DOCSLIB.ORG

Managerial Economics Theory and Practice.Pdf

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Managerial Economics Theory and Practice.Pdf Managerial Economics Theory and Practice ThisPageIntentionallyLeftBlank Managerial Economics Theory and Practice Thomas J. Webster Lubin School of Business Pace University New York, NY Amsterdam Boston Heidelberg London New York Oxford Paris San Diego San Francisco Singapore Sydney Tokyo This book is printed on acid-free paper. Copyright © 2003, Elsevier (USA). All Rights Reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopy, recording, or any information storage and retrieval system, without permission in writing from the publisher. Permissions may be sought directly from Elsevier’s Science & Technology Rights Department in Oxford, UK: phone: (+44) 1865 843830, fax: (+44) 1865 853333, e-mail: [email protected]. You may also complete your request on-line via the Elsevier Science homepage (http://elsevier.com), by selecting “Customer Support” and then “Obtaining Permissions.” Academic Press An imprint of Elsevier Science 525 B Street, Suite 1900, San Diego, California 92101-4495, USA http://www.academicpress.com Academic Press 84 Theobald’s Road, London WC1X 8RR, UK http://www.academicpress.com Library of Congress Catalog Card Number: 2003102999 International Standard Book Number: 0-12-740852-5 PRINTED IN THE UNITED STATES OF AMERICA 03040506077654321 To my sons, Adam Thomas and Andrew Nicholas ThisPageIntentionallyLeftBlank Contents 1 Introduction What is Economics 1 Opportunity Cost 3 Macroeconomics Versus Microeconomics 3 What is Managerial Economics 4 Theories and Models 5 Descriptive Versus Prescriptive Managerial Economics 8 Quantitive Methods 8 Three Basic Economic Questions 9 Characteristics of Pure Capitalism 11 The Role of Government in Market Economies 13 The Role of Profit 16 Theory of the Firm 18 How Realistic is the Assumption of Profit Maximization? 21 Owner-Manager/Principle-Agent Problem 23 Manager-Worker/Principle-Agent Problem 25 Constraints on the Operations of the Firm 27 Accounting Profit Versus Economic Profit 27 Normal Profit 30 Variations in Profits Across Industries and Firms 31 Chapter Review 33 Key Terms and Concepts 35 Chapter Questions 37 vii viii Contents Chapter Exercises 39 Selected Readings 41 2 Introduction to Mathematical Economics Functional Relationships and Economic Models 44 Methods of Expressing Economic and Business Relationships 45 The Slope of a Linear Function 47 An Application of Linear Functions to Economics 48 Inverse Functions 50 Rules of Exponents 52 Graphs of Nonlinear Functions of One Independent Variable 53 Sum of a Geometric Progression 56 Sum of an Infinite Geometric Progression 58 Economic Optimization 60 Derivative of a Function 62 Rules of Differentiation 63 Implicit Differentiation 71 Total, Average, and Marginal Relationships 72 Profit Maximization: The First-order Condition 76 Profit Maximization: The Second-order Condition 78 Partial Derivatives and Multivariate Optimization: The First-order Condition 81 Partial Derivatives and Multivariate Optimization: The Second-order Condition 82 Constrained Optimization 84 Solution Methods to Constrained Optimization Problems 85 Integration 88 Chapter Review 92 Chapter Questions 94 Chapter Exercises 94 Selected Readings 97 3 The Essentials of Demand and Supply The Law of Demand 100 The Market Demand Curve 102 Contents ix Other Determinants of Market Demand 106 The Market Demand Equation 110 Market Demand Versus Firm Demand 112 The Law of Supply 113 Determinants of Market Supply 114 The Market Mechanism: The Interaction of Demand and Supply 118 Changes in Supply and Demand: The Analysis of Price Determination 123 The Rationing Function of Prices 129 Price Ceilings 130 Price Floors 134 The Allocating Function of Prices 136 Chapter Review 137 Key Terms and Concepts 138 Chapter Questions 140 Chapter Exercises 142 Selected Readings 144 Appendix 3A 145 4 Additional Topics in Demand Theory Price Elasticity of Demand 149 Price Elasticity of Demand: The Midpoint Formula 152 Price Elasticity of Demand: Weakness of the Midpoint Formula 155 Refinement of the Price Elasticity of Demand Formula: Point-price Elasticity of Demand 157 Relationship Between Arc-price and Point-price Elasticities of Demand 160 Price Elasticity of Demand: Some Definitions 160 Point-price Elasticity Versus Arc-price Elasticity 162 Individual and Market Price Elasticities of Demand 164 Determinants of the Price Elasticity of Demand 165 Price Elasticity of Demand, Total Revenue, and Marginal Revenue 168 Formal Relationship Between the Price Elasticity of Demand and Total Revenue 174 Using Elasticities in Managerial Decision Making 181 Chapter Review 186 Key Terms and Concepts 188 Chapter Questions 190 x Contents Chapter Exercises 191 Selected Readings 194 5 Production The Role of the Firm 195 The Production Function 197 Short-run Production Function 201 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 Function 218 Estimating Production Functions 222 Chapter Review 225 Key Terms and Concepts 226 Chapter Questions 229 Chapter Exercises 231 Selected Readings 232 6 Cost The Relationship Between Production and Cost 235 Short-run Cost 236 Key Relationships: Average Total Cost, Average Fixed Cost, Average Variable Cost, and Marginal Cost 238 The Functional Form of the Total Cost Function 241 Mathematical Relationship Between ATC and MC 243 Learning Curve Effect 247 Long-run Cost 250 Economies of Scale 251 Reasons for Economies and Diseconomies of Scale 255 Multiproduct Cost Functions 256 Chapter Review 259 Contents xi Key Terms and Concepts 260 Chapter Questions 262 Chapter Exercises 263 Selected Readings 264 7 Profit and Revenue Maximization Profit Maximization 266 Optimal Input Combination 266 Unconstrained Optimization: The Profit Function 279 Constrained Optimization: The Profit Function 295 Total Revenue Maximization 299 Chapter Review 302 Key Terms and Concepts 303 Chapter Questions 305 Chapter Exercises 305 Selected Readings 309 Appendix 7A 309 8 Market Structure: Perfect Competition and Monopoly Characteristics of Market Structure 313 Perfect Competition 316 The Equilibrium Price 317 Monopoly 331 Monopoly and the Price Elasticity of Demand 337 Evaluating Perfect Competition and Monopoly 340 Welfare Effects of Monopoly 342 Natural Monopoly 348 Collusion 350 Chapter Review 350 Key Terms and Concepts 351 Chapter Questions 353 Chapter Exercises 355 xii Contents Selected Readings 358 Appendix 8A 358 9 Market Structure: Monopolistic Competition Characteristics of Monopolistic Competition 362 Short-run Monopolistically Competitive Equilibrium 363 Long-run Monopolistically Competitive Equilibrium 364 Advertising in Monopolistically Competitive Industries 371 Evaluating Monopolistic Competition 372 Chapter Review 373 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 Price Discrimination 419 Nonmarginal Pricing 443 Multiproduct Pricing 449 Contents xiii Peak-load Pricing 460 Transfer Pricing 462 Other Pricing Practices 470 Chapter Review 474 Key Terms and Concepts 476 Chapter Questions 479 Chapter Exercises 480 Selected Readings 482 12 Capital Budgeting Categories of Capital Budgeting Projects 486 Time Value of Money 488 Cash Flows 488 Methods for Evaluating Capital Investment Projects 506 Capital Rationing 537 The Cost of Capital 538 Chapter Review 541 Key Terms and Concepts 542 Chapter Questions 544 Chapter Exercises 546 Selected Readings 549 13 Introduction to Game Theory Games and Strategic Behavior 552 Noncooperative, Simultaneous-move, One-shot Games 554 Cooperative, Simultaneous-move, Infinitely Repeated Games 568 Cooperative, Simultaneous-move, Finitely Repeated Games 580 Focal-point Equilibrium 586 Multistage Games 589 Bargaining 601 Chapter Review 608 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 651 Decision Making Under Uncertainty with Complete Ignorance 656 Market Uncertainty and Insurance 664 Chapter Review 677 Key Terms and Concepts 679 Chapter Questions 681 Chapter Exercises 682 Selected Readings 685 15 Market Failure and Government Intervention Market Power 688 Landmark U.S. Antitrust Legislation 690 Merger Regulation 695 Price Regulation 695 Externalities 701 Public Goods 715 Chapter Review 722 Key Terms and Concepts 723 Chapter Questions 724 Chapter Exercises 726 Selected Readings 727 Index 729 1 Introduction WHAT IS ECONOMICS? Economics is the study of how individuals and societies make choices subject to constraints. The need to make choices arises from scarcity. From the perspective of society as a whole, scarcity refers to the limitations placed on the production of goods and services because factors of production are finite. From the perspective of the individual, scarcity refers to the limita- tions on the consumption of goods and services
Load more

Recommended publications
  • A Reconsideration of Full-Cost Pricing
    A Reconsideration of Full-Cost Pricing Methodological Aspects of Marginalism and Theoretical Explanations of Pricing Behaviour Inaugural-Dissertation zur Erlangung des Grades Doctor oeconomiae publicae (Dr. oec. publ.) an der Ludwig-Maximilians-Universität München 2010 vorgelegt von Elmar Nubbemeyer Referent: Ekkehart Schlicht Korreferent: Kenneth Coutts Datum der mündlichen Prüfung: 8. November 2010 Promotionsabschlussberatung: 17. November 2010 Acknowledgements This thesis was written in the years 2007-2010 during my time as a research and teaching assistant at the Seminar für Theorie und Politik der Einkom- mensverteilung at the Ludwig-Maximilians-Universität München and my stay at the University of Cambridge, UK. First and foremost, I would like to thank my supervisor Ekkehart Schlicht. His trust, universal support and strong interest in my research ideas were cru- cial for the success of this project. He always took time for my requests, in- spired me with countless suggestions and was a great mentor in matters both academic and not. Furthermore, I thank Ken Coutts, who invited me to a re- search visit at the University of Cambridge, UK and later agreed to act as my secondary supervisor. I am very grateful for his generous hospitality and his interest in my work. I also want to thank Florian Englmaier, who kindly agreed to act as my third examiner. Many friends and co-workers supported me in the course of this work. My dear colleagues and friends Roberto Cruccolini and Christoph Stoeckle helped me in many ways and contributed to a great working atmosphere. Maria Mor- genroth took care of all administrative tasks and often provided good advice.
    [Show full text]
  • Chapter # 2 the Essenceof Economics
    LIGHTHOUSE CPA SOCIAL SCIENCES DEPARTMENT AP ECONOMICS STUDY GUIDE # 2 - THE ESSENCE OF ECONOMICS - THE ART OF DECISION MAKING CHAPTER LEARNING OBJECTIVES 1. STUDENTS WILL BE ABLE TO EXPLAIN THE FIRST LAW OF ECONOMICS AND LIFE 2. STUDENTS WILL BE ABLE TO EXPLAIN THE CONCEPT OF OPPORTUNITY COSTS AND ILLUSTRATE AN EXAMPLE 3. IN ECONOMIC TERMS , STUDENTS WILL BE ABLE TO EXPLAIN THE CONCEPT OF “ THINKING AT THE MARGIN ” AND ILLUSTRATE AN EXAMPLE OF USING MARGINAL ANALYSIS 4. STUDENTS WILL BE ABLE TO IDENTIFY THE 3 BASIC FOCAL POINTS OF A COST BENEFIT ANALYSIS 5. STUDENTS WILL BE ABLE TO EXPLAIN AND ILLUSTRATE THE FOLLOWING LAWS AND PRINCIPLES : 1. MARGINAL PRODUCT OF LABOR NEEDS & WANTS 2. INCREASING MARGINAL RETURNS 3. DIMINISHING MARGINAL RETURNS 4. NEGATIVE MARGINAL RETURNS 5. DIVISION OF LABOR 6. SPECIALIZATION 7. HOW PROFIT IS DETERMINED ____________________________________________________________________________ DECISION MAKING STEP # 1 > WE NEED TO UNDERSTAND THE HIGHLY VALUED , AND SECRET FIRST LAW OF ECONOMICS AND LIFE : WHAT DOES THE WORD “ FREE ” MEAN ? ARE THERE ANY “ FREE ” GOODS ? WHAT IS THE FIRST LAW OF ECONOMICS AND LIFE ? WHAT ARE THE FOUR REASONS WHY YOU WANT TO HAVE A BETTER UNDERSTANDING ABOUT HOW TO MAKE DECISIONS ? 1. 2. 3. 4. DECISION MAKING STEP # 2 > WE NEED TO UNDERSTAND HOW TO EFFECTIVELY HANDLE “ TRADE OFFS ” : NEED WANT VALUE / COST 1 2 3 4 WHAT IS “ OPPORTUNITY COST ” ? EXAMPLE # 1 > ILLUSTRATES OPPORTUNITY COSTS > PENNY PICKUP PICKED UP NOT PICKED UP EXAMPLES # 2 AND 3 > ILLUSTRATES OPPORTUNITY COSTS > BODY
    [Show full text]
  • Management Managerial Economics Demand Estimation and Forecasting
    Paper: 11, Managerial Economics Module: 10, Demand Estimation and Forecasting Prof. S P Bansal Principal Investigator Vice Chancellor Maharaja Agrasen University, Baddi Prof. Yoginder Verma Co-Principal Investigator Pro–Vice Chancellor Central University of Himachal Pradesh. Kangra. H.P. Prof. S K Garg Paper Coordinator Former Dean & Director, H.P. University, Shimla (H.P.) Mohinder Singh Content Writer Assistant Professor, Dept. of Accounting and Finance, SBMS Central University of Himachal Pradesh. Kangra. H.P. 1 Managerial Economics Management Demand Estimation and Forecasting Items Description of Module Subject Name Management Paper Name Managerial Economics Module Title Demand Estimation and Forecasting Module Id Module No.-10 Pre- Requisites Basic understanding of Demands, Demand Function, Business Statistics Objectives To enable learners to understand concept of meaning, significance, level and process of Demand Estimation and Forecasting. Various methods that can be adopted in forecasting the most likely future demand of a product or service. Keywords Demand Estimation, Demand Forecasting, Trend Projection, Sample Survey, Collective Opinion and Delphi Method 2 Managerial Economics Management Demand Estimation and Forecasting QUADRANT-I Module 10: Demand Estimation and Demand Forecasting 1. Learning Outcome 2. Demand Estimation and Demand Forecasting 3. Features of Demand Forecasting 4. Why Demand Forecasting 5. Demand Forecasting Process 6. Determinants of Demand Forecasting 7. Methods of Demand Forecasting 8. Summary 1. Learning Outcome: After completing this module the learner will be able to: Understand the various concepts of Demand Estimation and Demand Forecasting. Various methods that can be used for Estimation and Forecasting of Demand of a product. 3 Managerial Economics Management Demand Estimation and Forecasting 1.0 Introduction Estimating the future demand for products, either existing or new is a significant aspect of demand analysis.
    [Show full text]
  • Masters of Business Admin (MBA) 1
    Masters Of Business Admin (MBA) 1 MASTERS OF BUSINESS ADMIN (MBA) MBA 603 Business in the Global Environment (3 credits) Discusses the interrelationships of the various functions of the business enterprise in different environmental settings. Contextual analysis focuses on: global economic institutions, systems and mechanisms, business government relations and cultural diversity. The course also addresses such issues as ethics, social responsibility and the physical environment from a regulatory, as well as a corporate governance perspective. MBA 614 Business and Its Environment (3 credits) MBA 616 International Business Operations (3 credits) MBA 617 Quantitive Analysis for Business Decisions (3 credits) MBA 618 Operations and Quality Management (3 credits) Provides an understanding of the management and planning of service and manufacturing operations and their roles in organizations. The operations function comprises all of the diverse activities involved in the delivery of services and the production of goods. The major theme of the course is the vital role that process quality and product quality play in determining a company's global competitiveness. Total Quality Management (TQM) is a major factor in determining the competitiveness and survivability of an organization. Other topics essential to the effective management of operations are: forecasting, technology management, capacity planning and materials management. The computer will be used throughout the course to facilitate analysis. MBA 626 Business Economics (4 credits) Introduces the principles of microeconomics and macroeconomics. Provides the tools and quantitative techniques to understand and analyze the pricing and production decisions by managers of individual firms as well as current economic policy issues on the national and international level.
    [Show full text]
  • Managerial Economics and the Effectiveness of Quantitative Analysis for Profit Maximizing Companies in Africa
    PROCEEDINGS OF THE 10th INTERNATIONAL MANAGEMENT CONFERENCE "Challenges of Modern Management", November 3rd-4th, 2016, BUCHAREST, ROMANIA MANAGERIAL ECONOMICS AND THE EFFECTIVENESS OF QUANTITATIVE ANALYSIS FOR PROFIT MAXIMIZING COMPANIES IN AFRICA Emmanuel Innocents EDOUN1 Charles MBOHWA2 ABSTRACT Quantitative analysis uses mathematical and statistical tools to quantify information for effective managerial decision-making. Past experiences have shown that, lack of planning and appropriate managerial skills are some of the reasons why companies struggle to remain competitive in the market. This study is based on the premise that, quantitative analysis strongly assists senior- managers in making decisions that contribute to the growth of the company. Numerous studies have used quantitative analysis to predict productivity, maximize profit culminating to managerial decision-making. Profit maximizing companies have relied on the effectiveness of quantitative analysis methods to plan for future activities. These companies are able to collect monthly data on their production costs. They are also in a position of keeping track of their production and make comparative analysis that will guide them in making the necessary changes depending on the problems identified. Using the Cobb Douglas production function, this study was able to review this theory and analyze data from various plants generated by the regression equation. Which is why, this paper has strongly argued that, the implication of quantitative approach is useful in managerial decision-making. KEYWORDS: Decision-making, growth, quantitative analysis, profit-maximizing, Cobb Douglas production function JEL CLASSIFICATION: C69, M21 1. INTRODUCTION Managerial economics is an areas of economic that deals with managerial decision-making process which forms part of the broader strategy used by top management in planning for future activities.
    [Show full text]
  • Econ272 Foundations of Economic Analysis Text: an Economic Way of Thinking
    Econ272 Foundations of Economic Analysis Text: An Economic Way of Thinking 4th Edition Table of Contents Chapter 1: An Economic Way of Thinking ........................................................................................................ 7 Economists and Normal People ...................................................................................................................... 7 Some Keys to Understanding the Way Economists Think ............................................................................. 7 The Basic Economic Problem Scarcity, Choice and Cost .............................................................................. 9 Alternative Approaches to the Basic Economic Problem ............................................................................. 11 Economic Systems and the Basic Economic Problem .................................................................................. 12 The Science of Economics: Observation, Theory and Models ..................................................................... 16 A Model of an Economy: The Production Possibility Frontier I .................................................................. 18 A Model of a College Student’s Basic Economic Problem: The Production Possibility Frontier II ............ 21 Saving, Capital and Growth: The Production Possibility Frontier III .......................................................... 22 The Circular Flow Economic Model ...........................................................................................................
    [Show full text]
  • Unit 1 Scope of Managerial Economics
    This course material is designed and developed by Indira Gandhi National Open University (IGNOU), New Delhi. OSOU has been permitted to use the material. Master Of Commerce (MCOM) MCO-11 Managerial Economics Block-1 Introduction to Managerial Economics Unit-1 Scope of Managerial Economics Unit-2 Firm: Stakeholders, Objectives & Decision Issues Unit-3 Basic Techniques of Managerial Economics Introduction to UNIT 1 SCOPE OF MANAGERIAL Microbes ECONOMICS Objectives After studying this unit, you should be able to: understand the nature and scope of managerial economics; familiarize yourself with economic terminology; develop some insight into economic issues; acquire some information about economic institutions; understand the concept of trade-offs or policy options facing society today. Structure 1.1 Introduction 1.2 Fundamental Nature of Managerial Economics 1.3 Scope of Managerial Economics 1.4 Appropriate Definitions 1.5 Managerial Economics and other Disciplines 1.6 Economic Analysis 1.7 Basic Characteristics: Decision-Making 1.8 Summary 1.9 Self-Assessment Questions 1.10 Further Readings 1.1 INTRODUCTION For most purposes economics can be divided into two broad categories, microeconomics and macroeconomics. Macroeconomics as the name suggests is the study of the overall economy and its aggregates such as Gross National Product, Inflation, Unemployment, Exports, Imports, Taxation Policy etc. Macroeconomics addresses questions about changes in investment, government spending, employment, prices, exchange rate of the rupee and so on. Importantly, only aggregate levels of these variables are considered in the study of macroeconomics. But hidden in the aggregate data are changes in output of a number of individual firms, the consumption decision of consumers like you, and the changes in the prices of particular goods and services.
    [Show full text]
  • Managerial Economics and Strategy EC: 15 30 July 2017 the Effect Of
    Managerial Economics and Strategy EC: 15 30 July 2017 The Effect of Leadership Style on Team Performance Wen Gai 11085711 University of Amsterdam 1 ABSTRACT This study aspires to extend the systematic research on the effect of leadership style on team performance through unconventional source – reality TV show. The candidates, before putting into diversified challenges, have been strictly screened to make sure they have an above-average level of business knowledge. Interested in how leadership style, as a key branch of leadership, acts on the probability of winning the task, this research investigates the connection between authoritarian, democratic and laissez-faire leadership and winning, by controlling for other factors such as leadership experience, individual capability, and sex difference. The results from the statistical analysis provided no solid evidence for a direct linkage between leadership style and team performance, but showed significant correlation between task success and experience and ability of project managers, and proved certain leadership style more effective under specific type of task. I. INTRODUCTION As failure of efficiency maximization of resources has been a primary potential cause of sales decline or even bankruptcy of companies, increasing attention has been given to managerial supervision that takes either responsibility of bad judgments or credit for uniting the monetary and human resources through coherent strategies. Even fairly equal economy entities vary in the rate of economic growth under different presidency. Similarly, a team may get varying results for homogeneous tasks with different project managers, as there are many ways to approach the art of leadership. What brings different outcomes, given all project managers in the observation group reach an average level of business knowledge, is the style of leadership he/she follows in the interaction with people, planning and decision-making process.
    [Show full text]
  • Water Utility Management International • September 2014 News Contents
    SEPTEMBER 2014 I water VOLUME 9 ISSUE 3 utility management INTER N ATIONAL COMMUNICATIONS ENERGY EFFICIENCY Saving energy and cutting water treatment costs on the US-Mexico border TARIFFS CUSTOMER SERVICES Incorporating marginal costs in water supply tariffs: prospects for change Improving utility customer services: the case of Eau de Paris PLUS ... A new data paradigm for water management NEWS Research finds common coagulant could corrode sewers research team at the University of that take up the hydrogen sulphide and effect for sewers downstream. AQueensland has discovered that a oxidise it to form sulphuric acid. The researchers undertook a two-year common coagulant used in drinking water The team, led by Professor Zhiguo sampling programme in South East treatment can be a prime contributor to Yuan, concluded that to reduce sulphide Queensland, conducted an industry survey global sewer corrosion. formation, it was necessary to reduce either across the country, and undertook a global Aluminium sulphate (alum) is widely the sulphate or the organics in wastewater, literature review and a comprehensive used as a coagulant as it is relatively the latter not being a viable option. They model-based scenario analysis of the cheap and widely available. The paper, recommended that utilities move to sul - various possible sources of sulphate to published in the journal Science, reveals phate-free coagulants, in order to reduce reach its conclusions. that the coagulant is the main source concrete corrosion by 35% after just ten The team also recommends a of over 50% of the sulphate found in hours and up to 60% over a longer period more fully integrated approach to wastewater, which in turn is indirectly of time, generating potentially large savings urban water management to identify the primary source of hydrogen sulphide.
    [Show full text]
  • Downloaded from Elgar Online at 09/25/2021 01:07:14PM Via Free Access
    1. Decision rules William K. Bellinger ABSTRACT Benefit-cost analysis is the cornerstone of the economic analysis of public policy, and is closely aligned with basic rational choice and market concepts from microeconomics. Information and other constraints often block the direct application of marginal decision rules for policy decisions, but the conceptual role of marginalism can still be useful in interpreting benefit-cost analysis. While all policy analysis texts that emphasize the economic dimensions of policy cover the basics of marginal analysis, the sources of market inefficiency, and basic decision rules for policy analysis, the connections between marginal and non-marginal policy decision rules are seldom emphasized. This chapter limits its discussion of marginal analysis to the concepts of optimal quantity and optimal allocation rather than the market-based concepts of surplus, equilibrium and elasticity which are discussed in later chapters. This chapter begins by reviewing marginal and non-marginal concepts and measures for policy decisions, and then discusses a set of basic decision rules that can be informed by these concepts. Student exercises are included and answered in the appendix to the chapter. MARGINAL AND NON-MARGINAL FUNDAMENTALS There are two marginal concepts that inform common policy decision rules. The first defines the optimal quantity of any activity as the point where marginal benefits equal marginal costs, given that net benefits are decreasing in the neighborhood of the equality. If these conditions apply, one should continue to invest in a project as long as the marginal benefits of the project are greater than its marginal costs, and should choose one’s scale for the project where the marginal benefits and marginal costs are equal.
    [Show full text]
  • The Correspondence Between Baumol and Galbraith (1957–1958) an Unsuspected Source of Managerial Theories of the Firm
    The correspondence between Baumol and Galbraith (1957–1958) An unsuspected source of managerial theories of the firm. Alexandre Chirat To cite this version: Alexandre Chirat. The correspondence between Baumol and Galbraith (1957–1958) An unsuspected source of managerial theories of the firm.. 2020. halshs-02981270 HAL Id: halshs-02981270 https://halshs.archives-ouvertes.fr/halshs-02981270 Preprint submitted on 27 Oct 2020 HAL is a multi-disciplinary open access L’archive ouverte pluridisciplinaire HAL, est archive for the deposit and dissemination of sci- destinée au dépôt et à la diffusion de documents entific research documents, whether they are pub- scientifiques de niveau recherche, publiés ou non, lished or not. The documents may come from émanant des établissements d’enseignement et de teaching and research institutions in France or recherche français ou étrangers, des laboratoires abroad, or from public or private research centers. publics ou privés. T he correspondence between Baumol and Galbraith (1957-1958) An unsuspected source of managerial theories of the firm Alexandre Chirat October 2020 Working paper No. 2020 – 07 30, avenue de l’Observatoire 25009 Besançon France http://crese.univ-fcomte.fr/ CRESE The views expressed are those of the authors and do not necessarily reflect those of CRESE. Alexandre Chirat First Draft (do not quote) 20 Octobre 2020 The correspondence between Baumol and Galbraith (1957–1958) An unsuspected source of managerial theories of the firm. Abstract: Baumol’s impact on the development of managerial theories of the firm is investigated here through material found in Galbraith’s archives. In 1957 Galbraith published a paper claiming that the impact of macroeconomic policies varies with market structures (competitive versus oligopolistic).
    [Show full text]
  • MANAGERIAL ECONOMICS UNIT-2 DEMAND ANALYSIS Meaning Of
    MANAGERIAL ECONOMICS UNIT-2 DEMAND ANALYSIS Meaning of Demand Analysis: Ordinarily, by demand is meant the desire or want for something. In economics, however demand means much more than that, it is effective demand i.e. the amount buyers are willing to purchase at a given price and over a given period of time. From managerial economics point of view, thus, the demand may be looked upon as follows: - Demand is the desire or want backed up by money. Demand means effective desire or want for a commodity, which is backed up by the ability (i.e. money or purchasing power) and willingness to pay for it. The demand does not mean simply the desire or even need for a commodity obviously, a buyer’s wish for the product without possessing money to buy it or unwillingness to pay a given price for it will not constitute a demand for it for example a beggar’s wish for a Bike will not constitute its potential demand, as he has no ability to pay for it. In short Demand = Desire + Ability to pay + Willingness to spend Demand Estimation and Demand Forecasting In Demand estimating manager attempts to quantify the links or relationship between the level of demand and the variables which are determinants to it and is generally used in designing pricing strategy of the firm. In demand estimation manager analyse the impact of future change in price on the quantity demanded. Firm can charge a price that the market will ready to wear to sell its product. Over estimation of demand may lead to an excessive price and lost sales whereas under estimates may lead to setting of low price resulting in reduced profits.
    [Show full text]