Includes bibliographical references and index.

1: Basic concepts -- Introduction -- Economists' view of behavior -- Markets, organizations, and the role of knowledge -- 2: Managerial economics -- Demand -- Production and cost -- Market structure -- Pricing with market power -- Economics of strategy: creating and capturing value -- Economics of strategy: game theory -- Incentive conflicts and contracts -- 3: Designing organizational architecture -- Organizational architecture -- Decision rights: the level of empowerment -- Decision rights: bundling tasks into jobs and subunits -- Attracting and retaining qualified employees -- Incentive compensation -- Individual performance evaluation -- Divisional performance evaluation -- 4: Applications of organizational architecture -- Corporate governance -- Vertical integration and outsourcing -- Leadership: motivating change within organizations -- Understanding the business environment: the economics of regulation -- Ethics and organizational architecture -- Organizational architecture and the process of management innovation.

This approach to managerial economics takes models from recent economic research and applies them to the internal structure of the firm. After teaching basic applied economics, the authors look inside the firm and apply this analysis to management decision making.