Suppose Nike’s managers were considering expanding into producing sports beverages. Why might the company decide to do this under the Nike brand name?

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Froeb McCann Shor Wa r d fif th e ditio n Managerial Economics A PROBLEM SOLVING APPROACH Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 Fit your coursework into your hectic life. Make the most of your time by learning your way. Access the resources you need to succeed wherever, whenever. Study with digital flashcards, listen to audio textbooks, and take quizzes. Review your current course grade and compare your progress with your peers. Get the free MindTap Mobile App and learn wherever you are. Break Limitations. Create your own potential, and be unstoppable with MindTap. MINDTAP. POWERED BY YOU. cengage.com/mindtap Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 fifth edition Managerial Economics A PRO B LEM SOLV ING A P P RO ACH Luke M. Froeb Vanderbilt University Mikhael Shor University of Connecticut Brian T. McCann Vanderbilt University Michael R. Ward University of Texas, Arlington Australia • Brazil • Mexico • Singapore • United Kingdom • United States Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 Managerial Economics, Fifth Edition © 2018, 2016 Cengage Learning® Luke M. Froeb, Brian T. McCann, Mikhael Shor, Michael R. Ward Unless otherwise noted, all content is © Cengage Senior Vice President: Erin Joyner copyright herein may be reproduced or distributed in any form Product Director: Jason Fremder ALL RIGHTS RESERVED. No part of this work covered by the or by any means, except as permitted by U.S. copyright law, without the prior written permission of the copyright owner. Product Manager: Christopher Rader Content Developer: Molly Umbarger Product Assistant: Denisse Zavala-Rosales Marketing Manager: John Carey Manufacturing Planner: Kevin Kluck For product information and technology assistance, contact us at Cengage Learning Customer & Sales Support, 1-800-354-9706 For permission to use material from this text or product, submit all requests online at www.cengage.com/permissions Further permissions questions can be emailed to permissionrequest@cengage.com Sr. Art Director: Michelle Kunkler Cover Image: Kamira/Shutterstock Library of Congress Control Number: 2017947785 Intellectual Property Analyst: Jennifer Bowes ISBN: 978-1-337-10666-5 Project Manager: Carly Belcher Art and Cover Direction, Production Management, and Composition: Lumina Datamatics, Inc Cengage Learning 20 Channel Center Street Boston, MA 02210 USA Cengage Learning is a leading provider of customized l­earning solutions with employees residing in nearly 40 different ­countries and sales in more than 125 countries around the world. Find your local representative at www.cengage.com. Cengage Learning products are represented in Canada by Nelson Education, Ltd. To learn more about Cengage Learning Solutions, visit www.cengage.com Purchase any of our products at your local college store or at our preferred online store www.cengagebrain.com Printed in the United States of America Print Number: 01 Print Year: 2017 Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 In loving memory of Lisa, and for our families: Donna, David, Jake, Halley, Scott, Chris, Leslie, Jacob, Eliana, Cindy, Alex, and Chris Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 BRIEF CONTENTS Preface: Teaching Students to Solve Problems SECTION I Problem Solving and Decision Making 1   1 Introduction: What This Book Is About 3   2 The One Lesson of Business 15   3 Benefits, Costs, and Decisions 25   4 Extent (How Much) Decisions 37   5 Investment Decisions: Look Ahead and Reason Back SECTION II Pricing, Costs, and Profits xiii 49 65   6 Simple Pricing 67   7 Economies of Scale and Scope 83   8 Understanding Markets and Industry Changes 95   9 Market Structure and Long-Run Equilibrium 113 10 Strategy: The Quest to Keep Profit from Eroding 125 11 Foreign Exchange, Trade, and Bubbles 137 SECTION III Pricing for Greater Profit 151 12 13 14 SECTION IV Strategic Decision Making 183 15 16 SECTION V More Realistic and Complex Pricing 153 Direct Price Discrimination 163 Indirect Price Discrimination 171 Strategic Games 185 Bargaining 205 Uncertainty 215 17 18 19 20 Making Decisions with Uncertainty 217 Auctions 233 The Problem of Adverse Selection 243 The Problem of Moral Hazard 255 v Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 vi BRIEF CONTENTS SECTION VI Organizational Design 21 22 23 SECTION VII Getting Employees to Work in the Firm’s Best Interests 269 Getting Divisions to Work in the Firm’s Best Interests 283 Managing Vertical Relationships 295 Wrapping Up 24 267 Test Yourself 307 309 Epilogue: Can Those Who Teach, Do? Glossary Index 315 317 325 Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 CONTENTS Preface: Teaching Students to Solve Problems SECTION I Problem Solving and Decision Making CHAPTER 1 Introduction: What This Book Is About  3 1.1 Using Economics to Solve Problems 1.2 Problem-Solving Principles 4 1.3 Test Yourself 6 1.4 Ethics and Economics 7 1.5 Economics in Job Interviews 9 Summary & Homework Problems 11 End Notes 13 CHAPTER 2 xiii 1 3 The One Lesson of Business  15 2.1 Capitalism and Wealth 16 2.2 Does the Government Create Wealth? 17 2.3 How Economics Is Useful to Business 18 2.4 Wealth Creation in Organizations 21 Summary & Homework Problems 21 End Notes 23 CHAPTER 3 Benefits, Costs, and Decisions 25 3.1 Background: Variable, Fixed, and Total Costs 26 3.2 Background: Accounting versus Economic Profit 27 3.3 Costs Are What You Give Up 29 3.4 Sunk-Cost Fallacy 30 3.5 Hidden-Cost Fallacy 32 3.6 A Final Warning 32 Summary & Homework Problems 33 End Notes 36 CHAPTER 4 Extent (How Much) Decisions 37 4.1 Fixed Costs Are Irrelevant to an Extent Decision 4.2 Marginal Analysis 39 4.3 Deciding between Two Alternatives 40 38 vii Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 viii CONTENTS 4.4 Incentive Pay 43 4.5

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