[...]... Key Terms and Concepts 375 Chapter Questions 375 Chapter Exercises 376 Selected Readings 377 10 Market Structure: Duopoly and Oligopoly Characteristics of Duopoly and Oligopoly 380 Measuring Industrial Concentration 382 Models of Duopoly and Oligopoly 385 Game Theory 404 Chapter Review 410 Key Terms and Concepts 411 Chapter Questions 413 Chapter Exercises 414 Selected Readings 417 11 Pricing Practices... Key Terms and Concepts 610 Chapter Questions 612 Chapter Exercises 613 Selected Readings 619 xiv Contents 14 Risk and Uncertainty Risk and Uncertainty 622 Measuring Risk: Mean and Variance 623 Consumer Behavior and Risk Aversion 627 Firm Behavior and Risk Aversion 632 Game Theory and Uncertainty 648 Game Trees 6 51 Decision Making Under Uncertainty with Complete Ignorance 656 Market Uncertainty and Insurance... production technology, and so on WHAT IS MANAGERIAL ECONOMICS? Managerial economics is the application of economic theory and quantitative methods (mathematics and statistics) to the managerial decision-making process Simply stated, managerial economics is applied microeconomics with special emphasis on those topics of greatest interest and importance to managers The role of managerial economics in the decision-making... periods, computation of present values (PV) reveals that, in fact, the second p stream is preferable to the first PV (p1 ) = Â PV (p 2 ) = Â pt (1 + i) t = $10 0 $330 + = $363.64 1. 1 (1. 1) 2 t = $300 $12 1 + = $372.73 1. 1 (1. 1) 2 pt (1 + i) How Realistic is The Assumption of Profit Maximization? 21 HOW REALISTIC IS THE ASSUMPTION OF PROFIT MAXIMIZATION? The assumption of profit maximization has come under repeated... tools and techniques of analysis, including optimization analysis, statistical methods, game theory, and capital budgeting Managerial economics makes special use of mathematical economics and econometrics to derive optimal solutions to managerial decision-making problems Managerial economics attempts to bring economic theory into the real world Consider, for example, the formal (mathematical) demand... MACROECONOMICS VERSUS MICROECONOMICS Scarcity, and the manner in which individuals and society make choices, are fundamental to the study of economics To examine these important 4 Introduction issues, the field of economics is divided into two broad subfields: macroeconomics and microeconomics As the name implies, macroeconomics looks at the big picture Macroeconomics is the study of entire economies and. .. Equation (1. 1) may be specified as QD = b0 + b1P + b2 I + b3 Pr + b4 A (1. 2) It is possible to estimate the parameters of Equation (1. 2) by using the methodology of regression analysis discussed in Green (19 97), Gujarati (19 95), and Ramanathan (19 98) The resulting estimated demand equation, as well as other estimated relationships, may then be used by management to find optimal solutions to managerial. .. MANAGERIAL ECONOMICS Managerial economics has both descriptive and prescriptive elements Managerial economics is descriptive in that it attempts to interpret observed phenomena and to formulate theories about possible cause-andeffect relationships Managerial economics is prescriptive in that it attempts to predict the outcomes of specific management decisions Thus, the principles developed in a course in managerial. .. Chapter Exercises 19 1 Selected Readings 19 4 5 Production The Role of the Firm 19 5 The Production Function 19 7 Short-run Production Function 2 01 Key Relationships: Total, Average, and Marginal Products 202 The Law of Diminishing Marginal Product 205 The Output Elasticity of a Variable Input 207 Relationships Among the Product Functions 208 The Three Stages of Production 211 Isoquants 212 Long-run Production... production function yields 0.5 0.3 0.2 Q = 10 (3.5) (50) (2) = 10 (1. 8 71) (3.233) (1. 149) = 69.502 million gallons At last year’s input levels, AFW produced 69.502 million gallons of the new soft drink b The cost to AFW of purchasing 2,000 acres of land is $400,000 ($200 ¥ 2,000), the cost of 5,000 machine hours of capital is $500,000 ( $10 0 ¥ 5,000), which leaves $1, 100,000 available to purchase man-hours . Demand and Supply The Law of Demand 10 0 The Market Demand Curve 10 2 viii Contents Other Determinants of Market Demand 10 6 The Market Demand Equation 11 0 Market Demand Versus Firm Demand 11 2 The. of Demand and Total Revenue 17 4 Using Elasticities in Managerial Decision Making 18 1 Chapter Review 18 6 Key Terms and Concepts 18 8 Chapter Questions 19 0 Contents ix Chapter Exercises 19 1 Selected. Law of Supply 11 3 Determinants of Market Supply 11 4 The Market Mechanism: The Interaction of Demand and Supply 11 8 Changes in Supply and Demand: The Analysis of Price Determination 12 3 The Rationing