This text highlights modern economic tools for real world managerial applications and blends tools from intermediate micro, industrial organization, and game theory. It is designed to enable calculus and non-calculus alternatives to be used as required.
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New Chapter 13 on Advanced Topics in Business Strategy: a brand-new chapter has been added to the Fourth Edition, covering such topics as the economics of networks, predatory pricing, new product pricing, limit pricing, and foreclosure. This new chapter not only keeps the book current, but also better prepares students by covering today's issues facing managers.
All New End of Chapter Materials: Every single problem at the ends of chapters has been replaced by a new one. This 100% new problem material will keep the book fresh even for long-time adopters.
Updated Examples, Headlines, and Inside Business Applications: significantly updated examples and boxed material keeps the book as current as today's newspaper to ensure that students are up-to-date on challenges facing today's managers and business people. These revisions also make the book even more interesting to read.
Data Disk Updated: This disk comes with every textbook and has been thoroughly updated. Now done as a CD rather than a floppy disk, this includes data for regression problems, spreadsheet versions of key book tables, and data sets for solving text problems. All materials on the CD are done in MS Excel and organized by chapter.
PowerPoint Presentations: the PowerPoint Presentations have been heavily revised for the Fourth Edition to improve their usefulness in class lectures. These presentations include numerous slides with animated figures and graphs. For instance, a simple mouse click reveals the firm's demand curve. Similarly, one can view the associated marginal revenue curve or the firm's marginal cost. A few more clicks, and students see how to determine the profit-maximizing output, price, and maximum profits. Animated graphs and tables are also provided for all other relevant concepts (like Cournot and Stackelberg equilibrium, normal form and extensive form games, etc.). All PowerPoint slides have been class tested at Indiana University.
Website: the website, newly designed and updated, contains many features for both students and instructors, including nine new custom-designed in-depth cases prepared by the author to bring the text to life.
Full Coverage of the Economics of Information. Managers seldom have full information to guide their decisions. Chapter 12 equips managers with the tools needed to make decisions in environments of imperfect or asymmetric information. Material shows students how screening, signaling, self-selection devices, and incentive mechanisms can be used to mitigate problems caused by asymmetric information (such as moral hazard and adverse selection). The material on auctions also explains the optimal bidding strategies in auctions with both independent private values and affiliated (or correlated) value estimates. Auctions are important for managers to understand, as often firms participate either as the auctioneer or as a bidder.
Links to Other Business Disciplines. The text illustrates important links between managerial economics and other business disciplines. These links include Porter's Five Forces Model, pricing rules, advertising, and other concepts emphasized in courses in Corporate Strategy, Marketing, Managerial Accounting, and Management. These links allow the students to see how microeconomics and game theory are used to shape business strategy.
Learning CD. Each textbook includes a learning CD that contains files to help students get hands on experience at making economic decisions. These files include (1) new data for regression problems, (2) spread sheet versions of key tables in the book to enable students to see how key economic concepts - like marginal cost and profit-maximization - can be implemented on standard spreadsheets, and (3) spreadsheet macros that students can use to find the optimum price and quantity under a variety of market settings, including monopoly, Cournot oligopoly, and Stackelberg oligopoly. This learning CD reinforces the empirical business decision making skills learned in the textbook.
Expanded Marginal Definitions These more complete definitions better contribute to student understanding.
Economic Foundations of Business Strategy: The text continues to provide those microeconomic tools needed to better prepare students for future work in business strategy.
Basic Structure Retained. To insure an easy transition to the 4th edition, the chapter-by-chapter structure of the text has remained the same.
Each chapter begins with a Headline based on a real-world economic problem. These problems motivate students to better understand the chapter material. By consulting the end of chapter answers, (Answering the Headline) they learn basic economic thinking.
Demonstration Problems are interspersed in each chapter with answers following the problem. Students enjoy the instant feedback gained from these problems and verification of material mastery.
Inside Business boxes illustrate real-world applications of theory developed in the chapter; these are drawn from both current economic literature and the popular press.
Calculus and Non-Calculus Alternatives While Baye does not require calculus, the design allows the user to include some calculus based material if desired. Following each algebraic principle or formula is a clearly marked calculus alternative; these are labeled in the text margins. The calculus alternatives state the preceding principle or formula in calculus notation and explain the relation between the two formulas. There are also four calculus-based chapter appendices. Professors have the option to use more sophisticated mathematics should the students have the proper background.
Michael Baye is the Bert Elwert Professor of Business Economics & Public Policy at Indiana University's Kelley School of Business. He received his B.S. in economics from Texas A&M University in 1980 and earned a Ph.D. in economics from Purdue University in 1983.
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