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business
managerial economics
Managerial Economics A Problem Solving Approach 1st Edition Luke M. Froeb, Brian T. McCann - Solutions
Types of strategies used in different types of auctions and their likely outcomes
The characteristics of different types of auctions
How to analyse an auction as a game with asymmetric information
What an auction is
Conditions under which market structure is irrelevant for the choice of durability
Trade-offs involved in killing off the market for used goods
Strategies to restore the market power of a durable goods monopolist
The Coase conjecture and its implication for market power
The nature of a durable good
How a ‘tie-in’ is a form of second-degree price discrimination
The meaning of the term ‘tie-in’
The trade-offs in profits from ‘mixed’ compared with ‘pure’bundling
The difference between ‘pure’ and ‘mixed’ bundling
The general conditions under which bundling can increase profits
The meaning of the term ‘bundling’
In a market with more than one firm, changes in advertising expenditures by one firm have a market share effect and a strategic effect, and that more advertising makes a market more competitive
How optimal advertising expenditures can depend upon factors such as the effectiveness of advertising and persistence effects if advertising could affect a firm’s stock of goodwill
How a monopolist can use a rule of thumb for optimally setting advertising expenditures as a share of total revenue
How goods can be classified as search good, experience goods or credence goods, depending upon whether consumers have information about their surplus derived from consumption before or after purchasing the good
Advertising expenditures by the firm include any expenditures aimed at increasing sales or protecting market share
When a producer’s reputation can affect a consumer’s perception of quality, higher prices can serve as compensation to the producer for provision of higher quality
How a producer’s strategy regarding the optimal provision of quality depends upon how quickly consumers learn about quality, the number of informed consumers and the ease with which the producer can vary the provision of quality
Consumers will use price as a signal of quality when they cannot directly observe the quality of a good
How contracts and warranties can be used to mitigate adverse selection or moral hazard problems
The adverse selection and moral hazard problems and their origins
The difference between hidden types and hidden actions
How models of asymmetric information can be used to describe situations where an economic agent has some information which other economic agents do not have
The effects of unions on worker pay and productivity and the effect of unions on firm profits
Measures of union power and the factors causing strikes
The implications of the Rubinstein bargaining model for firm–union negotiations
Supply and demand explanations for the reduction in union density observed in many countries
The three kinds of industrial relations systems followed around the industrialized world
The meaning of the term ‘union density’
How efficiency wages can increase worker productivity and reduce turnover
How deferred wages can increase worker productivity and reduce turnover
How tournaments can affect worker productivity
The role of risk aversion in influencing the choice of pay scheme
How performance-based pay schemes can affect worker productivity
The difference between general and specific training and how it affects whether the firm or the worker pays the costs of training
The definition of a ‘compensating differential’ and its effect on the wages a firm must pay
The difference between labour demand in the short run and the long run
The effect of payroll taxes on wage and employment levels
How changes in output prices and worker productivity affects wage levels
The determination of wages in a competitive labour market
Outsourcing and the role of transfer pricing in the multidivisional firm
How a multi-output firm prices goods with related demands
How a multiplant firm allocates output between its various production facilities
The difference between vertical and horizontal integration
Government policy to control pollution
Government policy towards mergers and acquisitions and the role of antitrust legislation
The two measures of market concentration: the concentration ratio and the Herfindahl-Hirschman index (HHI)
The distinction between natural monopolies and legally created monopolies
Arguments against government regulation of prices
The ‘deadweight loss’ rationale for government regulation of prices
How the effect of an investment in capacity by an incumbent can be broken down into a direct effect and a strategic effect, and how the strategic effect will depend upon whether the incumbent wants to deter or accommodate entry, and whether firms compete in prices or quantities
Why an incumbent may decide to overinvest in capacity to deter entry, and the role played by fixed costs in determining the incumbent’s optimal investment strategy
An incumbent firm can adopt a strategy to accommodate entry or to deter entry by a potential competitor
When firms can enter or exit a market in the longer run, an incumbent firm can strategically choose its scale of production or capacity to affect the behaviour of potential entrants into its market
Competition between firms over product location can result in minimum product differentiation or maximum product differentiation
How the effect of a change in product location can be broken down into a market share effect and a strategic effect
With differentiated products, firms can compete over prices in the short run, with product location taken as fixed, but in the longer run, firms can vary both their market price and the location of their product in product space
Product differentiation can resolve the Bertrand paradox because consumers will not be indifferent between the same good produced by different firms at the same price
How goods can be differentiated on the basis of physical location, quality, size, appearance or many other characteristics and how the notion of product space can be defined to accommodate these product characteristics
How the Stackelberg model can be used to describe a market where one firm can commit to the choice of a strategy before its competitor, and that when firms compete in quantities, the Stackelberg leader has a first-mover advantage and is able to increase profits and market share at the expense of
How the simple Bertrand model can be extended to allow for product differentiation or capacity constraints
In the Bertrand model of price competition, adding just one more firm to a market which was initially monopolized drives the market to the perfectly competitive equilibrium, where both firms earn zero profits
In the Cournot model of quantity competition, when two firms compete by choosing quantity of output, the equilibrium market price is lower, individual firm profits are lower, and total market output is higher relative to the monopoly equilibrium
The basic models we use to describe behaviour in a duopoly market where two firms compete by choosing either price or quantity
Reaction functions are downward-sloping (upward-sloping) when actions are strategic substitutes (strategic complements)
How to represent best-response strategies using reaction functions, and how to use reaction functions to characterize a Nash equilibrium
How to find the Nash equilibrium of a game
What a player’s best-response strategy is and how to tell whether a player has a dominant strategy
How a game is characterized by a description of players, strategies, payoffs and rules
A manager’s choice of a strategy (like market price, advertising expenditure, or R&D spending) will generally affect a competitor’s choice of a strategy, and that this strategic interaction can be represented using game theory
Why mobile phone companies, fitness clubs and other firms offer many different subscription packages
How firms use demand elasticities to price discriminate between groups of consumers
The inverse-elasticity rule of third-degree price discrimination
Real world examples of price discrimination
The difference between first-, second- and third-degree price discrimination
The conditions under which a firm may practice price discrimination
What is meant by the term ‘price discrimination’
The relationship between average cost, average variable cost, average fixed cost and marginal cost
The mathematical condition for profit maximization at a firm
Real world examples of monopoly, oligopoly and perfect competition
The difference between monopoly, oligopoly and perfect competition
What is meant by the terms ‘market structure’ and ‘market power’
The factors affecting the environment within which a firm operates
Why profit-sharing plans may or may not alleviate the agency problem
The agency problem between owners of a firm and managers and workers at a firm
Some of the factors which limit the size of firms
Why firms exist, and why firms exist in a particular form
Explain the importance of sequencing organizational changes.
Identify the costs of changes associated with management innovations.
Discuss why management innovations often fail.
Discuss the demand for management innovation.
Explain why management innovation is a popular topic.
G9-2. Strategy What strategy is your company following (try to classify it into one of the three strategies in the text)? How is your strategy working—how long will it allow you to maintain a competitive advantage?
G9-1. Compensating Wage Differential Give an example of a compensating wage differential, a risk premium, or some kind of longrun equilibrium price difference your company faces. How can your company profitably exploit this difference?
9-5. Economics versus Business Describe an important difference in the way an economist and a businessperson might view a monopoly.
9-4. Economic Profit Describe the difference in economic profit between a competitive firm and a monopolist in both the short and long run. Which should take longer to reach the long-run equilibrium?
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