CHAPTER 1 - INTRODUCTION TO ECONOMIC DECISION MAKING
Opening quote, see page 1.
Decision making is at the heart of most important business and govt. problems.
High-tech company: Undertake a promising but expensive R & D program?
of "utility" derived from a good could be different in different
situations, but according to Menger, the entire basis of value is
different as soon as the economic context changes because the
good would then be compared to other goods. Whatever else one
could perform economic calculation completely disconnected from 135
market prices. It also became conceivable to combine individual utility
functions into something like an aggregate utility function: one
person's satisfaction and another person's satisfa
SUMMARY OF THE MICROCHIP EXAMPLE
Given the Demand Equation, Q = f (P): Q = 8.5 - .05P
Calculate the Inverse Demand Equation:
.05 P = 8.5 - Q
20 (.05 P) = (8.5 - Q ) 20
P = 170 - 20 Q
Solve for, TR, MR and MC
TR = P x Q
TR = (170 - 20Q) Q
TR = 170 Q - 20 Q
CHAPTER 15 - ASYMMETRIC INFORMATION AND ORGANIZATIONAL DESIGN
Opening Case: Incentive Pay at DuPont, where standard pay raises were eliminated and replaced by an
incentive-based bonus system for all managers and employees, based on profit goals for each d
CHAPTER 14 - REGULATION, PUBLIC GOODS, AND BENEFIT-COST ANALYSIS
Opening Case: R&D for a new drug typically costs $200m. Burroughs Wellcome Co. developed
AZT for treatment of AIDS. Initial costs for patients were $5,000-$8,000 per year, making AZT one of
CHAPTER 12 - OLIGOPOLY
Oligopoly: Market or industry dominated by a small number of firms, whose decisions (price, output,
marketing) are interdependent.
Firms in oligopolistic markets face strategic decision-making, and must constantly take into account
CHAPTER 11 - MONOPOLY AND PRICE SEARCHERS
Cartel Case Study: NYC Taxis, p. 436 and 459.
Pure Monopoly: Market with a single (1) seller.
Near Monopoly: Market where a single firm, or several firms, has (have) 90% or more of the
CHAPTER 10 - PERFECT COMPETITION
In previous chapters, we have examined managerial decisions within (inside) the firm without regard to
the firm's external environment or "market structure." For the next 5 chapters, we look at the market
CHAPTER 7 - COST ANALYSIS
Profit maximizing decisions depend on accurate estimates and projections of costs. Examples: What
would be the cost of increasing production by X%, what is the impact on production costs if input costs
increase by X%, what produc
CHAPTER 6 - PRODUCTION
CASE STUDY: Office equipment company uses its salesforce of 18 to find new customers, renew
existing contracts, and capture customers from rivals. Production Issue: How to allocate salesforce
efficiently to maximize/increase total s
CHAPTER 5 - FORECASTING
Case Study: World's largest nickel mining company (30% market share) with nickel mines in Canada
does 10 yr. forecast in 1990 for: world nickel sales, nickel prices, competition and its own market
share, production costs (labor, ex
CHAPTER 4 - ESTIMATING DEMAND
Knowing (estimating) the demand for its product is crucial for a firm. Why?
We have been using demand equations (Qd = 580 - 2P) without indicating exactly where they come
from. In CH 4, we discuss how a firm can Estimate Dema
CHAPTER 3 - DEMAND ANALYSIS AND OPTIMAL PRICING
See opening quote (p. 79): There's no brand loyalty that the offer of a "penny off" can't overcome it.
OPENING CASE: AIRLINE TICKET PRICING, PRICE DISCRIMINATION
On a typical United Airlines flight from Chic
CHAPTER 2 - OPTIMAL DECISIONS USING MARGINAL ANALYSIS
CH 2 is devoted to two important topics that will be the basis for the next 8 chapters:
1. Simple economic model of the private, profit-maximizing firm.
2. Introduction to "Marginal Analysis," importan
( are differently affected by control of the good. While Menger
explained the pricing process as resulting from the importance of a
good relative to the importance of other goods, Gossen, Jevons, and
Walras explained the pricing process as the impact of a