Managerial economics

"Decision making lies at the heart of most important business and government problems. The range of business decisions is vast: Should a high-tech company undertake a promising but expensive research and development (R&D) program? Should a petrochemical manufacturer cut the price of its best-selling industrial chemical in response to a new competitor's entry into the market? Should the management of a food product company launch a new product after mixed test-marketing results? Likewise, government decisions range far and wide: Should the Department of Transportation impose stricter rollover standards for sports utility vehicles? Should a city allocate funds for the construction of a harbor tunnel to provide easy airport and commuter access? These are all economic decisions. In each case, a sensible analysis of what decision to make requires a careful comparison of the advantages and disadvantages (often, but not always, measured in dollars) of alternative courses of action. Managerial economics is the analysis of major management decisions using the tools of economics. Managerial economics applies many familiar concepts from economics-demand and cost, monopoly and competition, the allocation of resources, and economic trade-offs-to aid managers in making better decisions. This book provides the framework and the economic tools needed to fulfill this goal. In this chapter, we begin our study of managerial economics by stressing decision-making applications. In the first section, we introduce seven decision examples, all of which we will analyze in detail later in the text. Although these examples cover only some applications of economic analysis, they represent the breadth of managerial economics and are intended to whet the reader's appetite. Next, we present a basic model of the decision-making process as a framework in which to apply economic analysis. This model proposes six steps to help structure complicated decisions so that they may be clearly analyzed"--