Managerial
Economics
and
Business
Strategy
8e
Managerial Economics
and Business Strategy
Michael R. Baye • JeffRey T. PRince
Baye
PRince
8e
www.mhhe.com
ISBN 978-0-07-352322-4
MHID 0-07-352322-4
EAN
new digital Offerings for your Managerial Economics Course!
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MD DALIM 1221829 1/2/13 CYAN MAG YELO BLACK

McGraw-Hill Connect® Plus Economics, a proven digital solution
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Managerial Economics and
Business Strategy
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The McGraw-Hill Series Economics
ESSENTIALS OF ECONOMICS
Brue, McConnell, and Flynn
Essentials of Economics
Third Edition
Mandel
Economics: The Basics
Second Edition
Schiller
Essentials of Economics
Eighth Edition
PRINCIPLES OF ECONOMICS
Colander
Economics, Microeconomics, and
Macroeconomics
Ninth Edition
Frank and Bernanke
Principles of Economics, Principles of
Microeconomics, Principles of
Macroeconomics
Fifth Edition
Frank and Bernanke
Brief Editions: Principles of Economics,
Principles of Microeconomics,
Principles of Macroeconomics
Second Edition
McConnell, Brue, and Flynn
Economics, Microeconomics, and
Macroeconomics
Ninteenth Edition
McConnell, Brue, and Flynn
Brief Editions: Microeconomics and
Macroeconomics
Second Edition
Miller
Principles of Microeconomics
First Edition
Samuelson and Nordhaus
Economics, Microeconomics, and
Macroeconomics
Nineteenth Edition
Schiller
The Economy Today, The Micro
Economy Today, and The Macro
Economy Today
Thirteenth Edition
Slavin
Economics, Microeconomics, and
Macroeconomics
Tenth Edition
ECONOMICS OF SOCIAL ISSUES
Guell
Issues in Economics Today
Sixth Edition
Sharp, Register, and Grimes
Economics of Social Issues
Twentieth Edition
ECONOMETRICS
Gujarati and Porter
Basic Econometrics
Fifth Edition
Gujarati and Porter
Essentials of Econometrics
Fourth Edition
MANAGERIAL ECONOMICS
Baye and Prince
Managerial Economics and Business
Strategy
Eighth Edition
Brickley, Smith, and Zimmerman
Managerial Economics and
Organizational Architecture
Fifth Edition
Thomas and Maurice
Managerial Economics
Eleventh Edition
INTERMEDIATE ECONOMICS
Bernheim and Whinston
Microeconomics
Second Edition
Dornbusch, Fischer, and Startz
Macroeconomics
Eleventh Edition
Frank
Microeconomics and Behavior
Eighth Edition
ADVANCED ECONOMICS
Romer
Advanced Macroeconomics
Fourth Edition
MONEY AND BANKING
Cecchetti and Schoenholtz
Money, Banking, and Financial
Markets
Third Edition
URBAN ECONOMICS
O’Sullivan
Urban Economics
Eighth Edition
LABOR ECONOMICS
Borjas
Labor Economics
Sixth Edition
McConnell, Brue, and Macpherson
Contemporary Labor Economics
Tenth Edition
PUBLIC FINANCE
Rosen and Gayer
Public Finance
Ninth Edition
Seidman
Public Finance
First Edition
ENVIRONMENTAL ECONOMICS
Field and Field
Environmental Economics:
An Introduction
Sixth Edition
INTERNATIONAL ECONOMICS
Appleyard, Field, and Cobb
International Economics
Eighth Edition
King and King
International Economics,
Globalization, and Policy: A Reader
Fifth Edition
Pugel
International Economics
Fifteenth Edition
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EIGHTH EDITION
Managerial Economics and
Business Strategy
Michael R. Baye
Bert Elwert Professor of Business Economics & Public Policy
Kelley School of Business
Indiana University
Jeffrey T. Prince
Associate Professor of Business Economics & Public Policy
Kelley School of Business
Indiana University
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MANAGERIAL ECONOMICS AND BUSINESS STRATEGY
Published by McGraw-Hill/Irwin, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of the
Americas, New York, NY, 10020. Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.
Printed in the United States of America. Previous editions © 2010, 2008, and 2006. No part of this publication
may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system,
without the prior written consent of The McGraw-Hill Companies, Inc., including, but not limited to, in any
network or other electronic storage or transmission, or broadcast for distance learning.
Some ancillaries, including electronic and print components, may not be available to customers outside the
United States.
This book is printed on acid-free paper.
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ISBN 978-0-07-352322-4
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Library of Congress Cataloging-in-Publication Data
Baye, Michael R., 1958-
Managerial economics and business strategy / Michael R. Baye, Bert Elwert Professor of Business
Economics & Public Policy Kelley, School of Business, Indiana University, Jeffrey T. Prince, Associate
Professor of Business Economic & Public Policy Kelly, School of Business, Indiana University.—
Eighth edition.
pages cm.—(The McGraw-Hill series economics)
Includes index.
ISBN-13: 978-0-07-352322-4 (alk.paper)
ISBN-10: 0-07-352322-4 (alk. paper)
1. Managerial economics. 2. Strategic planning. I. Prince, Jeffrey T. II. Title.
HD30.22.B38 2014
338.5024’658—dc23
2012048859
The Internet addresses listed in the text were accurate at the time of publication. The inclusion of a website does
not indicate an endorsement by the authors or McGraw-Hill, and McGraw-Hill does not guarantee the accuracy
of the information presented at these sites.
www.mhhe.com
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DEDICATION
To my former students.
—Michael R. Baye
To Annie and Kate.
—Jeffrey T. Prince
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ABOUT THE AUTHORS
Michael R. Baye is the Bert Elwert Professor of Business Economics & Public Policy
at Indiana University’s Kelley School of Business, and served as the Director
of the Bureau of Economics at the Federal Trade Commission from July 2007 to
December 2008. 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. Prior to
joining Indiana University, he taught graduate and undergraduate courses at The
Pennsylvania State University, Texas A&M University, and the University of
Kentucky. He has held a variety of editorial posts in economics, marketing, and
business, and currently serves as a co-editor for the Journal of Economics and
Management Strategy.
Professor Baye has won numerous awards for his outstanding teaching and
research, and teaches courses in managerial economics and industrial organization at
the undergraduate, M.B.A., and Ph.D. levels. His research has been published in the
American Economic Review, Journal of Political Economy, Econometrica, the
Review of Economic Studies, the Economic Journal, and Management Science. It has
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