Interactive Spreadsheet Modules and Excel Apps Keat, Young, and Erfle’s Managerial Economics, Seventh Edition, is accompanied by two different kinds of Microsoft Excel® learning aids Interactive Spreadsheet Modules are study aids intended to supplement and reinforce concepts in the text They can be used in class, assigned as homework, or for student exploration The index of modules on the opposite page contains the number of the module, the topic covered, and the page in the textbook to which the module is relevant Excel Apps challenge students to build various economic models from data provided They also allow readers to turn the static figures and tables in the text into dynamic illustrations, which will strengthen students’ understanding of the topics covered and their ability to use Excel A list of the Excel Apps can be found on the inside back cover of this text icon or the icon in the margin indiIn the textbook you will see the cating Interactive Spreadsheet Modules or Excel Apps are available for that topic APP Getting Started with Interactive Spreadsheet Modules Step 1) Students and faculty can download Interactive Spreadsheet Modules at the Keat, Young, and Erfle Companion Website: www.pearsonhighered.com/ keat Step 2) Open the Interactive Spreadsheet Module, and read through the objective and brief description Step 3) Analyze the solved example in its current form (Several modules include graphs To view a graph, press GRAPH at the bottom of the spreadsheet To return to the text, press name of module at the bottom of the spreadsheet.) Step 4) Enter new data to create alternative outcomes (Only the cells into which data can be entered are unprotected All other cells are protected.) Step 5) Analyze the new outcome Module No 3A 4A 4B 4C 5A 6A 6B 6C 8A 8B 8C 8BA 8BB 8BC 8BD 10A 12A 12B 12C 12D 12E 12F 12G 13A 13B TVM1 TVM2 TVM3 Interactive Spreadsheet Module Page Supply and demand curves 46 Arc elasticity 70 Point and arc elasticities 80 Elasticity calculation applications 80 Compound growth rate 139 Production functions: quantities and dollars 190 Production functions in dollars (total graph) 190 Production functions in dollars (unit graph) 190 Output and price under perfect competition 258, 320 Output and price under imperfect competition (total graph) 329 Output and price under imperfect competition (unit graph) 329 Volume-cost-profit (price and unit costs) 347 Volume-cost-profit (solving for the missing variable) 347 Volume-cost-profit (revenue and total cost) 348 Volume-cost-profit (comparing two companies) 350 Revenue maximization model 398 Capital budgeting for mutually exclusive projects 467 Expansion project 470 Replacement project 470 Valuation of common stock with non-constant growth 473 Weighted cost of capital 475 Expected value and standard deviation 479 Expansion project and scenario analysis for chapter “Solution” 495 Transfer pricing 523 Multinational corporate budgeting 527 Time value of money online Annuity calculations online Bond value calculations online Managerial Economics # 109684    Cust: Pearson Addison-Wesley    Au: Keat   Pg No i K / PMS 301 C DESIGN SERVICES OF S4-CARLISLE This page intentionally left blank Seventh Edition Managerial Economics Economic Tools for Today’s Decision Makers Paul G Keat Thunderbird School of Global Management Philip K Y Young Nth Degree Systems, Inc and Duke Corporate Education Stephen E Erfle Dickinson College Boston  Columbus  Indianapolis  New York  San Francisco  Upper Saddle River Amsterdam  Cape Town  Dubai  London  Madrid  Milan  Munich  Paris  Montreal  Toronto Delhi  Mexico City  São Paulo  Sydney  Hong Kong  Seoul  Singapore  Taipei  Tokyo # 109684    Cust: Pearson Addison-Wesley    Au: Keat   Pg No iii K / PMS 301 C DESIGN SERVICES OF S4-CARLISLE Editor in Chief: Donna Battista Executive Acquisitions Editor: Adrienne D’Ambrosio Editorial Project Manager: Sarah Dumouchelle Executive Marketing Manager: Lori DeShazo Managing Editor: Jeff Holcomb Senior Production Project Manager: Nancy Freihofer Operations Specialist: Carol Melville Cover Designer: Bruce Kenselaar Cover Images: Globe Photo: Thank You/Shutterstock; Bottles Photo: Holbox/Shutterstock Full-Service Project Management: Tiffany Rupp Composition: S4Carlisle Publishing Printer/Binder: Edwards Brothers Cover Printer: Lehigh-Phoenix Color/Hagerstown Text Font: ITC New Baskerville Std 10/12 Credits and acknowledgments borrowed from other sources and reproduced, with permission, in this textbook appear on this copyright page and on the appropriate page within text p 55, Figure 3.9: Charts © 2011 Deloitte Global Services Limited (“DGSL”), used with permission Charts incorporate preexisting information from BP Statistical Review of World Energy, June 2010 edition (based on 2009 year-end data) DGSL has no connection or affiliation with BP or the BP Statistical Review of World Energy publication Please see the copyright page for the full attribution and disclaimer notices pertaining to these charts These charts, which are reproduced from a DGSL publication, contain general information only, and none of DGSL, Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively the “Deloitte Network”) is, by means of these charts, rendering professional advice or services Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser No entity in the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on these charts and no entity in the Deloitte Network is making any representation or warranty of any kind Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity Please see www.deloitte com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms “Deloitte”, “Touche”, “Tohmatsu”, “Deloitte Touche Tohmatsu”, “Deloitte & Touche”, the Deloitte logo, and the Deloitte Touche Tohmatsu logo are trademarks or registered trademarks of the Deloitte Network, which has no connection to the author or publisher of this book and has no responsibility for its contents Copyright © 2013, 2009, 2006 by Pearson Education, Inc All rights reserved Manufactured in the United States of America This publication is protected by Copyright, and permission should be obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise To obtain permission(s) to use material from this work, please submit a written request to Pearson Education, Inc., Permissions Department, One Lake Street, Upper Saddle River, New Jersey 07458, or you may fax your request to 201-236-3290 Many of the designations by manufacturers and sellers to distinguish their products are claimed as trademarks Where those designations appear in this book, and the publisher was aware of a trademark claim, the designations have been printed in initial caps or all caps Library of Congress Cataloging-in-Publication Data Keat, Paul G Managerial economics : economic tools for today’s decision makers / Paul G Keat, Philip K.Y Young, Stephen E Erfle 7th ed   p cm ISBN 978-0-13-302026-7   1.  Managerial economics.  I Young, Philip K Y II Erfle, Stephen E (Stephen Eugene) III Title   HD30.22.K39 2014  338.5024’658 dc23 2012038213 10 9 8 7 6 5 4 3 2 1 ISBN 10:    0-13-302026-6 ISBN 13: 978-0-13-302026-7 # 109684    Cust: Pearson Addison-Wesley    Au: Keat   Pg No iv K / PMS 301 C DESIGN SERVICES OF S4-CARLISLE To my wife, Sheilah, our children, Diana and Andrew, and our seven grandchildren—P G K To my grandchildren, Hayden and Emerson—P K Y Y To my children, David, Kate, and Vera—S E E # 109684    Cust: Pearson Addison-Wesley    Au: Keat   Pg No v K / PMS 301 C DESIGN SERVICES OF S4-CARLISLE This page intentionally left blank Brief Contents Preface    xix About the Authors    xxv Chapter Chapter Chapter Introduction    1 The Firm and Its Goals     18 Supply and Demand    38 Appendix 3A   The Mathematics of Supply and Demand     65 Chapter Demand Elasticity    68 Appendix 4A  Applications of Supply and Demand    100 Chapter Demand Estimation and Forecasting     114 Appendix 5A   The Demand for White Zinfandel in Los Angeles     167 Appendix 5B  Understanding Consumer Behavior Through Testing    175 Chapter The Theory and Estimation of Production     180 Appendix 6A  Productivity in Services    220 Appendix 6B  The Multiple-Input Case    231 Appendix 6C   Analyzing Production Functions with the Use of Calculus     242 Chapter The Theory and Estimation of Cost     248 Appendix 7A   A Mathematical Restatement of the Short-Run Cost Function     291 Appendix 7B  The Estimation of Cost    295 Appendix 7C   Interview with a Supply Chain Management Executive     306 Chapter Pricing and Output Decisions: Perfect Competition and Monopoly     310 Appendix 8A   The Use of Calculus in Pricing and Output Decisions     343 Appendix 8B  Break-Even Analysis (Volume-Cost-Profit)    345 Chapter Pricing and Output Decisions: Monopolistic Competition and Oligopoly    361 Appendix 9A   A Mathematical Restatement of Monopolistic Competition    387 Chapter 10 Special Pricing Practices    390 Chapter 11 Game Theory and Asymmetric Information     432 Chapter 12 Capital Budgeting and Risk     461 Appendix 12A  The Value of a Corporation    507 vii # 109684    Cust: Pearson Addison-Wesley    Au: Keat   Pg No vii K / PMS 301 C DESIGN SERVICES OF S4-CARLISLE www.downloadslide.net 582 Index Cross, Robert G., 407n Cross-elasticity see Cross-price ­elasticity Cross-price elasticity, 86–87, 94 Cross-sectional analysis long-run cost function and, 295, 299–300 time-series analysis vs., 204 when to use, 201 Cross-sectional data, 118, 160 Cubic production function, 196, 197f, 245–247 Cultural factors, 517, 530 Currency options, 519–520 Currency swaps, 520 Cut-off rate, 465 Cyclical fluctuations, in time series analysis, 143, 147 D Daimler Benz, 548 Dairy farms, case study, 302 D’Amico, Michael F., 350n Daniels, J D., 557n Danielson, Morris G., 470n Data see Cross-sectional data; Time series data Data mining, 116–117 Daves, Phillip R., 35n David, Edmond, 301n Davis, Donna F., 151n Dean, Joel, 2, 295, 296, 297, 298, 300 Debt, 473 Decision making see Managerial decision making Decision trees, 488–490, 498 Decisions capital budgeting, 463 investment, 463 optimal, 22–23, 36 production function and, 205–207 regression analysis and, 125 Decreasing returns to scale (DRTS), 194–195, 243, 263, 282 Dedi, Lidija, 494n Deductibles, 449, 455 Deere, D., 102n Deflators, 223 Degree of operating leverage (DOL), 350–353, 357 Degrees of freedom (df), 122, 160 Dell, Michael, 280, 306 Dell Inc., 279–280, 306–307, 395 Deloitte, 54f Delphi method, 161 Delta Airlines, 250, 396, 547 Demand asymmetric information and, 443–446 break-even analysis and, 350 complementary goods and, 416–417 cross-price elasticity of, 86–87 definition of, 39, 56 elasticity and, 90 guiding function of price and, 48–50, 51f joint products and, 417–420 law of, 39–40 market, 39–42 market equilibrium and, 44–45, 47f, 48f market power and, 53 price elasticity of see Price ­elasticity of demand rationing function of price and, 47–48, 51f, 52t real-life cases in, 105–113 scarcity and, 5–9 substitute goods and, 417 Demand curves cost-plus pricing, 412–413 demand estimation and, 126–127 elasticity and, 72–75, 77 kinked, 367–369, 380, 433n in monopolistic competition, 364–365 perfectly elastic, 319 short-run versus long-run, 79–80 Demand elasticity see Price elasticity of demand Demand estimation identification problem and, 126–127 point elasticity and, 74 white Zinfandel in Los Angeles, case study, 167–174 Democratic Party, 545 Demographics, 374n Denesuk, Matthew, 220n, 229n Denso Corporation, 395 Dependent variables, 119 Depreciation, 200–201, 471 Deregulation, 546–547 Derived demand, 79, 94, 190–191 Differential pricing see Price discrimination Diminishing returns law of, 185–188, 212 marginal cost (MC) and, 253–254 marginal product (MP) and, 196–198 in production function, 196–199 in total cost function, 258–260 Diocletian, edict of, 100n Direct costs see Out-of-pocket costs Discount rate definition of, 465, 499 in multinational capital budgeting, 522 risk-adjusted, 484–485, 499 # 109684    Cust: Pearson Addison-Wesley    Au: Keat   Pg No 582 Discounted payback method, 464n Discrete distribution, 481 Discrimination, as risk for multinational corporations, 493 see also Price discrimination Diseconomies of scale, 263–265, 266f, 282 Disney Corporation, 552 Distributions, frequency, 481–482 Dividend growth model, 30–31, 473–474, 499 Dividend payments, 523 Dixit, A K., 490n Dodd–Frank Wall Street Reform and Consumer Protection Act (2010), 545–546 Doh, J P., 557n Dolan, Matthew, 395n Dollar General Corporation, 397 Dominant price leadership, 397–398, 427 Dominant strategy (DS), 435, 455 Dominant strategy equilibrium (DSE), 435–437, 455 Douglas, P H., 198n, 199, 203, 204 Dow, William H., 85n Downsizing, as cost-cutting measure, 278 Dranova, David, 373n Dressings industry, global market expansion of, 511–513 Drucker, Peter, 2n, Duchesne, Erich, 129n Dummy variables, 119 Durand, David, 204 Durbin-Watson test, 129 Dutta, Devangshu, 208n DWK/Saarstahl, 424 Dynamic random access memory chips (DRAMs) industry, price-fixing in, 395, 424 E Eagles, Munroe, 129n Earnings, reinvestment of, 523 Echikson, William, 111n Econometric forecasting models, 153–156, 160 Economic conditions, as business risk, 478 Economic cost, 33–34, 36, 295–296, 317, 338 Economic decisions for the firm, 8, 16 Economic goals, 22–25 Economic indicators, 136–139, 160 Economic loss, 318, 324, 325f, 338 Economic profit, 33–34, 317–318, 324–327 competition and, 313–314 definition of, 34, 36, 338 K / PMS 301 C DESIGN SERVICES OF S4-CARLISLE www.downloadslide.net Index Economic Value Added (EVA), 32–33, 36 Economics, 2, 7–9, 16 see also Managerial economics Economies of scale, 263–265, 273, 282, 301–302, 304 Economies of scope, 272–273, 282 Economy global, and U S financial crisis, 2007–2009, 546 knowledge-based, 551 stabilization of, 541–542 Efficient scale of production, 263 Ehrhardt, Michael C., 507n Eichenwald, Kurt, 394n Eiteman, David K., 493n, 494n, 510n Elasticity see also Advertising elasticity; Income elasticity; Point elasticity; Supply elasticity categories of, 74 computation of, 70–72 definition of, 69, 94 determinants of, 75–77 interest rates and, 90 mathematics of, 83–84 population size and, 90 Electric utilities industry, case study, 301, 302 Elevator industry, European cartel in, 424 Employment, 102 Endogenous variables, 155–156 Energy Merchant Corporation, 406 Engineering cost estimating, 282, 303 Enterprise resource planning (ERP), 278 Entrepreneurship, Environmental protection equipment, 463 Equilibrium see Dominant strategy equilibrium (DSE); Market equilibrium; Nash equilibrium; Separating equilibrium Equilibrium price, 45, 46–51, 56 Equilibrium quantity, 45, 46–51, 56 Equity, cost of, 473–474 Erfle, Stephen, 129 ERP (enterprise resource planning), 278 Estimation see also Demand ­estimation of costs, 282, 295–305 in long-run cost functions, 282, 299–305 of production functions, 196–205 of short-run cost functions, 282, 295–299 statistical, of production functions, 200–205 Etter, Lauren, 112n, 113n European Central Bank, 546 European Commission, 423–424, 537–538, 553 European Court of Justice, 407 European Union, 334 EVA Dimensions LLC, 32, 33 EVA Momentum, 33 Evening Standard (London), 109 Exchange rate, 156–158, 518, 521, 531 Exchange rate hedging, 518–519, 531 Exchange rate risk, 517, 531 Excise taxes and product prices, 102–105 Executive compensation, 28–29, 399 Executive opinion, 135 Exogenous variables, 156 Expectations see Future ­expectations Expectations Index, 136 Expected value, 479–480, 499 Experience curve, 272, 282 Expert opinion, 135 Explanatory forecasting, 134, 153 Explanatory variables, 119 Explicit costs see Out-of-pocket costs Exponential smoothing, 134, 147, 149–151, 152, 160 Exports elasticity and, in Asia, 91–92 restraints on Japan, 105–106 Expropriation, 493 Externalities see Benefit externalities; Cost externalities; Markets, externalities of F Facebook, 334 Facilities, expansion of, 463 Fackler, Martin, 335n Fannie Mae, 545 Favole, Jared, 407n Federal Funds, 541 Federal Reserve see U S Federal Reserve Federal Trade Commission Act (1914), 536 Federal Trade Commission (FTC), 106n, 406 Ferdows, K., 208n Fernández-Kranz, Daniel, 89n Fikkers, Karin, 130n Filippini, Massimo, 302n Financial derivative products, 544 Financial risk see Business risk Financing cost of capital and, 472 terms and conditions, 371 Firer, Colin, 485n # 109684    Cust: Pearson Addison-Wesley    Au: Keat   Pg No 583 583 Firms definition of, 19, 36 determining value of, 507–508 economic decisions for the, economic goals of, 22–25 multinational, 34–35 noneconomic objectives of, 25 valuation of, 31–33 Firn, David, 525n First-degree price discrimination, 400 Fiscal policy, 541–542 Fisher, Franklin M., 537 Five Forces model, 376–378, 380 S’s, of lean manufacturing, 208 Fixed asset reductions, as costcutting measure, 278–279 Fixed cost, 273, 399 see also Average fixed cost (AFC); Total fixed cost (TFC) Fleet Bank, 547 Flexibility, 490–491 Flextronics, 309 Flotation costs, 474 Flow variables, 200 Flows see Cash flows Fluctuations, as business risk, 478 Focal points, 441, 455 Focus groups, 116–117 Focus List (Calpers), 34 Forecasting techniques econometric model, 153–156, 160 least squares projection, 127, 142, 146, 155 multiple-equation model, 155 projections, 139–151 single-equation model for, 155 smoothing, 147–151 types of, 133–135 Forecasts and forecasting categories of, 132–133 demand and, 133 economic indicators and, 136–139 error trends in, 152 exchange rates, 156–158 opinion as basis for, 135–136 overview, 132 in pharmaceutical industry, 152 planning production and, 267–269 prerequisites for, 133 regression analysis and, 155 sales, accuracy study of, 151–152 surveys and, 137 Foreign direct investment (FDI), 520–521, 531 Foreign tax credits, 522 Forster, Julie, 394n Forward markets, 519 K / PMS 301 C DESIGN SERVICES OF S4-CARLISLE www.downloadslide.net 584 Index France, Mike, 553n France, wine industry in, 111 Freddie Mac, 545 Free cash flow, 499, 507–508 Freeman, Sholem, 111n Frey, B S., 102n Friedman, Milton, 79n, 101n, 416n Friess, Steve, 407n F-test, 123, 160 Furniture Brands International, Inc., 112 Furniture industry, in United States, 111 Furukawa Electric Company, 395 Future expectations nonprice competition and, 371 as nonprice determinant of demand, 42, 47t as nonprice determinant of ­supply, 44, 47t Future products, 491 Futures markets, 519 F-value, 123–124 G Galbraith, Craig S., 203n Game theory, 433–443 Games, 434, 455 Gapenski, Louis C., 507n Gapper, John, 55n Garcia, A., 89n Gasoline industry, zone pricing in, 406 Gattorna, John, 208n GE Capital Aviation Services (GECAS), 553 General Electric Company (GE), 391, 393, 536, 553 Genericide, 552 Ghose, Anindya, 87n Gil, J M., 89n, 131n Gilbert, G., 102n Gilroy, C., 102n Giordano, James N., 304n Giovino, Gary, 85n Gitman, Lawrence J., 471n Glaister, Stephen, 85n, 89n Glaxo Welcome, 250 GlaxoSmithKline (GSK), 250, 525 Global applications beer market, 378–379 decline of cartels in Europe, 423–425 entering foreign markets, 526–527 forecasting exchange rates, 156–158 political risks, 493 price elasticity of demand, 91–92 pricing and output decisions in, 335–336 production functions, 210 profit maximization hypothesis, 34–35 shifting trends in global outsourcing, 210 supply chain management, 280–281 Global Transfer Pricing Survey, 526 GM, 208–209 Goals see Economic goals Goel, Rajeev K., 85n Golden parachute, 451, 455 Golicic, Susan L., 151n Gompertz curve, 152, 153f Google, 334, 552–553 Gordon, Myron J., 473 Gordon, T J., 135n Gordon model, 473–474 Gortmaker, Steven, 130n Government antitrust laws and, 535–538 deregulation and, 546–547 economy stabilization and, 541–542 intellectual property and, 551 intervention by, 538–541 in market economy, functions of, 534–535 policy and time lags, 542 Government sponsored enterprises (GSEs), 545 Gracia, A., 131n Graham, Daniel J., 85n, 89n Graham, John R., 470n Gramm-Leach-Bliley Act (1999), 542–546 Grant, Linda, 130n Greenberg, Carol, 354n Greene, W H., 301n Greenspan, Alan, 545 Gronroos, C., 223 Groothoff, Frederike, 130n Gross up calculation, 522 Growth accounting, 224–225 Growth options, 490 Growth-maximization model, 399 Gruber, Jonathan, 85n GSK (GlaxoSmithKline), 250 Guerrera, Francesco, 423n Guiding function of price, 48–50, 51f, 52t, 56 H Hall, R L., 411n Halteren, Hans van, 130n Halvorsen, R., 87n Hamadeh, Mohamad, 85n, 89n Hanke, John E., 133n, 135n, 151n Hanks, Richard D., 407n Harden, Blaine, 335 Harding, Riyon, 551n # 109684    Cust: Pearson Addison-Wesley    Au: Keat   Pg No 584 Harrison, Crayton, 280n Hart-Scott-Rodino Act (1976), 536 Harvey, Campbell R., 470n Hawes, Jon M., 350n Heckman, M A., 18n Hedging, 518–519, 531 Heien, D., 85n Heilbrun, James, 221n Heineken, 379 Helmer, O., 135n Henkel, 424 Herfindahl-Hirschman (HH) index, 367 Hertz, David B., 488n Hewlett-Packard Company, 395, 526 Hilsenrath, Jon E., 112n Hilzenrath, David S., 525n Historical costs, 34, 251, 282–283 Hitch, C J., 411n Hodgetts, R M., 557n Hon, Mark T., 89n Honeywell, 536, 553 Hoof, Lian van, 130n Hormel Foods, Inc., 108 Hosiery mill industry, case study, 297–298 Hotel industry, price discrimination in, 407–409 Hotten, Russell, 424n Houston, Joel F., 474n Houthhakker, H S., 85n, 89n Hsieh, Chee-Ruey, 87n, 132n Hsieh, Edward T., 85n Hsieh, Rajeev K., 89n Hu, Teh Wei, 87n, 132n Huang, Chung I., 89n Huang, Cliff J., 154n Huang, David S., 202n Huettner, David A., 301n Huffington Post, 335n Hurdle rate, 465 Hurwich, Michael, 368n Husten, Corinne, 85n Hynix, 424 I IBM antitrust lawsuit against, 333–334 price leadership by, 369, 396 supply chain management at, 307 tying arrangements and, 409 IBP, Inc., 108 Identification problem, in regression analysis, 126–127 Imperfect competition definition of, 361–362 managerial decision-making and, 53 nonprice competition, 369–371 K / PMS 301 C DESIGN SERVICES OF S4-CARLISLE www.downloadslide.net Index reality of, 371–372 strategy in, 372–378 Imperfect substitutes, 233 Implicit costs, 34, 251 see also Opportunity costs Imports elasticity and in Asia, 91–92 quotas on, 106 InBev, 379 Incantalupo, Tom, 406n Incentives, 20, 25, 451–452 Income demand and, 41 market segmentation and, 370–371 as nonprice determinant of demand, 47t redistribution of, 534 Income elasticity, 87–89, 94 Increasing returns to scale (IRTS), 193–195, 243, 263, 282 Incremental costs, 252, 283 Incremental pricing, 414–415 Independent projects, 467, 499 Independent variables, 119, 127 Index of present value, 464n Indexed stock options, 452 India call centers in, 210 Kellogg Company in, 526–527 key industries in, 513–515 McDonald’s in, 513, 516–517 poverty in, 515 Indicators, economic, 136–139 Indirect command, Indirect costs see Opportunity costs Industrial organization, 374–376 Inferior goods, 88, 94 Infineon, 424 Inflation rates, 521 Inflows see Cash flows Information, asymmetric, 443–453 Information Resources, Inc (IRI), 116, 167 Information technology (IT), cost reductions and use of, 278 InfoScan Reviews, 167 Initial cash flows, 471 Initial public offerings (IPOs), 507–508 Inkpen, A., 557n Inputs see also Resources alternative terms for, 183 calculus formulas for, 243–244 call center, case study utilizing, 209–210 Cobb-Douglas production function and, 199 definition of, 5, 16, 181, 212 in long-run analysis, 183, 196n multiple, 191–193, 231–241 optimal level of, 190–191, 236–241 in production function, 181–185, 193 substitution of, 232–236 Institute of Business Forecasting and Planning, 134, 152 Insurance industry case studies, 304 moral hazard problem in, 450, 452 screening in, 448–450 Intel, 307 Intellectual property, 551–553 Interbrew, 379 Interdependency, in game theory, 442 Interest rates elasticity and, 90 riskless, 474 Internal operating costs, 20 Internal rate of return (IRR) calculation of, 466–467 in capital budgeting practice, 470, 476 definition of, 464, 499 modified, 469n net present value versus, 467–469 Internal Revenue Service (IRS), 525–526 International Air Transport Association (IATA), 391 International Coffee Growers Association, 314 International Monetary Fund (IMF), 546 International Monetary Market, 519 Internet, impact of, on transaction costs, 22 Inverse elasticity rule, 377 Investments, 463–464, 472 Irregular patterns, in time series forecasting, 143 Isocost curves, 212, 237–239 Isoquant curves, 212, 231, 232f Issenberg, Sasha, 335 Iwata, Edward, 395n J Jabarin, Amer S., 87n Jackson, A., 33n Jaffe, Jeffrey, 469n Jain, Chaman L., 135n, 152n James, R Warren, 300n Japan automobile export restraints on, 105 cigarette sales in, 113 use of learning curve in, 271 Jarman, Max, 406n Jennen, Birgit, 423n # 109684    Cust: Pearson Addison-Wesley    Au: Keat   Pg No 585 585 Jensen, Elizabeth J., 535n Jensen, Michael C., 27n, 411n JetBlue, 396 Jobs and Growth Tax Relief Reconciliation Act (2003), 542 Johnson, Jo, 111n Johnston, J., 298, 300–301 Joint products, 417–420 Joste, Ruan, 526n JP Morgan, 547 JP Morgan Chase Bank, 250, 547 Jury of executive opinion, 135, 160 K Kahn, Kenneth B., 151n Kaiser, Harry A., 90n Kaizan, 208 Kapoor, A., 513n Katz, I F., 102n Kaufman, Leslie, 109n Keat, Paul G., 303n Keating, Barry, 151n Kellogg Company, 526–527 Kendall, Brent, 395n Kershaw, Sarah, 365 Khoueiri, Roy, 85n, 89n Kilman, Scott, 108n, 394n Kinked demand curves, 367–369, 380, 433n Kishore, Dash, 517n Kleenex, 552 Knowledge-based economy, 551 Knox, Kris Joseph, 85n Koenigsaecker, George, 208n Kohen, A., 102n Kollar-Kotelly, Colleen, 537 Koshal, Manjulika, 87n Koshal, Rajindar K., 87n Kranhold, Kathy, 395n Krueger, A B., 102n Kulatilaka, N., 490n L Labor cost of, 190–193, 200 productivity and, 227–230 as a resource, 4, Labor costs, 269–272 Labor productivity (LP), 194, 220–222, 224, 226f, 227–230 Lagging indicators, 137 Lampel, Joseph, 376n Lance, Peter M., 85n Land, 4, Land, William, 440 Landon, John H., 301n Lanfranco, Bruno A., 89n Latta, Michael, 152n K / PMS 301 C DESIGN SERVICES OF S4-CARLISLE www.downloadslide.net 586 Index Laux, Judith A., 302n Lavalife, 406 Law of demand, 39–40, 56 Law of diminishing returns, 185–188, 212 see also Diminishing returns Law of marginal rate of technical substitution, 234 Lawler, Edmund O., 276n, 363n Layoffs, as cost-cutting measure, 278 Lazich, Robert S., 366n Le Quotidien (French newspaper), 109 Leading indicators, 137–139 Lean approach, to manufacturing, 208–209 Learning curve, 269–272, 283 Learning curve effect, 269, 271–272 Leasing decisions, 463 Least squares projection technique, 127, 142, 146, 155 Lego, 552 Lehman Brothers, 544 Lehrer, Jonah, 176n Lemons model, 443–446 Lenz, John, 90n Leonard, Devin, 395n Lerner, Abba, 377 Lerner Index, 377 Leunig, Tom, 22n Leverage see Financial risk Levitt, Theodore, 227n Levy, Haim, 483n Lewis, M., 208n Li, Kui-Wai, 204n Li & Fung, 280–281 License fees, 523 Limit pricing, 422, 427 Limited war, concept of, 441–442, 455 Lin, Chien-Fue Jeff, 87n, 132n Linear cost function, 259, 260 Liquidity, 544–545, 546 Loh, Chung-Ping, 85n London, traffic control in, 110 Long, Michael W., 85n Long run definition of, 50, 56 economies of scale in, 273 elasticity, 79–80 market changes and price in, 48–52 Long run (market analysis), 313, 327, 338 Long-run average cost (LRAC), 261t, 262f, 263–264, 267–269, 272f Long-run cost function, 260–269 estimation in, 282, 299–305 short-run cost function versus, 263 studies illustrating, 300–303 Long-run marginal cost (LRMC), 261–262, 264n Long-run monopolistic competition equilibrium (LRMCE), 364, 387–389 Long-run production function, 182, 193–195, 212 Los Angeles Times (newspaper), 109 Loss see Economic loss; Profit maximization hypothesis Lovell, C A Knox, 302n Lovelock, Christopher H., 276n Lowy, Alex, 22n Loyalty programs, 370 Lucent, 371 Lundegaard, Karen, 111n Luthans, F., 557n M Macluca, J., 208n Macroeconomics, Make or buy decisions, 463 Makridakis, Spyros, 132n, 133n, 135n Management definition of, of personnel, 8–9 Peter Drucker on, shareholder conflict with, 26–29 Management control, 11n Management skills, Managerial decision making competition and, 53 cost reduction and, 278–279 costs and, 249–251 monopoly markets and, 333 optimization analysis and, 433 perfect competition and, 53, 333 production function and, 205–207 resource allocation and, 3–4, 8–9 Managerial economics application to business disciplines, definition of, 2, 16 economic terms and concepts in, 5–9 optimal decisions in, 23 overview, 2–3 relationship to micro­economics, strategy and, 372–378 Managerial utility function, 450–451 Managers labor market for, 28 market environment and, 53 Manufacturing, lean, 208–209 Marchant, Mary A., 87n Marcus, A J., 490n Marginal cost (MC) average variable cost and, 260 # 109684    Cust: Pearson Addison-Wesley    Au: Keat   Pg No 586 definition of, 256, 283 diminishing returns and, 253–254 long-run, 261–262, 264n marginal revenue rule, 239 optimal decisions and, 23 shape of cost curve for, 298–299 in short-run cost function, 257 Marginal factor cost (MFC), 191n, 212 see also Marginal labor cost (MLC) Marginal labor cost (MLC), 190t, 191, 212 see also MRP MLC rule Marginal pricing, 413–414 Marginal product (MP) calculus formulas for, 242–247 in Cobb-Douglas production function, 198–200 definition of, 212 diminishing returns and, 196–198 multiple inputs and, 191–193, 235–237 short-run analysis of, 183–186 Marginal rate of technical ­substitution (MRTS), 212, 233–236 Marginal resource cost (MRC) see Marginal labor cost (MLC) Marginal revenue (MR), 23, 81–84, 94 Marginal revenue product (MRP), 190t, 191, 212, 239, 243–244 Marginal revenue-marginal cost see MR MC rule Marginal utility of money, 483n Market concentration, 365–367, 375–376 Market demand, 39–42, 56 Market entry and exit, 313, 316, 327–328, 362 Market environment and ­ managers, 53 Market equilibrium comparative statics analysis of, 46–53 demand and, 44–45, 47f, 48f rationing function of price and, 48f short-run versus long-run ­adjustments and, 50–51 supply and, 44–45 Market power, 53 definition of, 56, 338 market types and, 312, 313 Market process, 7–8, 16 Market research, 136 Market segmentation, 9, 370, 407 Market share and price fixing, 391 Market structure, 312, 338 Market supply, 42–44 Market types K / PMS 301 C DESIGN SERVICES OF S4-CARLISLE www.downloadslide.net Index business examples of, 314–315 competition and, 315–316, 362 Market Value Added (MVA), 31–32, 36 Marketing mix, 370–371 Markets analysis of changes in, 46–53 externalities of, 538–541 informational asymmetry in, 443–453 for protecting against risk, 519–520 Markon, Jerry, 395n Markup, 411–412 Marsh, Peter, 22n, 34n Marshall, Alfred, 65, 78 Marston, Stephen C., 306 Martin, Andrew, 113n Martin, Gina, 85n Martinez, C., 560n Martins, Carlos V., 494n Mason, Christopher, 395n Mastercard, 372 Material costs, reductions in, 277 Mathematical solutions cost-plus and marginal pricing, 413–414 of elasticity and revenue, 83–84 profit maximization, 416n Mathias, F John, 542 Maximization see Profit maximization hypothesis; Revenue, maximization of; Wealth ­maximization Maximum efficient scale (MaxES), 263 MBNA, 250 McCarthy, Teresa, 151n McCartney, Scott, 424n McConnell, Campbell, 2n McCormick & Co., 406 McDonald’s, 513, 516–517 McGregor, Jena, 28n McHugh, Anne, 130n McMillan, John, 440n McNulty, Sheila, 109n McRae, Robert, 85n, 89n Meckling, William H., 3, 27n, 411n Mefford, Robert N., 203n Menzer, John T., 151n Merchant, Mary A., 85n Merck & Co., 525–526 Mergers see also Acquisitions in airline industry, 547 in banking industry, 547 as cost-cutting measure, 278 reasons for, 548–550 in telecommunications industry, 547 Microeconomics, 3, 5, 375 Microsoft Corporation, 371, 526, 552 anti-trust cases against, 333–334, 536–538 as example of a monopoly, 315 Miller Brewing, 379 Milliman, N., 394n Milunovich, S., 33n Minimum efficient scale (MES or MinES), 263 Minimum required rate of return, 465 Minimum wages, 101–102 Minneapolis, Minnesota, traffic ­control in, 109 Mintz, Ilse, 106, 106n Mintzberg, Henry, 376n MNCs see Multinational ­corporations Mobile device industry, 207–209 Modified internal rate of return (MIRR), 469n Moffett, Michael H., 493n, 494n, 510n Mohd Noor, Zaleha Bt, 203n Molsen, 379 Molsen Coors Brewing Company, 379 Monetary policy, 541 Monopolistic competition business examples of, 315 definition of, 380 demand curves in, 364–365 as imperfect competition, 361–362 long-run monopolistic competition equilibrium (LRMCE), 387–389 market characteristics of, 312f market entry and exit and, 313 market power and, 312, 313 MR MC rule and, 363–364 overview, 363–365 Monopoly calculus formulas for, 344 natural, 535, 555 Monopoly markets, 329–332 business examples of, 315 characteristics of, 312f, 313f definition of, 338 managerial decision making and, 333 MR MC rule in, 329–332, 338 outputs in, 329 price discrimination in, 399–401, 410 pricing in, 329 Monopsony, 555 Mont-Ferguson, Helen, 130n Monti, Mario, 334 Moore, T G., 102n Moral hazard problem, 450, 452, 455 Morgan Stanley, 397 # 109684    Cust: Pearson Addison-Wesley    Au: Keat   Pg No 587 587 Morgenstern, Oskar, 483n Moroney, John R., 204n Morris, Betsy, 108n Mortgage industry, 543 Mosheim, Robert, 302n Motorola, 207 Motorola Mobility, 552 Moving average method, 145, 147–149, 151, 160 MR MC rule capital budgeting and, 475–476 in Five Forces model, 376–377 in graphs, 323, 324f monopolistic competition and, 363–364 in monopoly markets, 329–332, 338 multiple inputs and, 239 optimal output levels using, 321–324 MRP MFC rule, 191, 212 MRP MLC rule, 191, 212 Muda, 208 Multicollinearity, 127–128 Multifactor productivity (MFP), 220, 221, 225, 226f, 229, 230f Multinational capital budgeting, 521–522, 531 Multinational corporation risk, 517–518, 531 Multinational corporations budgeting in, 521–522 Kellogg Company, case study, 526–527 opportunities and challenges for, 510–517 transfer pricing in, 523–526 Multinational transfer pricing, 523–526, 531 Multiple inputs, working with, 191–193, 231–241 Multiproduct pricing, 415–420, 427 Murphy, K M., 102n Music industry, pricing and demand in, 112 Mutual dependence recognized, 440 Mutual interdependence, 362, 367, 380–381 Mutual interdependence and game theory, 440 Mutually exclusive projects, 467–468, 499 N Naive forecasting, 134, 152, 160 Nash, John, 435–436 Nash equilibrium, 435–437, 440–441, 455 Nassauer, Sarah, 111n National Association of Purchasing Agents, 136 K / PMS 301 C DESIGN SERVICES OF S4-CARLISLE www.downloadslide.net 588 Index National Bureau of Economic Research, 137 National Cattlemen’s Association, 107 National Electric Manufacturers Association, 393 National Restaurant Association, 354 Nations Bank, 547 Natural monopoly, 535, 555 Negotiation and bargaining, 440 Nelson, Edward T., 89n Nelson, Michael A., 85n Net present value (NPV) calculation of, 464–466 definition of, 499 internal rate of return versus, 467–469 in practice, 470 risk and, 483–484 Netscape Communications Corporation, 537 Nevada Equal Rights Commission, 407 New York City, traffic control in, 110 New York Post (newspaper), 109 Newman, Maria, 110n Newspapers, price elasticity of demand and, 109 Ng, Y C., 204n Niisu, Izumi, 335–336 Nkwenti-Zamcho, Emmanuel, 203n Nokia, 207 Noland, R Paul, 407n Noncash investments, 472 Non-constant-sum games, 439 Noncooperative games, 439, 440, 455 Noneconomic objectives, 25, 36 Nonmarginal pricing, 410–415 Nonprice competition, 314, 362, 369–371 Nonprice determinants of demand, 41, 47t, 57, 370 Nonprice determinants of supply, 43–44, 47t, 57 Nonprice variables, 370 Non-zero-sum games, 439 Normal curves, 481 Normal profit, 34, 36, 317, 324–327, 338 Nortel, 552 North American Industry Classification System (NAICS), 366 Northwest Airlines, 250, 396, 547 Nugent, Anne, 378n O Obama, Barack, 545, 546 O’Connor, Dennis J., 158n, 493n Ocunade, Albert A., 301n ODM (Original design ­manufacturer), 308 OEM (Original equipment ­manufacturer), 308 Offshoring, 21–22 see also Outsourcing Ogier, Thierry, 113n Oil price analysis, 52–53 supply and demand for, 53–54 Ojasalo, K., 223 Okunade, A A., 85n Oligopoly bargaining in, 441–442 business examples of, 315 characteristics of, 312f definition of, 381 game theory and, 434 as imperfect competition, 361–362 market concentration, 365–367 market power of, 312, 314 price leaders in, 369 price leadership in, 396 pricing in, 367–369 prisoners’ dilemmas in, 437–439, 454 revenue maximization, 398 Oliver, R K., 306n Olsen, Elizabeth, 38n O’Neill, Jim, 14, 513 One-tail test, 122, 160 OPEC, 314 Operating cash flows, 471–472 Operating costs, 20 Operating leverage, degree of, 350–353, 357 Operational control, 11n Opinion polls, 135–136, 161 Opportunistic behavior, 19, 21, 36 Opportunity costs, 3, 6, 16, 33–34, 251–252, 283 Optimal decision, 22–23, 36 Optimal levels of inputs, 190–191, 236–241 of output, 320–324 of production, 239 Options, currency, 519–520 Orden, David, 112 Organization of Petroleum Exporting Countries (OPEC), 51, 391, 392 Original design manufacturer (ODM), 308 Original equipment manufacturer (OEM), 308 Orsag, Silvije, 494n Oster, Sharon, 373n, 378n Otis Elevator Company, 552 Outflows see Cash flows Out-of-pocket costs, 251–252 Outputs # 109684    Cust: Pearson Addison-Wesley    Au: Keat   Pg No 588 alternative terms for, 183 calculus formulas for, 343–344 learning curve and, 269–272 in monopoly markets, 329 optimal levels of, 320–324 in perfect competition market, 316–320 in production function, 181, 183–185, 191 tangibility of, 223 Outsourcing, 21, 210 Overseas Private Investment Corporation, 493 P P MC rule, 322–323, 338–339 Palmisano, Sam, 307 Parker, John, 109n Parker Hannifin Corporation, 413 Partial productivity measures (PPMs), 220, 221 PARTS framework, 442 Patents, 551–552 Patki, Mukul, 175n Payback, 499 Payback method, 464, 470 Payoff matrix, 434, 455 Payoffs, 434, 455 Peck, Merton J., 87n Peers, Alexandra, 395n Peltzman, S., 375n Penang, Malaysia, 307 Penetration pricing, 422, 427 PepsiCo, 273, 394, 554n Perdue, Frank, 363 Perfect competition calculus formulas for, 343–344 characteristics of, 312f, 313f definition of, 312, 339 examples of, 314 managerial decision making and, 53, 333 market entry and exit and, 313, 316 optimal output level and, 320–323 outputs in, 316–320 pricing in, 316–320, 415 Perfect complements, 233 Perfect elasticity, 74–75 Perfect inelasticity, 75 Perfect substitutes, 195, 232 Performance, 374–375 Perloff, Jeffrey M., 374n Personnel, management of, 8–9 Per-unit cost curves, 292–294 Pfizer, 250 K / PMS 301 C DESIGN SERVICES OF S4-CARLISLE www.downloadslide.net Index Pharmaceutical industry in India, 514 monopolies in, 334 Pharmacia, 250 Philip Morris, 379 Philippines, 210 Pierer, Heinrich von, 34n Pindyck, R S., 490n Planning capacity, 205–207 enterprise resource, 278 production, 267–269 Plant closings, as cost-cutting measure, 278 Planter’s Peanuts, 277 Plastics industry, case study, 298 Players, 434, 442–443, 456 Point elasticity calculus formulas for, 74, 86, 88n computation of, 72, 83, 86n, 88n definition of, 94 estimation of demand and, 74 marginal revenue and, 82 regression analysis and, 122–123 Poison pills, 451, 456 Polaroid, 329, 334 Polinsky, A M., 541n Political risk, 493 Pommerehne, W., 102n Pompelli, G., 85n Population size and elasticity, 90 Porter, Michael, 3n, 279, 376–378 Portugal, capital budgeting in, 494–495 Postponement option, 491 Poultry industry, 363 Power functions, 197–198, 212 Predatory pricing, 422, 427 Preferences, as nonprice determinant of demand, 41, 47t Present Situation Index, 136 Prestige pricing, 422, 427 Price effect of elasticity on, 77–78 equilibrium, 45, 46–51, 56 future expectations of, 42 guiding function of, 48–50, 51f, 52t, 56 market demand and, 41–42 market power and, 53 as nonprice determinant of demand, 47t as nonprice determinant of supply, 44, 47t rationing function of, 46–48, 51f, 52t, 57 rigidity see Kinked demand curves supply and, 42 Price ceilings, 100 Price controls, 100 Price discrimination, 399–410 in business practice, 404–406 definition of, 427 price elasticity of demand and, 406–407 protection against, 535–537 real-life cases of, 406–409, 424–425 social welfare implications of, 410 Price elasticity of demand in Baumol’s theory, 224 definition of, 69, 94 global applications of, 91–92 measurement of, 69–75 newspapers and, 109 price discrimination and, 406–407 real-life cases of, 84–85 revenue and, 80–84 Verizon and, 112 Price elasticity of supply, 90–91, 94 Price fixing by cartels, 393–395 real-life cases of, 423–424 Price floors, 101–102 Price leaders, 369, 381 Price leadership, 396–398, 427 Price makers, 312, 339, 362 Price skimming, 422, 427 Price takers, 312, 339, 362 Price theory, 375–376 Price-performance ratios, 264 Pricing see also Nonprice ­competition in airline industry, 425 asymmetric information and, 443–446 calculus formulas for, 343–344 decisions, 440 in monopoly markets, 329 in oligopolies, 367–369 in perfect competition market, 316–320 Pricing for profit, 332, 339 Pricing for revenue, 332, 339 Principal-agent problem, 26–27, 450–451, 456 Prisoners’ dilemma, 437–439, 440, 454, 456 Probability, 478, 499 Probability distribution, 478–487, 499 Processing costs, reductions in, 278 Procter & Gamble, 424 Product differentiation, 363, 367–369, 375, 377 Production in China, 210 costs and, 253–254 decisions, 8–9 factors of, 5, 50 of goods, 220, 224, 225 # 109684    Cust: Pearson Addison-Wesley    Au: Keat   Pg No 589 589 issues and challenges to ­competitive, 207–209 optimal level of, 239 planning and long-run average cost, 267–269 stages of, 188–189, 196, 205–207, 213 Production functions aggregate, 203–205 calculus formulas for, 242–247 call center, case study for, 209–210 Cobb-Douglas see Cobb-Douglas production function cubic, 196, 197f, 245–247 definition of, 181, 212 derived demand and, 190–191 estimation of, 196–205 managerial decision-making and, 205–207 power, 197–198, 212 quadratic, 196, 197f, 247 short-run versus long-run, 182–183 statistical estimation of, 200–205 studies utilizing, 202–205 Productivity employee, determining, 446–448 improving, 221 labor and, 227–230 services and, 220–230 Products as capital budgeting decisions, 463 decisions about, joint, 417–420 relationships of, 415–420 Profit see also Economic profit defining, 33–34 definition of, 19 incentives and, 451–452 market concentration and, 375–376 required, 349–350, 357 Profit centers, 420 Profit margin, 411n Profit maximization hypothesis, 23–29, 34–35, 36, 399 Profit sharing, 452, 456 Profitability index (PI), 464n, 467, 499 Projections see Forecasting ­techniques Projects, evaluation of, 467–468, 499 Promises, 456 Promotion, 370 Property see Intellectual property Pruitt, Stephen W., 471n Psychographics, 374n Psychological pricing, 422–423, 427 Punjabi, Navin, 513n, 526n K / PMS 301 C DESIGN SERVICES OF S4-CARLISLE www.downloadslide.net 590 Index Q Quadratic production function, 196, 197f, 247, 259 Quaker Oats, 554n Qualitative forecasting, 134, 161 Quantitative forecasting, 134, 161 Quantity change in demand by, 40 effect of elasticity on, 77–78 equilibrium, 45, 46–51 and price, in monopoly markets, 331 price elasticity of demand and, 69–70 in production function, 182–185, 196, 242 in short-run cost function, 255 Quantity demanded, 39–40, 57 Quantity supplied, 42, 57 R R software, 120 R2, 123, 159 Radebaugh, L H., 557n Raffiee, Kambiz, 85n, 89n Ram, Michael A., 89n Ram, Rati, 85n Ramaswamy, K., 557n Rand Corporation, 135 Randomness, in time series analysis, 147 Randomness, in time series forecasting, 143 Rate changes, 296 Rate of return see also Accounting rate of return; Internal rate of return (IRR) capital asset pricing model and, 474–475 minimum required, 465 Rationing, capital, 477, 498 Rationing function of price, 46–48, 51f, 52t, 57 Rawsthorn, Alice, 109n Real options, 490–493, 499 Reductions, cost, 277–278 Refreshment beverage industry see Soft drink industry Regression analysis analysis of consumer demand using, 129–132 calculation of, 124–125 capital asset pricing model and, 474 coefficients, 120–122, 125 definition of, 160 demand analysis and, 117–120 forecasting and, 155 management decisions and, 125 problems with, 125–129 production function and, 201 short-run cost function and, 295 variables, types of, in, 119 white Zinfandel in Los Angeles (case study), 167–174 Regulated monopoly, 547 Regulations, 493, 534 see also Antitrust laws Reitsch, Arthur G., 133n, 135n, 151n Relative elasticity of demand, 74 Relative inelasticity of demand, 74 Relevant costs, 251, 283 Relocation, as cost-cutting measure, 278 Replacement costs, 34, 251 Replacement decisions, 463 Republican Party, 545 Required profit, 349–350, 357 Resale values, 472 Reshoring, 21–22 Residual term, 128 Resources allocation of, 6–10, 53, 534 definition of, 16 in microeconomics, in production function, 181 scarcity of, 5–9 traditional categories of, 4, Retail industry, in India, 514–515 Return on assets (ROA), 498 Return on investment (ROI), 498 Returns to scale, 193–195, 204–205 calculus formulas for, 240–241, 243, 246 definition of, 212–213 economies of scale, 263 Revenue mathematics of, 83–84 maximization of, 398–399 price elasticity of demand and, 80–84 profit maximization versus, 23 as reason for mergers, 548 Revolutionary War, price controls during, 101 RFID technology, 117 RIM, 553 Risk see also Business risk budgeting under conditions of, 483–484 containment of international, 494 definition of, 499 exchange rate, 517, 531 importance of, incorporation methods for, 483–485 measures of, 478 in multinational corporations, 517–518, 531 net present value (NPV) and, 483–484 # 109684    Cust: Pearson Addison-Wesley    Au: Keat   Pg No 590 political, 493 project, 486–487 sources of, 478 types of, 30 uncertainty and, 4–5, 477 of wars, 493 Risk-adjusted discount rate (RADR), 484–485, 499 Rivalry, in oligopolistic markets, 367–369 Robbins, Lionel, 7n Robinson-Patman Act (1936), 406, 536 Roche Holding AG, 395, 423 Rogers, R P., 304 Rometty, Virginia, 307n Romney, Mitt, 545 Ross, Stephen A., 469n Royal Grolsch, 379 Royalties, 523 Ruddick, Graham, 526n Rule of 2, 123, 160 S SABMiller, 379 Safety equipment, 463 Sala-i-Martin, Xavier, 225n Sales forecasting, 151–152 Salvage, 472 Samsung Electronics Co., Ltd., 207, 395 Samsung of South Korea, 424 Sande, Eva van de, 130n Sanders, Jim, 406n Sanders, Nada R., 135n SAP, 278 Saranow, Jennifer, 110n Sarbanes-Oxley Act (2002), 28 Sarnat, Marshall, 483n SAS software, 120 Satisficing, 26–27, 36 SBC, 250 Scale economies, 263–265, 273, 282 Scarcity, 2, 5–9, 16 Scenario analysis, 486, 487, 499 Schelling, Thomas C., 434n, 440n, 441 Schmalensee, Richard L., 537 Schnabel, Constance, 303n Schneider, F., 102n Schroeder, Ted C., 90n Schuettinger, Robert L., 100n, 101n Scope, economies of, 272–273, 282 Scott, Jonathan A., 470n Scottish & Newcastle, 379 Screening, 448–450, 456 Seale, James L., Jr., 85n, 87n Seasonal indices, 161 Seasonality fluctuation, in time series analysis, 143, 145–146 K / PMS 301 C DESIGN SERVICES OF S4-CARLISLE www.downloadslide.net Index Second-degree price discrimination, 401 Securitization, 543–544 Sellers, number of, 44, 47t Selling Areas Marketing, Inc., 108 Semilogarithmic graphs, 141 Sen, Anindya, 85n Sensitivity analysis, 486, 499 Separating equilibrium, 446–447, 456 Serial correlation, 128–129 Service marks, 551–552 Services productivity and, 220–230 shared, 249–250 Services industry, in India, 514 Shaffer, Sherrill, 301n Shanley, Mark, 373n Shared services, 249–250 Shareholders impact of mergers on, 549–550 profit maximization and, 26–29 wealth maximization for, 29–35, 469 Sharpe, William F., 474n Sherman Anti-Trust Act (1890), 391, 397, 535 Shishkin, Philip, 553n Shoe store industry, case study, 300 Short run break-even analysis, 345–357 definition of, 50, 57 economies of scale in, 273 elasticity in, 79–80 market changes and price in, 52t Shortage, 45, 57 Short-run average cost (SRAC) learning curve effect on, 271 long-run average cost curve and, 265–267 Short-run cost function, 255–260 calculus formulas for, 291–294 cost efficiency in, 257–258 estimation of, 282, 295–299 graphs, 292 long-run cost function versus, 263 regression analysis and, 295 studies illustrating, 297–298 Short-run production function, 182–193 definition of, 182, 213 derived demand and, 190–191 law of diminishing returns and, 185–188 multiple inputs in, 191–193 stages of, 188–189 terminology, 183–185 Short-run supply curve, 327, 339 Shugart, William E., II, 374n, 375n Shutdown point, 326f, 327, 339 Siegfried, John J., 154n Signals, 446–448, 456 Silliere, Ed, 406 Simester, Duncan, 175n Simon, Herbert, 411n Simon, Julian J., 368n Simulation analysis, 487–488, 499 Singapore, traffic control in, 109–110 Sinha, Dipendra, 92n Slotting fees, 406 Smith, Adam, 21, 50n, 391 Smith, Ethan, 112n Smith, Michael D., 87n SmithKline Beecham, 250 Snapple, 554n Soares, Joao Oliveria, 494n Sobotka, Stephen P., 303n Social welfare, 375, 410 Socially optimal price, 539, 555 Soft drink industry, 9–10, 556–561 Sonoco, 277 Sony Publishing Company, 552 Sotheby’s, 394 South Africa, capital budgeting in, 495 South African Breweries (SAB), 379 Southwest Airlines, 276–277, 396 Spagat, Elliot, 109n Spain, food demand in, 130–131 Specialization, 186, 189f, 221, 222f Specifications, cost function, 296 Spence, Michael, 443n, 446–447, 454 Spending plans, surveys of, 136, 161 SPSS software, 120 Stabile, Mark, 85n Stages of production, 188–189, 196, 205–207, 213 Standard deviation, 480–481, 499 Standard error of coefficient (SEC), 122, 127, 160 Standard error of estimate (SEE), 160 Standard Industrial Classification (SIC), 366 Standard linear costs, 260 Standard normal distribution, 481 Standardization, 223 Statistical probabilities, 478 Steel industry, import quotas and, 106 Steel manufacturing industry, European cartel in, 424 Stern Stewart, 32 Stevenson, R W., 109n Steward, Devin T., 335 Stewart, G Bennett, III, 32n Stigler, George J., 21, 199, 304, 368n, 375, 392n, 540n Stiglitz, Joseph, 443n, 448 Stimpert, J L., 302n Stock options, 452, 456 Stockholders see Shareholders # 109684    Cust: Pearson Addison-Wesley    Au: Keat   Pg No 591 591 Stockwell, Tim, 85n Stonehill, Arthur I., 493n, 494n, 510n Strategic planning, 11n Strategy definition of, 381 Five Forces model of, 376–378 in game theory, 434, 456 in imperfect competition, 372–378 price theory model, 375–376 structure-conduct-performance (S-C-P) paradigm, 375–376 The Strategy of Conflict (Schelling), 434n Stroh’s Brewery, 379 Structure-conduct-performance (S-C-P) paradigm, 374–375, 381 Stutzman, J R., 85n Subprime loan financial crisis, 2007–2009, 542–546 Substitute goods, 86, 94, 371, 417 Substitution elasticity and, 75–77 of input factors, 232–236 as nonprice determinant of ­supply, 44 Sugar supply, import quotas and, 106 Suits, Daniel B., 87n, 154 Sullivan, D P., 557n Sun Microsystem, 537 Sundaram, Anant, 550n Sunk costs, 252, 283 Supermarkets and consumer demand, 108 Supply definition of, 42, 57 guiding function of price and, 48–50, 51f law of, 42 market, 42–44 market equilibrium and, 44–45 market power and, 53 rationing function of price and, 46–48, 51f, 52t real-life cases in, 105–113 scarcity and, 5–9 Supply chain management (SCM), 273–276, 283, 306–309 Supply curve, 327, 339 Supply elasticity, 90–91, 94, 105 Surplus, 45, 57 Survey of Consumers (Survey Research Center, University of Michigan), 136 Survey of Manufactures (Census Bureau), 365–369 Survey Research Center, University of Michigan, 136 K / PMS 301 C DESIGN SERVICES OF S4-CARLISLE www.downloadslide.net 592 Index Surveys consumer, 116–117 forecasts and forecasting and, 137 of spending plans, 136, 161 Survivorship techniques, 283, 304–305 Sweezy, Paul, 367 Switzerland, 302 Symantec Corporation, 526 T Tacit bargaining, 439, 440, 441, 456 Taiwan, demand for cigarettes in, 131–132 Takeovers, 451 Tapscott, Don, 22n Tariffs, two-part, 401n Tarr, D G., 304 Tastes as nonprice determinant of demand, 47t and preferences, 41 Taubman, A Alfred, 394 Taut, Nikki, 424n Tax credits, 522 Tax rates in multinational capital ­budgeting, 521–522 multinational transfer pricing and, 523–526 Taxes excise, 102–105 socially optimal pricing and, 539 Taylor, Colleen, 395n Taylor, L D., 85n, 89n Teboul, James, 222n Technology and data collection, 117 as nonprice determinant of ­supply, 43–44, 47t Tedeschi, Bob, 22n Teinowitz, Ira, 406n Telang, Rahul, 87n Telecommunications industry, ­mergers in, 547 Tennant, Anthony J., 394–395 Thaler, Robert, 176n The Strategy of Conflict (Schelling), 440n Theijssen, Daphne, 130n Thermos GmbH, 552 Third-degree price discrimination, 401–404, 409, 410 Thompson, Bill, 113n Threats, 440, 456 ThyssenKrupp AG, 424 Ticoll, David, 22n Tie-in sales, 409–410 Tiems, Jorieke, 130n Time lags and government policy, 542 Time periods see Long run; Short run Time series analysis, 142–147, 201, 204, 295 Time series data, 118, 128–129, 160 Time series forecasting, 161 Time value of money, 29, 464, 499 Times (London), 109 T-Mobile, 547 Tobacco production, 112 Tomkins, Richard, 108n Total analysis approach, 320–321 Total cost function, 258–260, 283 Total cost (TC), 20, 253, 255, 256f, 283 Total factor productivity (TFP) see Multifactor productivity (MFP) Total fixed cost (TFC), 253, 255, 256f, 283, 357 Total labor cost (TLC), 190, 191 Total product (TP) see also Quantity calculus formulas for, 242–243 curves, 196n definition of, 183, 213 short-run analysis, 183–185 Total revenue product (TRP), 191 Total variable cost (TVC), 253, 255, 256f, 283, 357 Toyota Corporation, 208–209, 407 Trade secrets, 551–552 Trademarks, 551–552 Traditional process, 7, 8, 16 Traffic control and demand ­elasticity, 109–110 Transaction costs, 19–22, 37, 298 Transactions, offsetting, 519 Transfer pricing, 420–422, 427, 521n, 523–526 Transportation Center, Northwestern University, 303 Transportation costs, 265 Transportation industry, case study, 304 Traveler’s Insurance, 547 Travelocity, 425 Trend lines, in time series ­forecasting, 143, 146, 152 Trend projections definition of, 161 types of, 139–151 Triplett, Jack E., 221n, 224n, 225f t-statistic, 160 Tsuei, A., 33n Tsurumi, Yoshi, 106n t-table, 122, 160 t-test, 122–123, 125, 127, 128, 160 Tucker, Emma, 423n Tully, Brian, 525n Tully, S., 33n TWA, 547 Two-part tariffs, 401n # 109684    Cust: Pearson Addison-Wesley    Au: Keat   Pg No 592 Two-tail test, 122–123, 160 Tying arrangements, 409–410 Tyson Foods, 363 U U.S Airways, 547 U.S Census of Manufactures, 366n U.S Department of Agriculture (USDA), 113 U.S Department of Justice, ­333–334, 394, 395, 397, ­536–537, 538, 553 U.S Department of Justice Merger Guidelines, 366–367 U.S Federal Reserve, 203, 541, 543–544, 546 U.S National Recovery Act (NRA), 392n U.S Patent and Trademark Office (USPTO), 551 U.S Treasury, 544 Uncertainty definition of, 19, 499 in game theory, 442 risk and, 4–5, 477 transaction costs and, 19 Unemployment, 102 Unilever, 424 Unit costs, 259–260 Unitary elasticity of demand, 74 United Airlines, 250, 547 United Kingdom, banking industry in, case study, 300–301 United Nations Conference on Trade and Development (UNCTAD), 515 United States 2007–2009 subprime loan ­financial crisis in, 542–545 automobile imports and Japan, 105–106 banking industry, case study, 301, 304–305 demand for beef, 106–107 demand for corn in, 113 furniture industry in, 111 import quotas and, 106 price controls in, 100–101 regulation of commerce in, 535–537 resource allocation in, 7, 534 United Technologies, 553 Universal Music Group, 112 V Valuation project, in multinational corporation, 521–522 as reason for mergers, 548–550 K / PMS 301 C DESIGN SERVICES OF S4-CARLISLE www.downloadslide.net Index Variable sum games, 439, 456 see also Prisoners’ dilemma Variables capital, 196n endogenous, 155–156 exogenous, 156 labor, 196n types of, in regression analysis, 119 Variation, coefficient of see Coefficient of variation Velocity of money, 544 Verhagen, Véronique, 130n Veritas Software Corporation, 526 Verizon, 112, 250, 547 Vietnam, price discrimination in, 425 Visa, 372 Visual time series projections, 140–141 Vitamin industry, European cartel in, 423 Vogel, Ronald J., 304n Volkswagen, 209 Volume-cost-profit analysis see Break-even analysis Von Neumann, John, 483n Vortsman, Lisa, 511–513 W Wachman, Richard, 526n Wages, price floors on, 101–102 Walden, Gene, 276n, 363n Waldman, Don E., 535n Walker, David A., 298n Wal-Mart cost reduction and, 276 data collection and, 117 price leadership by, 397 Wanamaker, John, 370n Wang, Claire, 130n Warranties, as market signals, 446, 448 Wars, risk of, 493 Washkewicz, Donald, 413 Wealth, redistribution of, 534 Wealth maximization, 29–33, 37, 469 Wearden, Graeme, 424n Weather conditions, as nonprice determinant of supply, 44, 47t Webber, M D., 306n Weighted average cost of capital (WACC), 475, 499 Weir, Tom, 406n Welch, F., 102n Werden, Gregory J., 85n Werdigier, Julia, 379n Westerfield, Randolph W., 469n Westinghouse, 391, 393 What-if analysis, 46 Wheeler-Lea Act (1938), 536 Wheelwright, Steven C., 132n, 133n, 135n Wichern, Dean W., 133n, 135n, 151n Wiesenfelder, Margaret, 303n Wilke, John R., 395n Williamson, Oliver E., 19n Wilson, J Holton, 151n Wine industry break-even analysis example, 355–366 by the glass restaurant example, 61–64 demand analysis of white zinfandel in Los Angeles (case study), 167–174 French, case study, 111 # 109684    Cust: Pearson Addison-Wesley    Au: Keat   Pg No 593 593 Wines, Michael, 101n Wonacott, Peter, 112n Woolley, S., 405n Woolway, Mark D., 205n Working capital, 472 World War II, price controls during, 100n, 101–102 Worrall, John D., 304n X Xerox, 552 Y Yahoo, Inc., 526 Yamagata, Tadashi, 336 Yazaki Corporation, 395 Yeager, Timothy J., 305n Z Zande, Patrick van der, 130n Zara, 207–208 Zardoshty, Farangis, 154n Zavodny, M., 102n Zero sum games, 439, 456 Zhan, Ping, 85n Zhao, Jinhui, 85n Zola, Marika, 302n Zone pricing, 406 z-statistic, 481 K / PMS 301 C DESIGN SERVICES OF S4-CARLISLE www.downloadslide.net This page intentionally left blank www.downloadslide.net APP Excel Apps Available on the Companion Website Ch # App Title Introduction To Excel Demand Worksheet (if multiple worksheets) What is Discussed on this Worksheet Main How to structure a problem in Excel and overview of other worksheets Referencing How to fix a row or column so an equation can be dragged CreatingPatterns Create patterns by beginning them and dragging, or by using equations AboutEquations Rules for creating equations in Excel AboutShortcuts How to rapidly maneuvering about large data sets and basic commonly used Excel shortcuts CreditCards The true cost of paying off a credit card using minimum required payments SingleDemand How to create and modify a graph with a single linear demand curve MultipleDemands Elasticity Constant Elasticity Demand (CED) Geometric Introduction to Univariate Regression Geometric Introduction to Multivariate Regression Multivariate Regression Dummy Variables Integrated Introduction to Regression Nonlinearities Multicollinearity How to create a graph with multiple linear demand curves The relation between elasticity and total revenue given linear demand Demand Graphing a single constant elasticity demand function InverseDemand Comparing CED curves through a point with different elasticities Main Visualizing the regression line, running a regression in Excel, and understanding Excel's regression idiosyncrasies (P,Q) How to fit a data set with a line What is the equation for that line? UnivariateTake1 Simple (univariate) linear regression, what you should initially examine on a regression output Excel'sRegression Areas The three main parts of Excel's regression output and the meaning of R2 VisualizingUnivariate Regression Predicted values versus residuals HowRegressionWorks (Optional) Interactive sheet showing that regression works by choosing coefficients that minimizes the SS residuals Bivariate Model Bivariate regression, how to get independent variables contiguous Visualizing Multivariate Regression Graphic depiction of bivariate regression, geometric meaning of estimate t,SEC,CI& Estimation How to create an estimate, t statistics, SEE, SEC, confidence intervals, and the difference between magnitude and significance AdjustedR2 A bit more about the predictive power of a regression Adjusted R2 versus R2 Sheet 5.1 Excel's raw regression output (from the text, p 520) Table 5.3 Sample data: The Demand for pizza (from the text, p 119) VisualizingDummy Variables Graphic depiction of how to interpret dummy variables MultipleDummies Significance of dummy variables and general rules for creating dummies OmittedVariables Introduction to residual analysis (Multiple Sheets) Integrated workbook providing the four above apps in one file with Index and printable Outline Data Estimating a demand relation when the relation is nonlinear (review of logarithm rules) Linear Estimates and residuals from a linear model given nonlinear data Quadratic Estimates and residuals from a quadratic model given nonlinear data CED Estimating CED function using Log Log form (both Log and Ln versions) Main Data sheet and examination of correlation among dependent variables Regressions 24 regression models (3 8) used to show the effect of multicollinearity CoefficientMaps Graphical depiction of coefficients and 95%CIs in multicollinear models # 109684    Cust: Pearson Addison-Wesley    Au: Keat   Pg No i K / PMS 301 C DESIGN SERVICES OF S4-CARLISLE www.downloadslide.net Ch # App Title Serial Correlation and Durbin Watson (DW) Growth Models Seasonality and Seasonal Indices Demand with Seasonality Worksheet (if multiple worksheets) What is Discussed on this Worksheet Main Understanding serial correlation (also called autocorrelation) and interpreting the DW statistic SampleRegression How to calculate DW in Excel using the Residuals option Mini-Lectures Visualizing SC, Interpreting DW using dL and dU Data Unit sales of merlot in LA (with optional discussion of deseasonalization) LnVersusLog Understanding why the LnQ model is more heuristic than the LogQ model ReadMe Instuctions on how to create seasonal indices using regression Data Data from Table 5.5 p 144 columns & How to create seasonal dummies PrelimRegLn Find the peak season using a preliminary regression RegLn Obtaining seasonal indices from seasonal dummies (with Ln and Log) RegAdditive Additive indices CIwithLogarithms Estimation in pieces and avoiding mistakes in estimating CI with log models (Multiple Sheets) The Appendix 5A white zinfandel in LA data and analysis Interactive graph shows how varying a, b, and c changes Q = aLbKc Cobb Douglas Production Cobb Douglas Production (Regression) Data Data used for estimating CRTS and general CD production models Regressions Regressions for both the general CD estimate reported in Table 6.6 and CRTS CD estimate discussed in footnote 15, p 201 Table 6.6 From p 202 expanded to show CRTS and general CD production functions Figure 6.10 Cubic Production 3D Interactive version of Figure 6.10 p 206 examining the choice among plant sizes Sheet 6C.1 How to set up the calculations needed to find the labor level L where CRTS occurs given capital intensity k in Excel (from the text, p 247) Figure 6C.1 Returns to scale given cubic production (from the text, p 246), plus how it was made 3DGraphs 3D views showing SR production and isoquant maps and overhead view Figure 7.3 Dynamic version of Figure 7.3 p 258 allowing you to vary FC and VC Figure 7.10 Interactive Figure 7.10 p 268 examines discrete versus continuous LAC Figure 7.12 Interactive Figure 7.12 p 270 examines learning curve effects Cobb Douglas Cost Dynamic figures show how costs respond to changes in the production function and input cost Estimating Variable Cost (Regresion) Per-Unit Costs (Appendix 7A) Main Data sheet and background notes regarding estimating VC Quadratic&BadCubic When is a quadratic functional form appropriate and when does a cubic form fail Cubic Estimating cubic cost function using Excel's Constant is Zero option Main Color coded version of Sheet 7A.1 p 293 Equations Color coded version of Sheet 7A.2 p 293 Sheet 7A.1 How to go from a cubic cost equation to graph all per-unit cost curves Sheet 7A.2 Equations for going from a cubic cost equation to graph all per-unit cost curves Breakeven Analysis Sheet 8B.1 Estimating breakeven sales using three increasingly sophistocated breakeven calculations (from the text, p 356) Monopolistic Competition Sheet 9A.1 Monopolistic competition in SR and LR (from the text, p 389) Kinked Demand 12 Present Value Useful for doing the kinked-demand end of chapter problems PresentValue How to present value problems in Excel IRR Using Goal Seek to obtain IRR on any project # 109684    Cust: Pearson Addison-Wesley    Au: Keat   Pg No ii K / PMS 301 C DESIGN SERVICES OF S4-CARLISLE ... Paul G Managerial economics : economic tools for today’s decision makers / Paul G Keat, Philip K.Y Young, Stephen E Erfle 7th ed   p cm ISBN 978-0-13-302026-7   1.  Managerial economics.   I Young, ... intentionally left blank Seventh Edition Managerial Economics Economic Tools for Today’s Decision Makers Paul G Keat Thunderbird School of Global Management Philip K Y Young Nth Degree Systems, Inc and... Internet exercises, activities, and resources related specifically for Managerial Economics: Economic Tools for Today’s Decision Makers A number of other resources are available on the Companion