Graham - Managerial Economics For Dummies

Part III: Market Structures and the Decision-Making Environment

Assume the market-determined price for your good is $4.80. Therefore, your total revenue equals

Marginal revenue equals the derivative of total revenue taken with respect to quantity, or

If your total cost function is

Marginal cost equals

Again, to determine the profit-maximizing quantity of output, set marginal revenue or price equal to marginal cost.

1. Set marginal revenue equal to marginal cost.

2. Solve for q by using the quadratic formula.

The profit-maximizing quantity of output is 800 units.

3. Determine the average-total-cost equation.

Average total cost equals total cost divided by the quantity of output.

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Graham - Managerial Economics For Dummies

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Producing too little with positive externalities: Honey

Regulating for efficiency

Producing too much with negative externalities: Pollution

Chapter 18: Rules, Rules Everywhere: Government and Managerial Decision-Making

Dealing with Adverse Selection

Increasing Insurance Costs with Adverse Selection

Keeping managers in line

Behaving better with profit sharing

Behaving badly with a flat salary

Principal–Agent Problem #1: When Managers and Owners Disagree

Behaving better with stock options

Chapter 17: Principal–Agent Issues and Adverse Selection: Can Everyone Agree?

Calculating the internal rate of return

Indexing profitability

Estimating Cash Flows in an Uncertain Environment

Selecting among Alternative Investments

Sealing the deal: The sealed-bid auction

Bidding first wins: The Dutch auction

Calculating the expected value Changing the Odds by Using New Information to

Using the expected utility criterion

Recalculating expected values

Making the best worst-case by using the mini-max regret rule

Considering Factors In and Out of Your Control

Predatory pricing: Get out

Chapter 15: Risk Analysis: Walking Through the Fog

Limit pricing: Keep out

Allowing mixed bundling

Determining third-degree price discrimination with calculus (if you’re interested

Applying third-degree price discrimination

Pricing coupons

Using second-degree price discrimination

Breakeven analysis

Simplifying Price Determination by Using the Price Elasticity of Demand

Wishing for first-degree price discrimination

Chapter 14: Increasing Revenue with Advanced Pricing Strategies

Determining the Ideal Amount of Advertising

Adjusting to the Long-Run Tendency of Profit Elimination

Relying on calculus in monopolistic competition

Chapter 13: Monopolistic Competition: Competitors, Competitors Everywhere

Testing commitment

Working together through collusion

Infinitely repeated games

Sequential-move, one-shot games

Profiting from the Long Run

Working together by using cartels and collusion

Leading the pack: Another view of price leadership

Competing for customers through the Bertrand model

Reacting to rivals in the Cournot model

Leading your rivals with the Stackelberg model

Chapter 11: Oligopoly: I Need You

Calculating the best allocation with calculus

Minimizing losses to make the best of a bad situation

Enjoying the long run

Calculating economic profit and the profit-per-unit fallacy

Maximizing profit with calculus

Maximizing profit with total revenue and total cost

Deriving maximum profit with derivatives

Price, and Revenue

Standing Alone: Identifying the Sources of Monopoly Power Unable to Charge as Much as You Want: Relating Demand,

Giving up and shutting down

Chapter 10: Monopoly: Decision-Making Without Rivals

Making the best of a bad situation by minimizing losses

Calculating economic profit

Using calculus to find marginal revenue equals marginal cost

Maximizing profit as a marginal decision

Maximizing total profit with calculus

Maximizing profit with total revenue and total cost

Identifying the Characteristics of Perfect Competition

Chapter 9: Limited Decision-Making in Perfect Competition

Recognizing that Two Can Be Less Than One with Economies of Scope

Going as far as you can with economies of scale

Marginal cost

Chapter 8: Production Costs: Where Less Is More

Hoping for less by minimizing per-unit costs

Watching developments by modeling diffusion

Developing parallel efforts: Where two is less than one

Time is money

Working harder: Calculating total factor productivity