Corporate Governance
Author: Robert A G Monks
The new edition of this successful text offers an indispensable guide to the key concepts of corporate governance every student and business professional should know. It includes more exercises and student questions, penetrating analysis of the latest examples of corporate failure and controversy, and the lively "cases in point" which have characterized previous editions.
- Features 16 case studies of corporations in crisis, including General Motors, American Express, Time Warner, IBM, and Premier Oil
- Contains an invaluable web link to The Corporate Library, the leading independent research firm dedicated to corporate governance
- Includes an Appendix with an overview of CG Guidelines and Codes of Best Practice in Emerging Markets
Table of Contents:
| Cases In Point | ||||
| Acknowledgements | ||||
| Introduction | ||||
| 1 | What Is A Corporation? | |||
| 2 | Shareholders: Ownership | |||
| 3 | Directors: Monitoring | |||
| 4 | Management: Performance | |||
| 5 | International Governance | |||
| 6 | Case Studies: Corporations In Crisis | |||
| Subject Index |
Look this: Market Based Management or Stoebuck and Whitmans Hornbook on the Law of Property 3D Edition
Microeconomics
Author: Anthony P OBrien
Hubbard & O'Brien motivate the study of economics through real business examples. The book motivates users by demonstrating how real business uses economics to make real decisions on a daily basis. Covers the different Market Structures in an intuitive fashion so that readers of all backgrounds and fields can grasp the importance and flow of these concepts. Chapter opening cases, examples and figures motivate the economic principles covered, while Solved Problems provide models of how to solve an economic problem – keeping readers focused on the main ideas of each chapter, and preventing them from getting bogged down due to a lack of basic math or "word problem" skills.
Cover a core of microeconomics topics, then lend an additional business emphasis by covering one or more optional chapters: Business Firms, Corporate Governance, and the Stock Market; Monopolistic Competition: ; The Competitive Model in a More Realistic Setting; or Pricing Strategy.
MARKET: For anyone in business who wants to benefit from understanding the economic forces behind their work.
Table of Contents:
Preface iv
Acknowledgments xvii
Part 1: Introduction
CHAPTER 1: Economics: Foundations and Models 2
WHAT HAPPENS WHEN U.S. FIRMS MOVE TO CHINA? 2
Building a Foundation: Economics and Individual Decisions 5
People Are Rational 5
People Respond to Economic Incentives 5
Optimal Decisions Are Made at the Margin 5
Solved Problem 1-1: Apple Computer Makes a Decision at the Margin 6
The Economic Problem That Every Society Must Solve 7
What Goods and Services Will Be Produced? 7
How Will the Goods and Services Be Produced? 7
Who Will Receive the Goods and Services Produced? 7
Centrally Planned Economies versus Market Economies 8
The Modern "Mixed" Economy 8
Efficiency and Equity 9
Economic Models 10
The Role of Assumptions in Economic Models 10
Forming and Testing Hypotheses in Economic Models 10
Making the Connection 1-1: When Economists Disagree:
A Debate over Outsourcing 11
Normative and Positive Analysis 12
Microeconomics and Macroeconomics 13
"Don’t Let This Happen To You!" Don’t Confuse Positive Analysis with Normative Analysis 13
A Preview of Important Economic Terms 14
Conclusion 15
AN INSIDE LOOK: How Does Economic Growth in China Affect Other Countries? 16
*Summary 18
*Key Terms 18
*Review Questions 19
*Problems and Applications 19
*End-of-chapter resource materials repeat in all chapters.
CHAPTER 1 APPENDIX: Using Graphs and Formulas 21
Graphs of One Variable 22
Graphs of Two Variables 23
Slopes of Lines 23
Taking Into Account More Than Two Variables on a Graph 24
Positive and Negative Relationships 25
Slopes of Nonlinear Curves 25
Formulas 28
Formula for a Percentage Change 28
Formulas for the Areas of a Rectangle and a Triangle 28
Summary of Using Formulas 29
Problems and Applications 29
CHAPTER 2: Trade-offs, Comparative Advantage, and the Market System 32
MANAGERS MAKING CHOICES AT BMW 32
Production Possibilities Frontiers and Real-World
Trade-offs 34
Graphing the Production Possibilities Frontier 34
Solved Problem 2-1: Drawing a Production Possibilities Frontier for Rosie’s Boston Bakery 36
Making the Connection 2-1: Trade-offs and Ts unami Relief 38
Increasing Marginal Opportunity Costs 38
Economic Growth 39
Trade 40
Specialization and Gains from Trade 40
Absolute Advantage versus Comparative Advantage 42
"Don’t Let This Happen To You!" Don’t Confuse Absolute Advantage and Comparative Advantage 44
Comparative Advantage and the Gains from Trade 44
Solved Problem 2-2: Comparative Advantage and the Gains from Trade 44
The Market System 46
The Circular Flow of Income 46
The Gains from Free Markets 48
The Market Mechanism 48
Making the Connection 2-2: Story of the Market System in Action: "I, Pencil" 49
The Role of the Entrepreneur 50
The Legal Basis of a Successful Market System 50
Making the Connection 2-3: Property Rights in Cyberspace: Napster, Kazaa, and iTunes 51
Conclusion 53
AN INSIDE LOOK: Choosing the Production Mix at BMW 54
CHAPTER 3: Where Prices Come From: The Interaction of Demand and Supply 62
HOW HEWLETT-PACKARD MANAGES THE DEMAND FOR PRINTERS 62
The Demand Side of the Market 64
The Demand of an Individual Buyer 64
Demand Schedules and Demand Curves 64
Individual Demand and Market Demand 65
The Law of Demand 66
What Explains the Law of Demand? 66
Holding Everything Else Constant: The Ceteris Paribus Condition 67
Variables That Shift Market Demand 68
Making the Connection 3-1: Why Supermarkets Nee d to Understand Substitutes and Complements 69
Making the Connection 3-2: Companies Respond to a Growing Hispanic Population 70
A Change in Demand versus a Change in Quantity Demanded 72
Making the Connection 3-3: Estimating the Demand for Printers at Hewlett-Packard 72
The Supply Side of the Market 73
Supply Schedules and Supply Curves 73
Individual Supply and Market Supply 74
The L aw of Supply 74
Variables That Shift Supply 75
A Change in Supply versus a Change in Quantity Supplied 76
Market Equilibrium: Putting Demand and Supply Together 77
How Markets Eliminate Surpluses and Shortages 78
Demand and Supply Both Count 79
Solved Problem 3-1: Demand and Supply Both Count: A Tale of Two Letters 80
The Effect of Demand and Supply Shifts on Equilibrium 8 1
The Effect of Shifts in Supply on Equilibrium 81
Making the Connection 3-4: The Falling Price of Large Flat-Screen Televisions 82
The Effect of Shifts in Demand on Equilibrium 83
The Effect of Shifts in Demand and Supply over Time 84
Solved Problem 3-2: High Demand and Low Prices in the Lobster Market? 85
Shifts in a Curve versus Movements along a Curve 86
"Don’t Let This Ha ppen To You!" Remember: A Change in a Good’s Price Does Not Cause the Demand orSupply Curve to Shift. 87
Conclusion 87
AN INSIDE LOOK: Hewlett-Packard Cuts PC Prices to Sell More Printers 88
CHAPTER 4: Economic Efficiency, Government Price Setting, and Taxes 96
SHOULD THE GOVERNMENT CONTROL APARTMENT RENTS? 96
Consumer Surplus and Producer Surplus 98
Consumer Surplus 99
Making the Connection 4-1: The Consumer Surplus from Satellite Television 100
Producer Surplus 101
What Consumer Surplus and Producer Surplus Measure 101
The Efficiency of Competitive Markets 102
Marginal Benefit Equals Marginal Cost in Competitive Equilibrium 102
Economic Surplus 103
Deadweight Loss 103
Economic Surplus and Economic Efficiency 104
Government Intervention in the Market: Price Floors and Price Ceilings 104
Price Floors: The Example of Agricultural Markets 105
Making the Connection 4-2: Price Floors in Labor Markets:
The Minimum Wage 106
Price Ceilings: The Example of Rent Controls 107
"Don’t Let This Happen To You!" Don’t Confuse "Scarcity" with a " ;Shortage" 108
Black Markets 109
Solved Problem 4-1: What’s the Economic Effect of a "Black Market" for Apartments? 109
Making the Connection 4-3: Does Holiday Gift Giving Have a Deadweight Loss? 110
The Results of Government Intervention: Winners, Losers, and Inefficiency 111
Positive and Normative Analysis of Price Ceilings and Price Floors 111
The Economic Impact of Taxes 112
The Effect of Taxes on Economic Efficiency 112
Tax Incidence: Who Actually Pays a Tax? 112
Solved Problem 4-2: When Do Consumers Pay
All of a Sales Tax Increase? 114
Making the Connection 4-4: Is the Burden of the Social Security Tax Really Shared Equally between Workers and Firms? 116
Conclusion 117
AN INSIDE LOOK: Dealing with Rent Control 118
CHAPTER 4 APPENDIX: Quantitative Demand and Supply Analysis 125
Demand and Supply Equations 125
Calculating Consumer Surplus and Producer Surplus 126
Review Questions 128
Problems and Applications 129
Part 2: Markets in Action
CHAPTER 5: Externalities, Environmental Policy, and Public Goods 130
ECONOMIC INCENTIVES SPUR DUKE ENERGY CORPORATION TO REDUCE POLLUTION 130
Externalities and Efficiency 132
The Effect of Externalities 132
Externalities Can Result in Market Failure 134
What Causes Externalities? 134
Private Solutions to Externalities: The Coase Theorem 135
The Economically Efficient Level of Pollution Reduction 135
Making the Connection 5-1: The Reduction in Infant Mortality Due to the Clean Air Act 136
"Don’t Let This Happen To You!" Remember That It’s the Net Benefit That Counts 138
The Basis for Private Solutions to Externalities 138
Making the Connection 5-2: The Fable of the Bees 140
Do Property Rights Matter? 140
The Problem of Transactions Costs 141
The Coase Theorem 141
Government Solutions to Externalities 141
Solved Problem 5-1: Using a Tax to Deal with a Negative Externality 142
Command and Control versus Tradeable Emissions Allowances 144
Licenses to Pollute? 145
Making the Connection 5-3: Can Tradeable Permits
Reduce Global Warming? 145
Four Categories of Goods 146
Making the Connection 5-4: Should the Gov ernment or the Airlines Screen Luggage at Airports? 147
Public Goods and Common Resources 148
The Demand for a Public Good 149
The Optimal Quantity of a Public Good 150
Solved Problem 5-2: Determining the Optimal Level of Public Goods 151
Common Resources 153
Conclusion 155
AN INSIDE LOOK: Two Approaches to Fighting Global Warming: Kyoto Protocol and the Chicago Climate Ex change 156
CHAPTER 6: Elasticity: The Responsiveness of Demand and Supply 164
DO PEOPLE CARE ABOUT THE PRICES OF BOOKS? 164
The Price Elasticity of Demand and Its Measurement 166
Measuring the Price Elasticity of Demand 166
Elastic Demand and Inelastic Demand 167
An Example of Computing Price Elasticities 167
The Midpoint Formula 168
Solved Problem 6-1: Calculating the Price Elasticity of Demand for Wheat Using the Midpoint Formula 169
When Demand Curves Intersect, the Flatter Curve Is More Elastic 170
Polar Cases of Perfectly Elastic and Perfectly Inelastic Demand 170
"Don’t Let This Happen To You!" Don’t Confuse Inelastic with Perfectly Inelastic 172
What Determines the Price Elasticity of Demand for a Product? 172
Availability of Close Substitutes 172
Passage of Time 173
Luxuries versus Necessities 173
Definition of the Market 173
Making the Connection 6-1: The Price Elasticity of Demand for Breakfast Cereal 173
Share of the Good in the Consumer’s Budget 174
Is the Demand for Books Perfectly Inelastic? 174
The Relationship between Price Elasticity and Total Revenue 174
Elasticity and Revenue with a Linear Demand Curve 175
Solved Problem 6-2: Price and Revenue Don’t Always Move in the Same Direction 176
Estimating Price Elasticity of Demand 178
Making the Connection 6-2: Determining the Price Elasticity of Demand for DVDs by Market Experiment 178
Other Demand Elasticities 178
Cross-Price Elasticity of Demand 179
Income Elasticity of Demand 180
< P style="MARGIN: 0in 0in 0pt; mso-layout-grid-align: none" soNormal>Making the Connection 6-3: Price Elasticity, Cross-Price Elasticity, and Income Elasticity in the Market for Alcoholic Beverages 180Using Elasticity to Analyze the Disappearing Family Farm 181
Solved Problem 6-3: Using Price Elasticity to Analyze
the Drug Problem 182
The Price Elasticity of Supply 183
Measuring the Price Elasticity of Supply 183
Determinants of the Price Elasticity of Supply 184
Making The Connection 6-4: Why Are Oil Prices So Unstable? 184
Polar Cases of Perfectly Elastic and Perfectly Inelastic Supply 185
Using Price Elasticity of Supply to Predict Changes in Price 185
Conclusion 187
AN INSIDE LOOK: Do People Care about the Prices of Books on Amazon.com? 190
Part 3: Firms in the Domestic and International Econo mies
CHAPTER 7: Firms, the Stock Market, and Corporate Governance 198
GOOGLE: FROM DORM ROOM TO WALL STREET198
Types of Firms 200
Who Is Liable? Limited and Unlimited Liability 200
Making the Connection 7-1: What’s in a "Name"? Lloyd’s of London Learns about Unlimited Liability the Hard Way 201
Corporations Earn the Majority of Revenue and Profits 202
The Structure of Corporations and the Principal-Agent Problem 202
Corporate Structure and Corporate Governance 202
Solved Problem 7-1: Does the Principal-Agent Problem Also Apply to the Relationship between Managers and Workers? 203
How Firms Raise Funds 204
Sources of External Funds 204
Stock and Bond Markets Provide Capital–and Information 205
"Don’t Let This Happen To You!" When Google Shares Change Hands, Google Doesn’t Get the Money 206
Making the Connection 7-2: Following General Electric’s Stock and Bond Prices in the Financial Pages 207
Using Financial Statements to Evaluate a Corporation 208
Making the Connection 7-3: A Bull in China’s Financial Shop 209
The Income Statement 210
The Balance Sheet 211
Understanding the Business Scandals of 2002 211
Solved Problem 7-2: What Makes a Good Board of Directors? 212
Conclusion 213
AN INSIDE LOOK: Google’s Initial Public Offering 214
CHAPTER 7 APPENDIX: Tools to Analyze Firms’ Financial Information 220
Using Present Value to Make Investment Decisions 220
Solved Problem 7A-1: How to Receive Your Contest Winnings 222
Using Present Value to Calculate Bond Prices 223
Using Present Value to Calculate Stock Prices 223
A Simple Formula for Calculating Stock Prices 224
Going Deeper into Financial Statements 225
Analyzing Income Statements 225
Analyzing Balance Sheets 226
Key Terms 227
Review Questions 227
Problems and Applications 228
CHAPTER 8: Comparative Advantage and the Gains from International Trade 230
SUGAR QUOTA DRIVES U.S. CANDY MANUFACTURERS OVERSEAS 230
An Overview of International Trade 232
The Importance of Trade to the U.S. Economy 232
U.S. International Trade in a World Context 233
Making the Connection 8-1: Has Outsourcing Hurt the U.S. Economy? 234
Comparative Advantage: The Basis of All Trade 235
A Brief Review of Comparative Advantage 235
Comparative Advantage in International Trade 235
The Gains from Trade 236
Increasing Consumption through Trade 237
Solved Problem 8-1: The Gains from Trade 238
Why Don’t We See Complete Specialization? 240
Does Anyone Lose as a Result of International Trade? 240
"Don’t Let This Happen To You!" Remember That Trade Creates Both Winners and Losers 241
Where Does Comparative Advantage Come From? 241
Making the Connection 8-2: Why Is Dalton, Georgia, the Carpet-Making Capital of the World? 242
Comparative Advantage Over Time: The Rise and Fall–and Rise–of the U.S. Consumer Electronics Industry 242
Government Policies That Restrict Trade 243
Tariffs 245
Quotas 246
Measuring the Economic Impact of the Sugar Quota 247
Solved Problem 8-2: Measuring the Economic Effect of a Quota 247
The High Cost of Preserving Jobs with Tariffs and Quotas 249
Gains from Unilateral Elimination of Tariffs and Quotas 249
Other Barriers to Trade 250
The Argument over Trade Policies and Globalization 250
Why Do Some People Oppose the World Trade Organization? 250
Making the Connection 8-3: The Unintended Consequences of Banning Goods Made with Child Labor 251
Making the Connection 8-4: Has NAFTA Helped or Hurt the U.S. Economy? 253
Dumping 254
Positive versus Normative Analysis (Once Again) 255
Conclusion 255
AN INSIDE LOOK: The United States and Australia Reduce Trade Barriers 256
CHAPTER 8 APPENDIX: Multinational Firms 263
Multinational Firms 263
A Brief History of Multinational Enterprises 263
Strategic Factors in Moving from Domestic to Foreign Markets 264
Making the Connection 8A-1: Have Multinational Corporations Reduced Employment and Lowered Wages in the United States? 266
Challenges to U.S. Firms in Foreign Markets 267
Competitive Advantages of U.S. Firms 267
Key Terms 268
Review Questions 268
Problems and Applications 268
Part 4: Microeconomic Foundations: Consumers and Firms
CHAPTER 9: Consumer Choice and Behavioral Economics 270
CAN LEBRON JAMES GET YOU TO DRINK POWERADE? 270
Utility and Consumer Decision Making 272
The Economic Model of Consumer Behavior in a Nutshell 272
Utility 272
The Principle of Diminishing Marginal Utility 273
The Rule of Equal Marginal Utility per Dollar Spent 273
Solved Problem 9-1: Finding the Optimal Level of Consumption 277
What If the Rule of Equal Marginal Utility per Dollar Does Not Hold? 278
"Don’t Let This Happen To You!" Equalize Marginal Utilities per Dollar 279
The Income Effect and Substitution Effect of a Price Change 280
Where Demand Curves Come From 281
Social Influences on Decision Making 282
The Effects of Celebrity Endorsements 283
Making the Connection 9-1: Why Do Firms Pay Tiger Woods to Endorse Their Products? 283
Network Externalities 283
Does Fairness Matter? 284
Making the Connection 9-2: Professor Krueger Goes to the Super Bowl 287
Behavioral Economics: Do People Make Their Choices Rationally? 287
Ignoring Nonmonetary Opportunity Costs 287
Business Implications of Consumers Ignoring Nonmonetary Opportunity Costs 288
Failing to Ignore Sunk Costs 289
Being Unrealistic about Future Behavior 289
Making the Connection 9-3: Why Don’t Students Study More? 290
Solved Problem 9-2: How Do You Get People to Save More of Their Income? 290
Conclusion 291
AN INSIDE LOOK: Can Whoopi Goldberg Get You to Buy Slim-Fast? 292
CHAPTER 9 APPENDIX: Using Indifference Curves and Budget Lines to Understand Consumer Behavior 298
Consumer Preferences 298
Indifference Curves 298
The Slope of an Indifference Curve 299
Can Indifference Curves Ever Cross? 300
The Budget Constraint 300
Choosing the Optimal Consumption of Pizza and Coke 301
Making the Connection 9A-1: Dell Determines the Optimal Mix of Products 302
How a Price Change Affects Optimal Consumption 303
Solved Problem 9A-1: When Does a Price Change Make a Consumer Better Off? 304
Deriving the Demand Curve 305
The Income Effect and the Substitution Effect of a Price Change 305
How a Change in Income Affects Optimal Consumption 307
The Slope of the Indifference Curve, the Slope of the Budget Line, and the Rule of Equal Marginal Utility per Dollar 307
The Rule of Equal Marginal Utility per Dollar Revisited 309
Key Terms 310
Problems and Applications 310
CHAPTER 10: Technology, Production, and Costs 312
SONY USES A COST CURVE TO DETERMINE THE PRICE OF RADIOS 312
Technology: An Economic Definition 314
Making the Connection 10-1: Improving Inventory Control at Wal-Mart 314
The Short Run and the Long Run 315
The Difference between Fixed Costs and Variable Costs 315
Making the Connection 10-2: Fixed Costs in the Publishing Industry 316
Implicit Costs v ersus Explicit Costs 316
The Production Function 317
A First Look at the Relationship between Production and Cost 318
The Marginal Product of Labor and the Average Product of Labor 319
The Law of Diminishing Returns 319
Graphing Production 320
Making the Connection 10-3: Adam Smith’s Famous Account of the Division of Labor in a Pin Factory 320
The Relationship between Marginal and Average Product 320
An Example of Marginal and Average Values: College Grades 322
The Relationship between Short-Run Production and Short-Run Cost 323
Marginal Cost 323
Why Are the Marginal and Average Cost Curves U-Shaped? 323
Solved Problem 10-1: The Relationship between Marginal Cost and Average Cost 325
Graphing Cost Curves 325
Costs in the Long Run 327
Economies of Scale 327
Long-Run Average Total Cost Curves for Bookstores 327
Solved Problem 10-2: Using Long-Run Average Cost Curves to Understand Business Strategy 329
Making the Connection 10-4: The Colossal River Rouge: Diseconomies of Scale at the Ford Motor Company 331
"Don’t Let This Happen To You!" Don’t Confuse Diminishing Returns with Diseconomies of Scale 332
Conclusion 332
AN INSIDE LOOK: Using Long-Run Average Cost Curves to Analyze Expansion at Sony and Samsung 334
CHAPTER 10 APPENDIX: Using Isoquants and Isocosts to Understand Production and Cost 342
Isoquants 342
An Isoquant Graph 342
The Slope of an Isoquant 342
Isocost Lines 343
Graphing the Isocost Line 343
The Slope and Position of the Isocost Line 343
Choosing the Cost-Minimizing Combination of Capital and Labor 344
Different Input Price Ratios Lead to Different Input Choices 345
Making the Connection 10A-1: The Changing Input Mix in Walt Disney Film Animation 346
Another Look at Cost Minimization 347
Solved Problem 10A-1: Determining the Optimal Combination of Inputs 348
The Expansion Path 349
Key Terms 350
Problems and Applications 350
Part 5: Market Structure and Firm Strategy
CHAPTER 11: Firms in Perfectly Competitive Markets 352
PERFECT COMPETITION IN THE MARKET FOR ORGANIC APPLES 352
Perfectly Competitive Markets 355
A Perfectly Competitive Firm Cannot Affect the Market Price 355
The Demand Curve for the Output o f a Perfectly Competitive Firm 356
How a Firm Maximizes Profit in a Perfectly Competitive Market 356
Revenue for a Firm in a Perfectly Competitive Market 357
"Don’t Let This Happen To You!" Don’t Confuse the Demand Curve for Farmer Whaples’s Wheat with the Market Demand Curve for Wheat 357
Determining the Profit-Maximizing Level of Output 358
Illustrating Profit or Loss on the Cost Curve Graph 360
Showing a Profit on the Graph 361
< P style="MARGIN: 0in 0in 0pt; mso-layout-grid-align: none" soNormal>Solved Problem 11-1: Determining Profit-Maximizing Price and Quantity 361Illustrating When a Firm Is Breaking Even or Operating at a Loss 363
"Don’t Let This Happen To You!" Remember That Firms Maximize Total Profit, Not Profit per Unit 364
Making the Connection 11-1: Losing Money in the Medical Screening Industry 365
Deciding Whether to Produce or to Shut Down in the Short Run 366
Making the Connection 11-2: When to Close a Lau ndry 366
The Supply Curve of the Firm in the Short Run 367
The Market Supply Curve in a Perfectly Competitive Industry 368
"If Everyone Can Do It, You Can’t Make Money At It"– The Entry and Exit of Firms in the Long Run 368
Economic Profit and the Entry or Exit Decision 369
Long-Run Equilibrium in a Perfectly Competitive Market 372
The Long-Run Supply Curve in a Perfectly Competitive Market 372
Increasing-Cost and Decreasing-Cost Industries 374
Perfect Competition and Efficiency 374
Making the Connection 11-3: The Decline of Apple Production in New York State 374
Productive Efficiency 375
Solved Problem 11-2: How Productive Efficiency Benefits Consumers 375
Allocative Efficiency 377
Conclusion 377
AN INSIDE LOOK: Firms Crank Out Organic Snacks 378
CHAPTER 12: Monopolistic Competition: The Competitive Model in a More Realistic Setting 386
STARBUCKS: GROWTH THROUGH PRODUCT DIFFERENTIATION 386
Demand and Marginal Revenue for a Firm in a Monopolistically Competitive Market 388
The Demand Curve for a Monopolistically Competitive Firm 388
Marginal Revenue for a Firm with a Downward-Sloping Demand Curve 389
How a Monopolistically Competitive Firm Maximizes Profits in the Short Run 391
Solved Problem 12-1: How Not to Maximize Profits 392
What Happens to Profits in the Long Run? 393
How Does Entry of New Firms Affect the Profits of Existing Firms? 393
"Don’t Let This Happen To You!" Don’t Confuse Zero Economic Profit with Zero Accounting Profit 394
Making the Connection 12-1: The Rise and Fall of Apple’s Macintosh Computer 395
Solved Problem 12-2: The Short Run and the Long Run for the Macintosh 396
Is Zero Economic Profit Inevitable in the Long Run? 397
Making the Connection 12-2: Staying One Step Ahead of the Competition: Eugène Schueller and L’Oréal 398
Comparing Perfect Competition and Monopolistic Competition 399
Excess Capacity under Monopolistic Competition 400
Is Monopolistic Competition Inefficient? 400
How Co nsumers Benefit from Monopolistic Competition 400
Making the Connection 12-3: Abercrombie and Fitch: Can the Product Be Too Differentiated? 400
How Marketing Differentiates Products 401
Brand Management 401
Advertising 401
Defending a Brand Name 402
What Makes a Firm Successful? 403
Conclusion 403
AN INSIDE LOOK: Starbucks and McDonald’s Cater to Insomniacs 404
CHAPTER 13: Oligopoly: Firms in Less Competitive Markets 412
COMPETING WITH WAL-MART 412
Oligopoly and Barriers to Entry 414
Barriers to Entry 415