BSZ_IM_Ch04_4e - Managerial Economics and Organizational...

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Managerial Economics and Organizational Architecture Instructor’s Manual Part 1: Chapter Overview and Solutions Chapter 4: Page 1 CHAPTER 4 D EMAND This chapter builds on a brief introduction in the previous chapter by providing a more detailed analysis of product demand. The chapter covers demand functions and demand curves. It introduces elasticities and the properties of linear demand curves. The relation between total revenue and price is examined. The chapter also provides a brief introduction to network effects, the product-attribute model, product life cycles, and demand estimation. An appendix covers point elasticities, marginal revenue for linear demand curves, and log-linear demand curves. C HAPTER O UTLINE D EMAND F UNCTIONS D EMAND C URVES Law of Demand Elasticity of Demand Linear Demand Curves O THER F ACTORS THAT I NFLUENCE D EMAND Prices of Related Products Income Other Variables I NDUSTRY VERSUS F IRM D EMAND N ETWORK E FFECTS P RODUCT A TTRIBUTES P RODUCT L IFE C YCLES D EMAND E STIMATION Interviews Price Experimentation Statistical Analysis Implications S UMMARY C ASE S TUDY : P ERSONAL V IDEO R ECORDERS A PPENDIX : D EMAND T EACHING THE C HAPTER This chapter presents core material that should be covered in detail in an introductory managerial economics course. We do not assign this chapter in our organizations class since our students have already taken a course in managerial
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Managerial Economics and Organizational Architecture Instructor’s Manual Part 1: Chapter Overview and Solutions Chapter 4: Page 2 economics. Our students, however, are responsible for knowing the basic concepts in the chapter. For example, we rely on the properties of linear demand curves in chapters 17 (transfer pricing) and 19 (vertical integration and outsourcing). When we teach a basic economics course, we devote two class periods to this chapter. We use the PTC example in the book as the focal point for discussion. We introduce demand functions and demand curves. We calculate price elasticities and analyze the relation between elasticities and revenue. We work through the properties of linear demand curves. We discuss other factors that influence demand, and introduce other types of elasticities. We briefly discuss the remaining topics in the chapter. It is usually a good idea to assign and review problems. Students should have a fairly good understanding of demand, elasticities, and linear demand curves for subsequent material. C ASE S TUDY P ERSONAL V IDEO R ECORDERS (PVR S ) Personal video recorders (PVRs) are digital video recorders used to record and replay television programs received from cable, satellite, or local broadcasts. But unlike VCRs, which they replace, PVRs offer many more functions, notably the ability to record up to 80 hours of programs and easy programming. A PVR consists of an internal hard disk and micro processor. After the owner installs the hardware, the PVR downloads all upcoming TV schedules to the hardware via a phone or cable connection. Users merely
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This note was uploaded on 04/27/2010 for the course FIN 320f taught by Professor Toprac during the Spring '08 term at University of Texas at Austin.

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BSZ_IM_Ch04_4e - Managerial Economics and Organizational...

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