Managerial economics

The right tools to guide real decisions
When you're climbing a mountain, you have to carefully consider every step if you want to reach your goal. You need to know how your tools will actually perform on the mountain. It also helps to have a trusted guide who knows the way.

The same holds true in today's highly competitive, global business environments. The decisions managers make are more complex and critical than ever before. You need to understand how to use economic analysis techniques to make real business decisions.

When it comes to making real-life decisions based on sound economic analysis, there is no better guide than Samuelson and & Marks's Managerial Economics, 5th Edition. Featuring many detailed, real-world examples, as well as strong coverage of decision making under uncertainty, game theory, and international topics, this practical text equips you with the right tools you need to make smart decisions.

New in the Fifth Edition
* Updated and revised chapters on making decisions under uncertainty (Chapters 8 and 9).
* New discussions of behavioral economics, including such issues as bounded rationality, sunk-cost fallacies, decision-making heuristics and biases, and the winner's curse.
* Updated and expanded coverage of corporate incentives and governance.
* Incorporates new developments in the areas of technological change, network economies, and internet economics.
* Updated applications and revised end-of-chapter problems.

Author Notes

William F. Samuelson is professor of economics and finance at Boston University School of Management. He received his B.A. and Ph.D. from Harvard University. His research interests include game theory, decision theory, bidding, bargaining, and experimental economics. He has published a variety of articles in leading economics and management science journals including The American Economic Review, the Quarterly Journal of Economics, Econometrica, the Journal of Finance, Management Science, and Operations Research. His teaching and research have been sponsored by the National Science Foundation and the National Institute for Dispute resolution, among others. He is currently on the editorial boards of the Journal of Economic Behavior and Organization and Group Decision and Negotiation.

Stephen G. Marks is associate professor of law at Boston University. He received his J.D., M.A., and Ph.D. from the University of California-Berkeley. He has taught in the areas of managerial economics, finance, corporate law, and securities regulation. his research interests include corporate governance, law and economics, finance, and information theory. He has published his research in various law reviews and in such journals as the American Economic Review, The Journal of Legal Studies, and The Journal of Financial and Quantitative Analysis.

Chapter 1 Introduction to Economic Decision Making	p. 1
Eight Examples of Managerial Decisions	p. 2
Six Steps to Decision Making	p. 7
Step 1 Define the Problem	p. 7
Step 2 Determine the Objective	p. 8
Step 3 Explore the Alternatives	p. 10
Step 4 Predict the Consequences	p. 11
Step 5 Make a Choice	p. 13
Step 6 Perform Sensitivity Analysis	p. 14
Private and Public Decisions: An Economic View	p. 15
Public Goals	p. 17
Things to Come	p. 19
The Aim of This Book	p. 21
Section I Decisions within Firms	p. 27
Chapter 2 Optimal Decisions Using Marginal Analysis	p. 29
Siting a Shopping Mall	p. 30
A Simple Model of the Firm	p. 32
A Microchip Manufacturer	p. 33
Marginal Analysis	p. 40
Marginal Analysis and Calculus	p. 42
Marginal Revenue and Marginal Cost	p. 44
Marginal Revenue	p. 46
Marginal Cost	p. 47
Profit Maximization Revisited	p. 47
Sensitivity Analysis	p. 50
Asking What If	p. 50
Appendix to Chapter 2: Calculus and Optimization Techniques	p. 64
Special Appendix to Chapter 2: Optimization Using Spreadsheets	p. 75
Chapter 3 Demand Analysis and Optimal Pricing	p. 79
Determinants of Demand	p. 80
The Demand Function	p. 80
The Demand Curve and Shifting Demand	p. 82
General Determinants of Demand	p. 84
Elasticity of Demand	p. 86
Price Elasticity	p. 86
Other Elasticities	p. 91
Price Elasticity and Prediction	p. 93
Demand Analysis and Optimal Pricing	p. 94
Price Elasticity, Revenue, and Marginal Revenue	p. 94
Maximizing Revenue	p. 97
Optimal Markup Pricing	p. 101
Price Discrimination	p. 104
Information Goods	p. 108
Appendix to Chapter 3: Consumer Preferences and Demands	p. 123
Special Appendix to Chapter 3: Interdependent Demand	p. 131
Chapter 4 Estimating Demand	p. 134
Sources of Information	p. 136
Consumer Interviews and Surveys	p. 136
Controlled Market Studies	p. 141
Uncontrolled Market Data	p. 143
Regression Analysis	p. 144
Ordinary Least-Squares Regression	p. 145
Interpreting Regression Statistics	p. 152
Potential Problems in Regression	p. 158
Choosing a Regression Equation	p. 164
Appendix to Chapter 4: Regression Using Spreadsheets	p. 174
Special Appendix to Chapter 4: Statistical Tables	p. 179
Chapter 5 Forecasting	p. 182
Time-Series Models	p. 183
Decomposing Time Series	p. 183
Fitting a Simple Trend	p. 186
The Effect of Today on Tomorrow	p. 189
Barometric Models	p. 196
Econometric Models	p. 197
A Simple Macromodel	p. 198
Forecasting Accuracy	p. 202
Chapter 6 Production	p. 214
Basic Production Concepts	p. 215
Production Technology	p. 215
Production with One Variable Input	p. 217
Short-Run and Long-Run Production	p. 217
Optimal Use of an Input	p. 221
Production in the Long Run	p. 223
Returns to Scale	p. 224
Least-Cost Production	p. 226
Measuring Production Functions	p. 234
Linear Production	p. 234
Production with Fixed Proportions	p. 235
Polynomial Functions	p. 235
The Cobb-Douglas Function	p. 236
Estimating Production Functions	p. 237
Other Production Decisions	p. 238
Multiple Plants	p. 239
Multiple Products	p. 240
Chapter 7 Cost Analysis	p. 252
Relevant Costs	p. 253
Opportunity Costs and Economic Profits	p. 253
Fixed and Sunk Costs	p. 257
Profit Maximization with Limited Capacity: Ordering a Best-Seller	p. 259
The Cost of Production	p. 261
Short-Run Costs	p. 262
Long-Run Costs	p. 266
Returns to Scale, Scope, and Learning	p. 271
Returns to Scale	p. 271
Economies of Scope	p. 276
The Learning Curve	p. 279
Cost Analysis and Optimal Decisions	p. 282
A Single Product	p. 282
The Shut-Down Rule	p. 284
Multiple Products	p. 286
Appendix to Chapter 7: Transfer Pricing	p. 301
Special Appendix to Chapter 7: Short-Run and Long-Run Costs	p. 305
Chapter 8 Decision Making under Uncertainty	p. 307
Uncertainty, Probability, and Expected Value	p. 308
Expected Value	p. 310
Decision Trees	p. 311
An Oil Drilling Problem	p. 311
Features of the Expected-Value Criterion	p. 314
Sequential Decisions	p. 319
Risk Aversion	p. 325
Expected Utility	p. 328
Expected Utility and Risk Aversion	p. 333
Nonmonetary Examples	p. 336
Chapter 9 The Value of Information	p. 351
The Value of Information	p. 352
The Oil Wildcatter Revisited	p. 352
Imperfect Information	p. 354
Revising Probabilities	p. 357
Bayes' Theorem	p. 358
Other Applications	p. 361
The Science of Baseball	p. 362
Predicting Credit Risks	p. 363
Intuitive Prediction	p. 365
Illustrative Prediction Problems	p. 366
Answers to the Prediction Problems	p. 367
Optimal Search	p. 370
Optimal Stopping	p. 370
Optimal Sequential Decisions	p. 373
The Value of Additional Alternatives	p. 374
Simultaneous Search	p. 374
Appendix to Chapter 9: Sequential Search	p. 391
Section II Competing within Markets	p. 395
Chapter 10 Perfect Competition	p. 397
The Basics of Supply and Demand	p. 399
Competitive Equilibrium	p. 404
Decisions of the Competitive Firm	p. 405
Market Equilibrium	p. 408
Market Efficiency	p. 410
Private Markets: Benefits and Costs	p. 411
International Trade	p. 421
The Efficiency of Free Trade	p. 423
Chapter 11 Monopoly	p. 436
Pure Monopoly	p. 437
Barriers to Entry	p. 441
Perfect Competition Versus Pure Monopoly	p. 444
Cartels	p. 447
Natural Monopolies	p. 451
Monopolistic Competition	p. 455
Chapter 12 Oligopoly	p. 469
Oligopoly	p. 471
Industry Concentration	p. 473
Concentration and Prices	p. 477
Quantity Competition	p. 480
A Dominant Firm	p. 481
Competition among Symmetric Firms	p. 482
Price Competition	p. 485
Price Rigidity and Kinded Demand	p. 485
Price Wars and the Prisoner's Dilemma	p. 487
Other Dimensions of Competition	p. 493
Advertising	p. 493
Strategic Commitments	p. 496
Appendix to Chapter 12: Bundling and Tying	p. 508
Chapter 13 Game Theory and Competitive Strategy	p. 514
Sizing up Competitive Situations	p. 515
Analyzing Payoff Tables	p. 520
Equilibrium Strategies	p. 523
Competitive Strategy	p. 528
Market Entry	p. 530
Bargaining	p. 532
Sequential Competition	p. 533
Repeated Competition	p. 541
Multiple Players and Evolutionary Strategies	p. 545
Appendix to Chapter 13: Mixed Strategies	p. 564
Chapter 14 Regulation, Public Goods, and Benefit-Cost Analysis	p. 570
I Market Failures and Regulation	p. 572
Market Failure Due to Monopoly	p. 573
Government Responses	p. 574
Market Failure Due to Externalities	p. 580
Remedying Externalities	p. 584
Promoting Positive Externalities	p. 590
Market Failure Due to Imperfect Information	p. 594
II Benefit-Cost Analysis and Public Goods Provision	p. 597
Public Goods	p. 598
Public Goods and Efficiency	p. 598
The Basics of Benefit-Cost Analysis	p. 601
Applying the Net Benefit Rule	p. 602
Dollar Values	p. 602
Efficiency versus Equity	p. 603
Evaluating a Public Project	p. 605
Public Investment in a Bridge	p. 605
Valuing Benefits and Costs	p. 608
Market Values	p. 608
Nonmarketed Benefits and Costs	p. 609
Section III Decision-Making Applications	p. 627
Chapter 15 Asymmetric Information and Organizational Design	p. 629
Asymmetric Information	p. 630
Adverse Selection	p. 630
Signaling	p. 633
Principals, Agents, and Moral Hazard	p. 635
Organizational Design	p. 641
The Nature of the Firm	p. 641
The Breadth of the Firm	p. 643
Assigning Decision-Making Responsibilities	p. 644
Monitoring and Rewarding Performance	p. 650
Separation of Ownership and Control in the Modern Corporation	p. 658
Appendix to Chapter 15: A Principal-Agent Model	p. 674
Chapter 16 Bargaining and Negotiation	p. 678
The Economic Sources of Beneficial Agreements	p. 680
Resolving Disputes	p. 683
Differences in Values	p. 685
Contingent Contracts	p. 688
Multiple-Issue Negotiations	p. 689
Continuous Variables	p. 691
Negotiation Strategy	p. 693
Perfect Information	p. 694
Imperfect Information	p. 697
Chapter 17 Auctions and Competitive Bidding	p. 716
The Advantages of Auctions	p. 718
Bidder Strategies	p. 722
English and Dutch Auctions	p. 723
Sealed-Bid Auctions	p. 724
Common Values and the Winner's Curse	p. 732
Optimal Auctions	p. 735
Expected Auction Revenue	p. 735
Competitive Procurement	p. 739
Multi-Object Auctions	p. 741
The Spectrum Auctions	p. 741
Chapter 18 Linear Programming	p. 754
Linear Programs	p. 756
Graphing the LP Problem	p. 758
A Minimization Problem	p. 762
Sensitivity Analysis and Shadow Prices	p. 765
Changes in the Objective Function	p. 766
Shadow Prices	p. 768
Formulation and Computer Solution for Larger LP Problems	p. 773
Computer Solutions	p. 777
Appendix to Chapter 18: The Simplex Method	p. 793
Chapter 19 Capital Budgeting	p. 799
Present Value and Discounting	p. 800
Interest Rate Calculations	p. 801
Valuing Future Cash Flows	p. 802
Discounting and Valuation	p. 807
Making Investment Decisions	p. 809
A Single-Investment Decision	p. 810
Mutually Exclusive Choices	p. 813
Choices with Constrained Resources	p. 815
Determining the Discount Rate	p. 816
The Weighted Average Cost of Capital	p. 816
Appendix to Chapter 19: Present Value Tables	p. 828
Answers to Odd-Numbered Problems	p. 833
Index	p. 871

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Author Notes

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