In Chapter 7, we open with a thorough discussion of “the theory of the firm,” followed by a conventional treatment of productivity and an introduction to costs. This chapter also has a lengthy discussion of expected applications (sunk costs, agency problems, insource/outsource), and a number of unusual but important applications (dedicated investments, franchising, tenure, and employee management).

In Chapter 4, we bring more sophistication to our demand curve analysis with a lengthy description of elasticity, a discussion of lagged-demand and network goods, and a dialogue on concerns about demand theory.

In Chapter 6, we discuss market versus government “failure” – contexts in which markets struggle to provide efficient outcomes and the prospective role of government (in its own struggles) to address market limitations (e.g., pollution). Given the significant dose of public policy throughout the book, we lay out various theories within political economy, modeling why agents in political markets do what they do – and then applying these theories to business practice.

In Chapter 1, we discuss some of the standard introductory concepts in any economics course. After defining scarcity and discussing the importance of incentives, we focus on the presence/absence of property rights (in general and in the workplace) – and introduce the “Prisoner’s Dilemma” with applications to various “tragedies of the commons” and “tragedies of the anticommons” in firms and the economy.

In Chapter 9, we have a conventional treatment of the model of “perfect competition,” with an extension to competition in markets by “price takers.” We detail profit maximization in the short run and long run. We also have lengthy discussions about the vital role of entrepreneurship; the myth of “the first-mover advantage”; and the importance of finding optimal team size and team pay.

In Chapter 11, we describe “monopolistic competition” and the role of advertising in product differentiation. We also describe ways to model mutual interdependency in oligopoly, including cartels and implied cartels. We describe efforts by government – in theory and in practice – to regulate the monopoly prices and to reduce market concentration through its antitrust powers. We describe the “innovator’s dilemma” – the common problem of industry leaders in deciding whether to pursue new opportunities or focus on core competencies. And we describe the “market for corporate control” – the presence of “internal monopolies” (and how managers can regulate them) and the role of takeovers in reducing corporate inefficiency.

In Chapter 8, we finish the conventional treatment of short-run and long-run costs, which sets the table for our discussion of profit-maximization within various market structures in Chapters 9–11. We also discuss the crucial “last-period problem” and the underrated role of debt/equity decisions on incentives and profit-maximization.

In Chapter 12, we describe labor markets in great detail, including the implications of labor as a “derived demand”; outcomes under competition, monopsony, and unions; the distinction between shirking and lax works demands as a fringe benefit; personal and statistical discrimination (with application to decision-making in business); and payment structures (with piece-rate pay and/or commissions).

In Chapter 10, we discuss monopoly, degrees of monopoly power, and the “price searching” behavior of firms who have discretion over price. We detail various (natural and artificial) barriers to entry (and exit). We provide a conventional description of the inefficiencies of monopoly power, but also note how the possibility of (at least short-term) monopoly profits provides a useful (if not necessary) incentive for entrepreneurs to innovate and create new markets.

Introduction

For decades, healthcare systems have been struggling with rising expenditure. The hospitals in developed countries consume up to 40% of healthcare resources (Eurostat Statistics Explained, 2016). Governments, in order to step up control over the costs of in-patient care, have implemented special methods of payment for medical services, such as the case-mix systems, as well as introduced professional managers into the medical setting and induced competition between hospitals (Miszczyńska and Antczak, 2020; Rusch, 2016). Medical professionals and managers are both agents ‘hired’ by the society to protect its welfare.