly and Dominant Firms 382.

10 12 Price and Output Determination: F Decisions Under Risk and Uncertainty Oligopoly 409. vii Not For Sale Contents Preface, xvii Case Exercise: Designing a Managerial About the Authors, xxi Incentives Contract 21. Case Exercise: Shareholder Value of Cengage Learning. All rights reserved. No distribution allowed without express authorization. PART I Wind Power at Hydro Co.: RE < C 23. INTRODUCTION 1 2 Fundamental Economic Concepts 26. Chapter Preview 26. 1 Introduction and Goals of the Firm 2 Managerial Challenge: Why Charge Chapter Preview 2 $25 per Bag on Airline Flights?