Selected Readings

SELECTED READINGS

Alchain,A.A.,and H.Demsetz.“Production,Information Costs,and Economic Organization,”

American Economic Review,57 (December 1972),pp.777–795. Baumol,W.J.Business Behavior,Value and Growth.New York:Harcourt Brace Jovanovich, 1967. Boyes,W.,and M.Melvin.Microeconomics,3rd ed.Boston:Houghton Mifflin,1996. Brennan,M.J.,and T.M.Carroll.Preface to Quantitative Economics & Econometrics,4th ed.

Cincinnati,OH:South-Western Publishing,1987. Case,K.E.,and R.C.Fair.Principles of Microeconomics.Upper Saddle River,NJ:Prentice-

Hall,1999. Glass,J.C.An Introduction to Mathematical Methods in Economics.New York:McGraw-Hill, 1980. Coase,R.“The Nature of the Firm.”Economia,4 (1937),pp.386–405. Demsetz,H.,and K.Lehn.“The Structure of Corporate Ownership:Causes and Consequences.”Journal of Political Economy,93 (December 1985),pp.1155–1177. Diamond,D.W.,and R.E.Verrecchia.“Optimal Managerial Contracts and Equilibrium

Security Prices.”Journal of Finance,37 (May 1982),pp.275–287. Fama,E.F.,and M.C.Jensen.“Separation of Ownership and Control.”Journal of Law and

Economics,26 (June 1983),pp.301–325. ———.“Agency Problems and Residual Claims.”Journal of Law and Economics,26 (June 1983),pp.327–349. Green,W.H.Econometric Analysis,3rd ed.Upper Saddle River,NJ:Prentice-Hall,1997. Grossman,S.J.,and O.D.Hart.“An Analysis of the Principal-Agent Problem”Econometrica, vol.51 (January 1983),pp.7–45. Gujarati,D.Basic Econometrics,3rd ed.New York:McGraw-Hill,1995. Harris,M.,and A.Raviv.“Some Results on Incentive Contracts with Applications to Education and Employment,Health Insurance,and Law Enforcement.”American Economic

Review,68 (March 1978),pp.20–30. Henderson,J.M.,and R.E.Quandt.Microeconomic Theory:A Mathematical Approach,2nd ed.New York:McGraw-Hill,1971. Holstrom,B.“Moral Hazard and Observability.”Bell Journal of Economics,10 (Spring 1979), pp.74–91. ———.“Moral Hazard in Teams.”Bell Journal of Economics,13 (Spring 1982),pp.324–340. Jensen,M.C.,and W.H.Meckling.“Theory of the Firm:Managerial Behavior,Agency Costs, and Ownership Structure.”Journal of Financial Economics,3 (October 1976),pp.305–360. MacDonald,G.M.“New Directions in the Economic Theory of Agency.”Canadian Journal of

Economics,17 (August 1984),pp.415–440. Marris,R.,and A.Wood,eds.The Corporate Economy:Growth,Competition,and Innovative

Potential.Cambridge,MA:Harvard University Press,1971. McGuire,J.W.,J.S.Y.Chiu,and A.O.Elbing.“Executive Incomes,Sales and Profits.”

American Economic Review,52 (September 1962),pp.753–761. Ramanathan,R.Introductory Econometrics with Applications,4th ed.New York:Dryden

Press,1998. Shavell,S.“Risk Sharing and Incentives in the Principal and Agent Relationship.”Bell Journal of Economics,10 (Spring 1979),pp.55–73. Silberberg,E.The Structure of Economics:A Mathematical Analysis.New York:McGraw-Hill, 1978. Simon,H.“Theories of Decision-Making in Economics and Behavioral Science.”American

Economic Review,59 (1959),pp.253–283. Smith,A.The Wealth of Nations (1776).Available from Modern Library,New York. Williamson,O.The Economic Institutions of Capitalism.New York:Free Press,1985.

———.Markets and Hierarchies:Analysis and Antitrust Implications.New York:Free Press, 1975. ———.The Economics of Discretionary Behavior:Managerial Objectives in a Theory of the

Firm.Englewood Cliffs,NJ:Prentice Hall,1964. Winn,D.N.,and J.D.Shoenhair.“Compensation-Based (Dis)incentives for Revenue Maximizing Behavior:A Test of the ‘Revised’ Baumol Hypothesis.”Review of Economics and

Statistics,70 (February 1988),pp.154–158.

2

Introduction to Mathematical Economics

Managerial economics was defined in Chapter 1 as the synthesis of microeconomic theory,mathematics,and statistical methods to find optimal solutions to managerial decision-making problems.Yet,many students enrolled in managerial economics courses find that their academic training in one or more of these three disciplines is deficient.In this chapter we review the fundamental mathematical methods that will be used throughout the remainder of this book.

This chapter may not be for everyone.Every student brings something of himself or herself to the study of managerial economics.In many engineering programs,for example,students are required to take finance and economics courses to develop an understanding of the business aspects of research,development,construction,and product development.In general, these students come with rich backgrounds in quantitative methods but perhaps are somewhat deficient in economic principles.For students who fall into this category,a very brief review of the topics presented in this chapter may be all that is necessary before moving to chapters that are more specifically about economics.For many liberal arts student,turned business majors,however,a more thorough examination of mathematical methods may be absolutely essential to mastery of the material presented in subsequent chapters of this text.

This chapter begins with a review of the fundamental mathematical concepts that will be encountered throughout this text.Illustrative examples concern primarily economics to highlight the usefulness of these techniques for understanding fundamental economic principles and to provide the student with an idea of things to come.Much of this chapter