Managerial Economics & Organizational Architecture
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Managerial Economics and Organizational Architecture, 5e helps the student to gain an understanding of the basic tools of economics used to solve important business problems. It also provides an in-depth analysis of the firm and corporate governance topics. The Fifth Edition has an improved focus on decision-making and managerial applications, within the structure of an organization.
as relative prices change (higher convexity implies that the slope of the indifference curve is changing more rapidly along the curve). Additional Considerations Our analysis has focused exclusively on interior solutions where the consumer optimally purchases positive quantities of both goods. This focus is justiﬁed because it is the usual case with convex indifference curves. Nevertheless, there are special cases where it is optimal for the consumer to spend the entire income on only one of the
between buyers and sellers unlikely when the relevant assets are highly speciﬁc. A potential response to this problem is for the producer to own the machine and make the input parts within a single larger ﬁrm. Another potential advantage of ﬁrms is that in some cases they can reduce contracting costs through established reputations. Individuals are likely to have conﬁdence in trading with parties who are expected to continue to participate in the marketplace over a long time. They understand that
this same process has important implications for the internal design of organizations. Managerial Objectives Our discussion to this point has treated decision makers within ﬁrms as owners. Owners have a strong interest in increasing the proﬁts of the ﬁrm, since they get to keep the proceeds. In public corporations managers are rarely major owners of the ﬁrm. Nonetheless, in Part 2 of the book, we assume that managers strive to maximize ﬁrm proﬁts—or more precisely ﬁrm value, the present value of
his consumption opportunities. Economists’ View of Behavior 27 F b Quantity of food Figure 2.5 13 © The McGraw−Hill Companies, 2009 2. Economists’ View of Behavior F* 3 a 2 c 1 C C* Quantity of clothing Earlier in this chapter, we discussed how marginal analysis is the cornerstone of modern economics. It is important to understand that the graphical tools presented in this section depict marginal analysis. In marginal analysis, individuals take actions as long as their incremental
average product of S is output divided by the total units of S. average products over some ranges. However, most production functions reach a point after which the marginal product of an input declines. This observation often is called the law of diminishing returns (or law of diminishing marginal product), which states that the marginal product of a variable factor eventually will decline as its use is increased. To illustrate this principle, consider the classic example of farming a plot of