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Overview

This book, which focuses on the fundamentals of microeconomic theory, presents an integrated approach to solving decision-making problems. Concepts are developed by using several tools: words, graphs, mathematics, and real-world examples; this allows the reader to solve many models and problems by forming actual numerical solutions, providing an understanding of the underlying principles these solutions represent. The book is organized into 6 broad-based topical areas: a review of basic calculus techniques, including univariate and multivariate functions; theory of the consumer, including utility theory, consumer optimization, market demand curves, and demand related elasticities; theory of the firm, including short and long run production; market structures, including perfect competition, monopoly, and oligopoly; input markets, including demand for and supply of labor, and capital markets; and general equilibrium analysis. For those needing to analyze decision-making processes of their business, including agents, consumers, entrepreneurs, suppliers of resources, investors, and policy-makers.

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Editorial Reviews

Booknews
Principles of microeconomic theory are integrated with basic calculus, graphs, and real world applications in this text for a course in intermediate microeconomics and for first-year graduate courses for MBA or master's-level economics programs. Coverage includes theories of the consumer and the firm, market structures, input markets, and general equilibrium analysis. Key concepts are first developed on an intuitive level and then demonstrated with mathematical and graphical examples with solutions. Applications are based on articles published in well-known business and economics publications. An understanding of differential calculus is assumed, and advanced material is flagged. The authors are affiliated with Shippensburg University. Annotation c. Book News, Inc., Portland, OR (booknews.com)
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Product Details

  • ISBN-13: 9780130114181
  • Publisher: Prentice Hall
  • Publication date: 3/28/2002
  • Edition description: New Edition
  • Edition number: 1
  • Pages: 681
  • Product dimensions: 7.40 (w) x 9.05 (h) x 1.49 (d)

Read an Excerpt

Microeconomic theory is one of the most important courses taken by economics and business students. We base this contention on the fact that microeconomics consists of analyzing the rational decision-making processes of many types of agents, including consumers, entrepreneurs, suppliers of resources, investors, and even government policy makers. This broad applicability of microeconomics to many types of decision-making problems endows this subject with special significance. Although many of the details associated with specific problems are supplied by other subject areas, microeconomics provides the framework and techniques for solving these problems. For this reason, the approach we use to present microeconomics focuses on constructing and analyzing fundamental models. By emphasizing broad-based underlying principles, students can analyze a wider variety of real-world problems than is possible by using an approach that dwells on overly specific microeconomic problem or puzzles.

A full and broad understanding of microeconomics is greatly facilitated by applying several tools of analysis. Accordingly, we develop concepts using verbal intuition, graphics, and calculus, carefully integrating these facets of microeconomic analysis throughout our text. Both the focus on fundamental principles and the integration of basic calculus throughout the text distinguish our approach from so many others. We bring in the calculus, not to complicate the analysis, but rather to simplify it. Using basic tools of calculus, we are able to demonstrate to students how to solve many models and problems by generating actual numerical solutions. We believe this approach is much more effective than merely presenting concepts in a survey manner. Furthermore, we demonstrate how calculus reinforces the graphical analysis, and in so doing, we can help students understand what the graphical solutions actually represent. It has been our experience that, without the underlying mathematics, students often view graphs as mere pictures to be memorized.

Students need only a basic understanding of differential calculus in order to use this text. As we have observed over the years, most students have little difficulty performing basic calculus operations. Rather, their difficulty often lies in synchronizing not only the calculus, but also the graphics, with specific microeconomic concepts. We believe we have solved this problem by integrating calculus throughout the text, directly connecting it with each microeconomic concept, rather than presenting it in detached appendices or footnotes.

AUDIENCE

The basic concepts covered in this text are central both to a course in intermediate microeconomics and to first-year graduate courses for MBA or master's-level economics programs. To give professors some flexibility regarding the level at which some material is covered, we have placed the dagger symbol before those sections that contain advanced analyses. Students should already be familiar with many of the basic principles covered in our text, for they are common to all levels of microeconomic theory. In this text, we often ask readers to recall certain material from their principles of microeconomics course, with the expressed intent to remind students of key concepts covered in their introductory microeconomics course which we examine at a higher analytical level in this book.

AN INTEGRATED APPROACH

We have subtitled our book "An Integrated Approach" to signal our extraordinary attention to presenting theoretical microeconomic concepts with words, graphs, mathematics, and real-world examples. Each method of presentation is carefully and closely coordinated with the others. By its very nature, mathematics is a very succinct and precise means of expressing economic concepts. Accordingly, we have made extensive use of calculus throughout this text in order to demonstrate to students that mathematics can actually simplify the way they express microeconomic theories and solve economic problems. To ensure that students truly comprehend the topics in our text, we include several numerical examples in each chapter and solve them step by step. Our book encourages students to get "down and dirty" with microeconomic theory by motivating them to sit down with pencil and paper and solve real microeconomic problems. Through these problems students can immediately test their understanding of key topics, since they can check their answers with the solutions appearing in the text. We also include numerous real-world applications in an effort to relate the microeconomic concepts we cover in the text to actual events. These applications are based on articles published in a variety of well-known business and economics publications such as The Wall Street Journal, The Economist, Business Week, and Fortune.

Finally, throughout this text we make frequent references to topics we covered in previous sections or chapters. By doing so, we establish cross-references of important, interrelated topics as they are developed. We believe this process helps the reader to get the "big picture" and thereby avoid seeing the chapters as separate, unrelated entities. These cross-references also facilitate the student's ability to return to specific sections and review prerequisite concepts when necessary. Throughout this book, key terms are presented in bold when they are first introduced. They are also listed with their page references at the end of each chapter, as well as in the Glossary at the end of the book.

ORGANIZATION

We have broadly divided the topics covered in this text into six major areas: preliminary mathematical techniques, theory of the consumer, theory of the firm, market structures, input markets, and general equilibrium analysis. Specifically, in Chapters 1 and 2 we develop the essential mathematical tools used throughout this book. In Chapter 1 we review the rules of derivatives for both univariate and multivariate functions, and we develop the method for optimizing univariate functions. In Chapter 2 we expand our discussion of optimization, focusing on unconstrained and constrained optimization of multivariate functions. We also carefully develop the Lagrangian multiplier method and demonstrate its use in modeling rational decision making by consumers and firms in the presence of constraints.

Following this mathematical review, the next five chapters concentrate on the economic behavior of consumers. In Chapter 3 we establish the foundations of consumer choice by developing utility functions and the related concepts of marginal utility and indifference curves. In an appendix to Chapter 3 (available at the website for this text at www.prenhall.com/mathis), we modify the traditional consumer choice model to incorporate the effect of risk on the consumer's decision-making process. In Chapter 4 we extend our analysis of consumer theory by introducing the concept of a budget constraint. Using the Lagrangian multiplier method introduced in Chapter 2, we demonstrate how to solve the consumer's constrained utility maximization problem both mathematically and graphically. In Chapter 5 we use the results of this process to establish relationships between the quantity demanded of a good and key economic variables such as the own-price of the good, the price of a related good, and the consumer's level of income. We further analyze these relationships in Chapter 6 where we derive the market demand curve for a good by aggregating the individual demand curves developed in Chapter 5. In Chapter 7 we examine the concept of elasticity and apply it to the market demand function in terms of own-price, cross-price, and income elasticities of demand. In addition to discussing the theoretical, graphical, and mathematical analyses of elasticity, we also explore a variety of real-world applications of elasticity measures.

A major change in topics occurs in Chapter 8; in this and the following four chapters, we develop the theory of the firm. Initially, we examine the behavior of the firm from a short-run perspective by introducing a production function containing only one variable input. In Chapter 9 we relax this assumption by allowing all inputs used by the firm in the production of its output to vary, thereby shifting the analysis of firm behavior from a short-run to a long-run perspective. In Chapter 10 we apply the Lagrangian multiplier method to the theory of the firm to demonstrate how constrained optimization techniques can be applied to various production decisions faced by profit-maximizing firms. The concepts comprising production theory, in both the short run and the long run, provide the foundation for analyzing firm's costs of production in these distinct time periods. After we establish the critical connections between production theory and cost theory in Chapter 11, we direct our attention to the graphical and mathematical analysis of various types of cost functions for firms operating in the long run. In Chapter 12, we derive several short-run costs of production and analyze the various interrelationships among these costs both within and across time periods.

Beginning in Chapter 13 and continuing through Chapter 19, our attention shifts from the pure theory of the firm to the behavior of firms operating within various types of market structures. Specifically, in Chapter 13 we discuss the characteristics of perfectly competitive market structures and develop short-run models of perfectly competitive firm behavior. In Chapter 14 we direct our analysis to the behavior of perfectly competitive firms in the long run. We also analyze the performance results obtained from these models, regarding output, price, cost, and profit, for the individual firm and the market as a whole, and from a broader social perspective. In Chapter 15 we similarly analyze monopolistic market structures. This analysis is followed in Chapter 16 by our comparison of the economic performance results regarding price, output, cost, and profit associated with a monopolistic market to those obtained under perfectly competitive market conditions. In Chapter 17 we discuss oligopolistic market structures in terms of their specific firm and market characteristics, as well as their economic performance. We also analyze the traditional models of oligopoly using game theory in Chapter 18. We conclude our study of market structures in Chapter 19 with our analysis of monopolistic competition.

After examining the behavior of firms within four distinct market structures, Chapters 20, 21, and 22 discuss input markets. Specifically, we analyze labor and capital markets, focusing on the derivation of market supply and demand curves for both inputs, and the determination of input prices in these markets. Finally, we devote Chapters 23 and 24 to the topic of general equilibrium analysis. In many ways, Chapters 23 and 24 may be regarded as capstone chapters inasmuch as they incorporate information regarding consumer equilibrium which we developed in Chapters 3 and 4 with concepts related to producer equilibrium which we discussed in Chapters 9 and 10. We also examine issues regarding the efficiency of perfectly competitive markets, along with the inefficiency of monopolized markets using a general equilibrium framework.

ANCILLARIES

Accompanying our text is an ancillary package containing an Instructor's Manual and Study Guide. The Instructor's Manual includes chapter summaries, solutions to end-of-chapter exercises appearing in the text, and additional problems to assist professors in creating their exams. Students can access answers to selected exercises at the website for this text at www.prenhall.com/mathis. The Study Guide contains chapter summaries, key terms, and additional exercises, along with their solutions. We have written all of the ancillary items ourselves, thus ensuring accuracy and a very close coordination between these materials and our textbook.

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Table of Contents

I. PRELIMINARIES.

1. Review of Basic Calculus Techniques.

2. Unconstrained and Constrained Optimization of Multivariate Functions.

II. THEORY OF THE CONSUMER.

3. Utility Theory.

3AW. Uncertainty, Risk, and Expected Utility. (Can be viewed at www.prenhall.com/mathis.)

4. Consumer Optimization.

5. Individual Demand Functions and Related Topics.

6. Market Demand Curves.

7. Demand-Related Elasticities.

III. THEORY OF THE FIRM.

8. Production in the Short Run.

9. Production in the Long Run.

10. Long-Run Optimization for the Firm.

11. Costs of Production in the Long Run.

12. Costs of Production in the Short Run.

IV. MARKET STRUCTURES.

13. Perfect Competition in the Short Run.

14. Perfect Competition in the Long Run.

15. Monopoly.

16. Additional Topics Related to Monopoly.

17. Oligopoly.

18. Applications of Game Theory to Oligopolistic Firm Behavior.

19. Monopolistic Competition.

V. INPUT MARKETS.

20. Demand for Labor.

21. Supply of Labor.

22. Capital Markets.

VI. GENERAL EQUILIBRIUM ANALYSIS.

23. General Equilibrium Analysis in an Exchange Economy.

24. General Equilibrium Analysis in an Economy with Production and Exchange.

Glossary.

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Preface

Microeconomic theory is one of the most important courses taken by economics and business students. We base this contention on the fact that microeconomics consists of analyzing the rational decision-making processes of many types of agents, including consumers, entrepreneurs, suppliers of resources, investors, and even government policy makers. This broad applicability of microeconomics to many types of decision-making problems endows this subject with special significance. Although many of the details associated with specific problems are supplied by other subject areas, microeconomics provides the framework and techniques for solving these problems. For this reason, the approach we use to present microeconomics focuses on constructing and analyzing fundamental models. By emphasizing broad-based underlying principles, students can analyze a wider variety of real-world problems than is possible by using an approach that dwells on overly specific microeconomic problem or puzzles.

A full and broad understanding of microeconomics is greatly facilitated by applying several tools of analysis. Accordingly, we develop concepts using verbal intuition, graphics, and calculus, carefully integrating these facets of microeconomic analysis throughout our text. Both the focus on fundamental principles and the integration of basic calculus throughout the text distinguish our approach from so many others. We bring in the calculus, not to complicate the analysis, but rather to simplify it. Using basic tools of calculus, we are able to demonstrate to students how to solve many models and problems by generating actual numerical solutions. We believe this approach is much more effective than merely presenting concepts in a survey manner. Furthermore, we demonstrate how calculus reinforces the graphical analysis, and in so doing, we can help students understand what the graphical solutions actually represent. It has been our experience that, without the underlying mathematics, students often view graphs as mere pictures to be memorized.

Students need only a basic understanding of differential calculus in order to use this text. As we have observed over the years, most students have little difficulty performing basic calculus operations. Rather, their difficulty often lies in synchronizing not only the calculus, but also the graphics, with specific microeconomic concepts. We believe we have solved this problem by integrating calculus throughout the text, directly connecting it with each microeconomic concept, rather than presenting it in detached appendices or footnotes.

AUDIENCE

The basic concepts covered in this text are central both to a course in intermediate microeconomics and to first-year graduate courses for MBA or master's-level economics programs. To give professors some flexibility regarding the level at which some material is covered, we have placed the dagger symbol before those sections that contain advanced analyses. Students should already be familiar with many of the basic principles covered in our text, for they are common to all levels of microeconomic theory. In this text, we often ask readers to recall certain material from their principles of microeconomics course, with the expressed intent to remind students of key concepts covered in their introductory microeconomics course which we examine at a higher analytical level in this book.

AN INTEGRATED APPROACH

We have subtitled our book "An Integrated Approach" to signal our extraordinary attention to presenting theoretical microeconomic concepts with words, graphs, mathematics, and real-world examples. Each method of presentation is carefully and closely coordinated with the others. By its very nature, mathematics is a very succinct and precise means of expressing economic concepts. Accordingly, we have made extensive use of calculus throughout this text in order to demonstrate to students that mathematics can actually simplify the way they express microeconomic theories and solve economic problems. To ensure that students truly comprehend the topics in our text, we include several numerical examples in each chapter and solve them step by step. Our book encourages students to get "down and dirty" with microeconomic theory by motivating them to sit down with pencil and paper and solve real microeconomic problems. Through these problems students can immediately test their understanding of key topics, since they can check their answers with the solutions appearing in the text. We also include numerous real-world applications in an effort to relate the microeconomic concepts we cover in the text to actual events. These applications are based on articles published in a variety of well-known business and economics publications such as The Wall Street Journal, The Economist, Business Week, and Fortune.

Finally, throughout this text we make frequent references to topics we covered in previous sections or chapters. By doing so, we establish cross-references of important, interrelated topics as they are developed. We believe this process helps the reader to get the "big picture" and thereby avoid seeing the chapters as separate, unrelated entities. These cross-references also facilitate the student's ability to return to specific sections and review prerequisite concepts when necessary. Throughout this book, key terms are presented in bold when they are first introduced. They are also listed with their page references at the end of each chapter, as well as in the Glossary at the end of the book.

ORGANIZATION

We have broadly divided the topics covered in this text into six major areas: preliminary mathematical techniques, theory of the consumer, theory of the firm, market structures, input markets, and general equilibrium analysis. Specifically, in Chapters 1 and 2 we develop the essential mathematical tools used throughout this book. In Chapter 1 we review the rules of derivatives for both univariate and multivariate functions, and we develop the method for optimizing univariate functions. In Chapter 2 we expand our discussion of optimization, focusing on unconstrained and constrained optimization of multivariate functions. We also carefully develop the Lagrangian multiplier method and demonstrate its use in modeling rational decision making by consumers and firms in the presence of constraints.

Following this mathematical review, the next five chapters concentrate on the economic behavior of consumers. In Chapter 3 we establish the foundations of consumer choice by developing utility functions and the related concepts of marginal utility and indifference curves. In an appendix to Chapter 3 (available at the website for this text at www.prenhall.com/mathis ), we modify the traditional consumer choice model to incorporate the effect of risk on the consumer's decision-making process. In Chapter 4 we extend our analysis of consumer theory by introducing the concept of a budget constraint. Using the Lagrangian multiplier method introduced in Chapter 2, we demonstrate how to solve the consumer's constrained utility maximization problem both mathematically and graphically. In Chapter 5 we use the results of this process to establish relationships between the quantity demanded of a good and key economic variables such as the own-price of the good, the price of a related good, and the consumer's level of income. We further analyze these relationships in Chapter 6 where we derive the market demand curve for a good by aggregating the individual demand curves developed in Chapter 5. In Chapter 7 we examine the concept of elasticity and apply it to the market demand function in terms of own-price, cross-price, and income elasticities of demand. In addition to discussing the theoretical, graphical, and mathematical analyses of elasticity, we also explore a variety of real-world applications of elasticity measures.

A major change in topics occurs in Chapter 8; in this and the following four chapters, we develop the theory of the firm. Initially, we examine the behavior of the firm from a short-run perspective by introducing a production function containing only one variable input. In Chapter 9 we relax this assumption by allowing all inputs used by the firm in the production of its output to vary, thereby shifting the analysis of firm behavior from a short-run to a long-run perspective. In Chapter 10 we apply the Lagrangian multiplier method to the theory of the firm to demonstrate how constrained optimization techniques can be applied to various production decisions faced by profit-maximizing firms. The concepts comprising production theory, in both the short run and the long run, provide the foundation for analyzing firm's costs of production in these distinct time periods. After we establish the critical connections between production theory and cost theory in Chapter 11, we direct our attention to the graphical and mathematical analysis of various types of cost functions for firms operating in the long run. In Chapter 12, we derive several short-run costs of production and analyze the various interrelationships among these costs both within and across time periods.

Beginning in Chapter 13 and continuing through Chapter 19, our attention shifts from the pure theory of the firm to the behavior of firms operating within various types of market structures. Specifically, in Chapter 13 we discuss the characteristics of perfectly competitive market structures and develop short-run models of perfectly competitive firm behavior. In Chapter 14 we direct our analysis to the behavior of perfectly competitive firms in the long run. We also analyze the performance results obtained from these models, regarding output, price, cost, and profit, for the individual firm and the market as a whole, and from a broader social perspective. In Chapter 15 we similarly analyze monopolistic market structures. This analysis is followed in Chapter 16 by our comparison of the economic performance results regarding price, output, cost, and profit associated with a monopolistic market to those obtained under perfectly competitive market conditions. In Chapter 17 we discuss oligopolistic market structures in terms of their specific firm and market characteristics, as well as their economic performance. We also analyze the traditional models of oligopoly using game theory in Chapter 18. We conclude our study of market structures in Chapter 19 with our analysis of monopolistic competition.

After examining the behavior of firms within four distinct market structures, Chapters 20, 21, and 22 discuss input markets. Specifically, we analyze labor and capital markets, focusing on the derivation of market supply and demand curves for both inputs, and the determination of input prices in these markets. Finally, we devote Chapters 23 and 24 to the topic of general equilibrium analysis. In many ways, Chapters 23 and 24 may be regarded as capstone chapters inasmuch as they incorporate information regarding consumer equilibrium which we developed in Chapters 3 and 4 with concepts related to producer equilibrium which we discussed in Chapters 9 and 10. We also examine issues regarding the efficiency of perfectly competitive markets, along with the inefficiency of monopolized markets using a general equilibrium framework.

ANCILLARIES

Accompanying our text is an ancillary package containing an Instructor's Manual and Study Guide. The Instructor's Manual includes chapter summaries, solutions to end-of-chapter exercises appearing in the text, and additional problems to assist professors in creating their exams. Students can access answers to selected exercises at the website for this text at www.prenhall.com/mathis . The Study Guide contains chapter summaries, key terms, and additional exercises, along with their solutions. We have written all of the ancillary items ourselves, thus ensuring accuracy and a very close coordination between these materials and our textbook.

Read More Show Less

Introduction

Microeconomic theory is one of the most important courses taken by economics and business students. We base this contention on the fact that microeconomics consists of analyzing the rational decision-making processes of many types of agents, including consumers, entrepreneurs, suppliers of resources, investors, and even government policy makers. This broad applicability of microeconomics to many types of decision-making problems endows this subject with special significance. Although many of the details associated with specific problems are supplied by other subject areas, microeconomics provides the framework and techniques for solving these problems. For this reason, the approach we use to present microeconomics focuses on constructing and analyzing fundamental models. By emphasizing broad-based underlying principles, students can analyze a wider variety of real-world problems than is possible by using an approach that dwells on overly specific microeconomic problem or puzzles.

A full and broad understanding of microeconomics is greatly facilitated by applying several tools of analysis. Accordingly, we develop concepts using verbal intuition, graphics, and calculus, carefully integrating these facets of microeconomic analysis throughout our text. Both the focus on fundamental principles and the integration of basic calculus throughout the text distinguish our approach from so many others. We bring in the calculus, not to complicate the analysis, but rather to simplify it. Using basic tools of calculus, we are able to demonstrate to students how to solve many models and problems by generating actual numerical solutions. We believe this approach is much more effective thanmerely presenting concepts in a survey manner. Furthermore, we demonstrate how calculus reinforces the graphical analysis, and in so doing, we can help students understand what the graphical solutions actually represent. It has been our experience that, without the underlying mathematics, students often view graphs as mere pictures to be memorized.

Students need only a basic understanding of differential calculus in order to use this text. As we have observed over the years, most students have little difficulty performing basic calculus operations. Rather, their difficulty often lies in synchronizing not only the calculus, but also the graphics, with specific microeconomic concepts. We believe we have solved this problem by integrating calculus throughout the text, directly connecting it with each microeconomic concept, rather than presenting it in detached appendices or footnotes.

AUDIENCE

The basic concepts covered in this text are central both to a course in intermediate microeconomics and to first-year graduate courses for MBA or master's-level economics programs. To give professors some flexibility regarding the level at which some material is covered, we have placed the dagger symbol before those sections that contain advanced analyses. Students should already be familiar with many of the basic principles covered in our text, for they are common to all levels of microeconomic theory. In this text, we often ask readers to recall certain material from their principles of microeconomics course, with the expressed intent to remind students of key concepts covered in their introductory microeconomics course which we examine at a higher analytical level in this book.

AN INTEGRATED APPROACH

We have subtitled our book "An Integrated Approach" to signal our extraordinary attention to presenting theoretical microeconomic concepts with words, graphs, mathematics, and real-world examples. Each method of presentation is carefully and closely coordinated with the others. By its very nature, mathematics is a very succinct and precise means of expressing economic concepts. Accordingly, we have made extensive use of calculus throughout this text in order to demonstrate to students that mathematics can actually simplify the way they express microeconomic theories and solve economic problems. To ensure that students truly comprehend the topics in our text, we include several numerical examples in each chapter and solve them step by step. Our book encourages students to get "down and dirty" with microeconomic theory by motivating them to sit down with pencil and paper and solve real microeconomic problems. Through these problems students can immediately test their understanding of key topics, since they can check their answers with the solutions appearing in the text. We also include numerous real-world applications in an effort to relate the microeconomic concepts we cover in the text to actual events. These applications are based on articles published in a variety of well-known business and economics publications such as The Wall Street Journal, The Economist, Business Week, and Fortune.

Finally, throughout this text we make frequent references to topics we covered in previous sections or chapters. By doing so, we establish cross-references of important, interrelated topics as they are developed. We believe this process helps the reader to get the "big picture" and thereby avoid seeing the chapters as separate, unrelated entities. These cross-references also facilitate the student's ability to return to specific sections and review prerequisite concepts when necessary. Throughout this book, key terms are presented in bold when they are first introduced. They are also listed with their page references at the end of each chapter, as well as in the Glossary at the end of the book.

ORGANIZATION

We have broadly divided the topics covered in this text into six major areas: preliminary mathematical techniques, theory of the consumer, theory of the firm, market structures, input markets, and general equilibrium analysis. Specifically, in Chapters 1 and 2 we develop the essential mathematical tools used throughout this book. In Chapter 1 we review the rules of derivatives for both univariate and multivariate functions, and we develop the method for optimizing univariate functions. In Chapter 2 we expand our discussion of optimization, focusing on unconstrained and constrained optimization of multivariate functions. We also carefully develop the Lagrangian multiplier method and demonstrate its use in modeling rational decision making by consumers and firms in the presence of constraints.

Following this mathematical review, the next five chapters concentrate on the economic behavior of consumers. In Chapter 3 we establish the foundations of consumer choice by developing utility functions and the related concepts of marginal utility and indifference curves. In an appendix to Chapter 3 (available at the website for this text), we modify the traditional consumer choice model to incorporate the effect of risk on the consumer's decision-making process. In Chapter 4 we extend our analysis of consumer theory by introducing the concept of a budget constraint. Using the Lagrangian multiplier method introduced in Chapter 2, we demonstrate how to solve the consumer's constrained utility maximization problem both mathematically and graphically. In Chapter 5 we use the results of this process to establish relationships between the quantity demanded of a good and key economic variables such as the own-price of the good, the price of a related good, and the consumer's level of income. We further analyze these relationships in Chapter 6 where we derive the market demand curve for a good by aggregating the individual demand curves developed in Chapter 5. In Chapter 7 we examine the concept of elasticity and apply it to the market demand function in terms of own-price, cross-price, and income elasticities of demand. In addition to discussing the theoretical, graphical, and mathematical analyses of elasticity, we also explore a variety of real-world applications of elasticity measures.

A major change in topics occurs in Chapter 8; in this and the following four chapters, we develop the theory of the firm. Initially, we examine the behavior of the firm from a short-run perspective by introducing a production function containing only one variable input. In Chapter 9 we relax this assumption by allowing all inputs used by the firm in the production of its output to vary, thereby shifting the analysis of firm behavior from a short-run to a long-run perspective. In Chapter 10 we apply the Lagrangian multiplier method to the theory of the firm to demonstrate how constrained optimization techniques can be applied to various production decisions faced by profit-maximizing firms. The concepts comprising production theory, in both the short run and the long run, provide the foundation for analyzing firm's costs of production in these distinct time periods. After we establish the critical connections between production theory and cost theory in Chapter 11, we direct our attention to the graphical and mathematical analysis of various types of cost functions for firms operating in the long run. In Chapter 12, we derive several short-run costs of production and analyze the various interrelationships among these costs both within and across time periods.

Beginning in Chapter 13 and continuing through Chapter 19, our attention shifts from the pure theory of the firm to the behavior of firms operating within various types of market structures. Specifically, in Chapter 13 we discuss the characteristics of perfectly competitive market structures and develop short-run models of perfectly competitive firm behavior. In Chapter 14 we direct our analysis to the behavior of perfectly competitive firms in the long run. We also analyze the performance results obtained from these models, regarding output, price, cost, and profit, for the individual firm and the market as a whole, and from a broader social perspective. In Chapter 15 we similarly analyze monopolistic market structures. This analysis is followed in Chapter 16 by our comparison of the economic performance results regarding price, output, cost, and profit associated with a monopolistic market to those obtained under perfectly competitive market conditions. In Chapter 17 we discuss oligopolistic market structures in terms of their specific firm and market characteristics, as well as their economic performance. We also analyze the traditional models of oligopoly using game theory in Chapter 18. We conclude our study of market structures in Chapter 19 with our analysis of monopolistic competition.

After examining the behavior of firms within four distinct market structures, Chapters 20, 21, and 22 discuss input markets. Specifically, we analyze labor and capital markets, focusing on the derivation of market supply and demand curves for both inputs, and the determination of input prices in these markets. Finally, we devote Chapters 23 and 24 to the topic of general equilibrium analysis. In many ways, Chapters 23 and 24 may be regarded as capstone chapters inasmuch as they incorporate information regarding consumer equilibrium which we developed in Chapters 3 and 4 with concepts related to producer equilibrium which we discussed in Chapters 9 and 10. We also examine issues regarding the efficiency of perfectly competitive markets, along with the inefficiency of monopolized markets using a general equilibrium framework.

ANCILLARIES

Accompanying our text is an ancillary package containing an Instructor's Manual and Study Guide. The Instructor's Manual includes chapter summaries, solutions to end-of-chapter exercises appearing in the text, and additional problems to assist professors in creating their exams. Students can access answers to selected exercises at the website for this text. The Study Guide contains chapter summaries, key terms, and additional exercises, along with their solutions. We have written all of the ancillary items ourselves, thus ensuring accuracy and a very close coordination between these materials and our textbook.

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