Microeconomics for MBAs

Table Of Contents:
Preface xvii

List of abbreviations and acnonyms xxv

Microeconomics: a way of thinking about business 1(47)

Part I Theory and public policy applications 4(28)

The emergence of a market 4(2)

The economic problem 6(3)

The scope of economics 9(1)

Developing and using economic theories 10(2)

Microeconomics and macroeconomics 12(3)

Private property rights and the Prisoner's Dilemma game 15(8)

Communal property rights 23(5)

Perspective: The Tragedy of the Anticommons 28(4)

Part II Organizational economics and management 32(16)

How incentives count in business 32(1)

Tying pay to performance 32(4)

The role of incentives in firm successes and failures 36(1)

Why incentives are important 37(4)

The bottom line 41(1)

Review questions 42(1)

Appendix: ``I, Pencil'' 42(6)

Competitive product markets and firm decisions 48(51)

Part I Theory and public policy applications 49(29)

The competitive market process 49(2)

Supply and demand: a market model 51(1)

The elements of demand 52(5)

The elements of supply 57(3)

Market equilibrium 60(3)

Price ceilings and price floors 63(2)

The efficiency of the competitive market model 65(2)

Nonprice competition 67(3)

Competition in the short run and the long run 70(2)

Shortcomings of competitive markets 72(2)

Perspective: Why Queues? 74(4)

Part II Organizational economics and management 78(21)

Overpaying and underpaying workers 78(1)

Henry Ford's ``overpayment'' 78(5)

Overpayments to prevent misuse of firm resources 83(1)

When workers should not accept overpayments 84(1)

The overpayment/underpayment connection 85(1)

Mandatory retirement 86(3)

The role of employers' ``credible commitments'' 89(2)

Breaking commitments 91(4)

The abolition of mandatory retirement 95(1)

The bottom line 96(1)

Review questions 97(2)

Principles of rational behavior in society and business 99(35)

Part I Theory and public policy applications 99(20)

Rationality: a basis for exploring human behavior 99(1)

The acting individual 100(1)

Rational behavior 100(1)

Rational decisions in a constrained environment 101(5)

The effects of time and risk on costs and benefits 106(2)

What rational behavior does not mean 108(1)

Disincentives in poverty relief 109(2)

Perspective: Maslow's Hierarchy of Needs and Demand 111(8)

Part II Organizational economics and management 119(15)

The last-period problem 119(1)

Problems with the end of contracts 120(1)

Solutions to the last-period problem 121(7)

The keiretsu as a solution to the last-period problem 128(2)

The role of markets in solving last-period problems 130(1)

Problems as a source of profits 131(1)

The bottom line 132(1)

Review questions 133(1)

The logic of group behavior in business and elsewhere 134(38)

Part II Theory and public policy applications 135(17)

Common-interest theory of group behavior 135(2)

The economic theory of group behavior 137(11)

Perspective: Management snooping 148(4)

Part II Organizational economics and management 152(20)

The value of tough bosses 152(1)

Take this job and... 152(2)

Games workers play 154(3)

Actual tough bosses 157(4)

The role of the residual claimant 161(4)

Risk taking, risk aversion, and firm ownership 165(4)

Optimal shirking 169(1)

The bottom line 169(1)

Review questions 170(2)

Government controls: how management incentives are affected 172(47)

Part I Theory and public policy applications 172(33)

Who pays the tax? 172(3)

Price and rent controls 175(4)

Minimum wages 179(10)

Pollution controls: external costs and benefits 189(14)

Perspective: The Problem of Spam: for Spammers as Well as Spammees 203(2)

Part II Organizational economics and management 205(14)

How honesty pays in business 205(1)

The role of honesty in business 206(2)

Games of trust 208(3)

The role of ``hostages'' in business 211(3)

Moral hazards and adverse selection 214(1)

The bottom line 215(1)

Review questions 216(1)

Appendix: key econometric findings 217(2)

Reasons for firms and incentives 219(43)

Part I Theory and public policy applications 220(31)

Firms and market efficiency 220(3)

Reasons for firms 223(8)

Changes in organizational costs 231(2)

Overcoming the large-numbers, Prisoner's Dilemma problems 233(3)

Make-or-buy decisions 236(8)

The franchise decision 244(4)

Perspective: Evolutionary Foundations of Cooperation 248(3)

Part II Organizational economics and management 251(11)

Fringe benefits, incentives, and profits 251(2)

Workers as profit centers 253(1)

Optimum fringe benefits 254(1)

Fringe benefits provided by large and small firms 255(2)

The bottom line 257(1)

Review questions 258(1)

Appendix 259(3)

Consumer choice and demand in traditional and network markets 262(52)

Part I Theory and public policy applications 263(29)

Predicting consumer demand 263(1)

Rational consumption: the concept of marginal utility 263(5)

From individual demand to market demand 268(2)

Elasticity: consumer's responsiveness to price changes 270(6)

Applications of the concept of elasticity 276(1)

Determinants of the price elasticity of demand 277(2)

Changes in demand 279(1)

Normal and inferior goods 280(2)

Substitutes and complementary goods 282(1)

Lagged demands and network effects 283(2)

Rational addiction 285(3)

Network effects 288(1)

Objections to demand theory 289(1)

Scarcity, abundance, and economic value 289(1)

Perspective: Software Networks 290(2)

Part II Organizational economics and management 292(22)

Covering relocation costs of new hires 292(1)

Covering the added housing costs of new hires 293(3)

The logic of not fully compensating new hires for their added housing costs 296(1)

A few qualifications 297(1)

The bottom line 298(1)

Review questions 299(1)

Appendix A: indifference curves and budget lines 300(8)

Appendix B: common concerns relating to the law of demand 308(6)

Production costs and business decisions 314(33)

Part I Theory and public policy applications 315(18)

Various cost conceptions 315(4)

The special significance of marginal cost 319(4)

The cost-benefit trade-off 323(3)

The production function 326(2)

Price and marginal cost: producing to maximize profits 328(3)

From individual supply to market supply 331(1)

Perspective: A Reason for Corporations: Cost Savings 332(1)

Part II Organizational economics and management 333(14)

Cutting health insurance costs 333(1)

The national ``healthcare crisis'' and market forces 334(3)

Business solutions for the healthcare crisis 337(4)

Problems with MSAs 341(2)

Business experience with MSAs 343(1)

The bottom line 344(1)

Review questions 345(2)

Production costs in the short run and long run 347(34)

Part I Theory and public policy applications 348(16)

Fixed, variable, and total costs in the short run 348(2)

Marginal and average costs in the short run 350(3)

Marginal and average costs in the long run 353(2)

Long-run average and marginal cost curves 355(1)

Industry differences in average cost 356(3)

Shifts in the average and marginal cost curves 359(1)

The very long run 359(2)

Perspective: The Myth of the First-Mover Advantage 361(3)

Part II Organizational economics and management 364(17)

Firms' debt/equity structures and executive incentives 364(1)

Debt and equity as alternative investment vehicles 365(3)

Past failed incentives in the S&L industry 368(6)

Firm maturity and indebtedness 374(1)

The bottom-line consequences of firms' financial structures 374(1)

The bottom line 375(1)

Review questions 376(1)

Appendix: Choosing the most efficient resource combination: isoquant and isocost curves 377(4)

Firm production under idealized competitive conditions 381(42)

Part I Theory and public policy applications 382(27)

The four market structures 382(3)

The perfect competitor's production decision 385(3)

Maximizing short-run profits 388(2)

Minimizing short-run losses 390(2)

Producing over the long run 392(4)

Marginal benefit vs. marginal cost 396(2)

The efficiency of perfect competition: a critique 398(4)

Price takers and price searchers 402(1)

Perspective: The Innovator's Dilemma 403(6)

Part II Organizational economics and management 409(14)

The value of teams 409(1)

Team production 409(4)

Team size 413(1)

Paying teams 414(2)

Experimental evidence on the effectiveness of team pay 416(2)

The bottom line 418(2)

Review questions 420(1)

Appendix: contestable markets 421(2)

Monopoly power and firm pricing decisions 423(53)

Part I Theory and public policy applications 424(34)

The origins of monopoly 424(2)

The limits of monopoly power 426(3)

Equating marginal cost with marginal revenue 429(4)

Short-run profits and losses 433(2)

Production over the long run 435(2)

The comparative inefficiency of monopoly 437(2)

Price discrimination 439(6)

Applications of monopoly theory 445(3)

The total cost of monopoly 448(2)

Durable goods monopoly 450(1)

The Microsoft monopoly 451(3)

Perspective: The QWERTY Keyboard: A Case of Lock In? 454(4)

Part II Organizational Economics and Management 458(18)

Profits from creative pricing 458(1)

Price discrimination in practice 459(6)

Cartel cheating 465(2)

Advantages of frequent-flyer programs 467(2)

The bottom line 469(1)

Review questions 470(2)

Appendix: marginal revenue curve: a graphical derivation 472(4)

Firm strategy under imperfectly competitive market conditions 476(50)

Part I Theory and public policy applications 477(26)

Monopolistic competition 477(1)

Monopolistic competition in the short run 478(1)

Monopolistic competition in the long run 479(1)

Oligopoly 480(4)

The oligopolist in the long run 484(1)

Cartels: incentives to collude and to cheat 484(3)

Cartels and the Nash equilibrium 487(2)

Government regulation of cartels 489(1)

The case of the natural monopoly 490(5)

The public interest theory of monopoly regulation 495(2)

Perspective: The Value of ``Mistreating'' Customers 497(6)

Part II Organizational economics and management 503(23)

``Hostile'' takeovers as a check on managerial monopolies 503(1)

Reasons for takeovers 504(1)

The market for corporate control 505(3)

The efficiency of takeovers 508(7)

Takeover defenses 515(4)

The bottom line 519(1)

Review questions 520(1)

Appendix: antitrust laws in the United States 521(5)

Competitive and monopsonistic labor markets 526(41)

Part I Theory and public policy applications 527(19)

The demand for and supply of labor 527(6)

Why wage rates differ 533(5)

Monopsonistic labor markets 538(7)

Perspective: Monopsony and the Minimum Wage 545(1)

Part II Organizational economics and management 546(21)

Paying for performance 546(1)

The ``right'' pay 547(4)

Piece-rate pay and worker risk 551(3)

Lincoln Electric's pay system 554(1)

When managers can change the rate of piece-rate pay 555(1)

Two-part pay systems 556(1)

Why incentive pay equals higher pay 557(2)

Honest dealing 559(2)

Incentives in the Irvine Company rental contracts 561(3)

The bottom line 564(1)

Review questions 565(2)

Problems in collective decision making 567(36)

Part I Theory and public policy applications 568(24)

The central tendency of a two-party system 568(3)

The economics of the voting rule 571(1)

The inefficiencies of democracy 572(7)

The economics and politics of business regulation 579(4)

The efficiency of competition among governments 583(1)

The economics of government bureaucracy 584(3)

Making bureaucracy more competitive 587(2)

Perspective: The Mathematics of Voting and Political Ignorance 589(3)

Part II Organizational economics and management applications 592(11)

Why professors have tenure and business people don't 592(1)

The nature of tenure 593(1)

The costs and benefits of tenure to universities, professors, and students 593(2)

Worker-managed universities and academic politics 595(3)

Why business people don't have tenure 598(1)

Tenure as a tournament 599(1)

The bottom line 600(1)

Review questions 601(2)

International trade and finance 603(48)

Part I Theory and public policy applications 605(37)

International trade in goods 605(22)

International finance 627(11)

Perspective: Bastiat's Satirical Case for Free Trade: ``A Petition'' 638(4)

Part II Organizational economics and management 642(9)

The consequences of ``quicksilver capital'' for business and government 642(2)

Capital mobility and business competitiveness 644(1)

Capital mobility and government competitiveness 644(3)

The downside of capital mobility 647(2)

The bottom line 649(1)

Review questions 649(2)
References 651(17)
Index 668