BUS530
Managerial Economics
Module 1 Case
SUPPLY AND DEMAND
Assignment Overview
Before beginning this assignment, make sure you have gone
carefully through all of the required readings for this module. It is very important to carefully absorb the
general concepts as well as the numerical examples in the background readings. For this assignment, you will have to answer
some purely conceptual questions, as well as some numerical problems. For conceptual questions, make sure to
thoroughly explain your answers and to cite specific readings from the required
background materials to explain your answers.
For numerical problems, make sure to show all of your work and explain
how you arrived at your answers (partial credit can be given if you get the
final answer wrong but do some of the steps correctly).
Case Assignment
Part A: Conceptual questions
Suppose you own a pet shop.
Your sales are decent but a marketing consultant tells you that you
could increase your sales and be able to charge a higher price if you spend
some money on local television ads. If
the consultant is right, will advertising lead to an increase in quantity
demanded? Or a shift in the demand
curve? Both? Neither?
Explain your answer and make sure to cite at least one of the required
readings in your answer.
You are the owner of a furniture factory. You normally produce 100 pieces of furniture
a day because that is how much you can produce given the amount of qualified
workers in your town and the amount of reasonably priced wood that you can
purchase locally. Then one day you get
an order from a large national retail chain who wants to purchase 200 pieces of
furniture a day from you. You are
hesitant, as you will have to pay higher wages to get some qualified workers to
move to your town. You also will need to
pay higher prices for wood because you will no longer be able to rely solely on
local suppliers and will have to spend more on shipping wood from other
towns. But you drive a hard bargain and
the retail chain agrees to pay one and a half times your normal price. Does this situation describe a change in
quantity supplied? A shift in the supply
curve? Both? Neither? Explain your answer and make sure to
cite at least one of the required readings in your answer.
Suppose marijuana has just been legalized in your
state. Nobody in your home town wants to
start a marijuana business, as this would be too much of a stigma. But being an MBA student, you know a good
business opportunity when you see one and decide to take a stab. Shortly after starting up your business, you
gain a loyal following of customers and start raking in some steep
profits. However, the local government
decides that they want a cut of your profits and starts charging a 20% sales
tax on marijuana. Do you think this
would lead to a 20% or greater loss in sales?
Do you think marijuana in this situation would be facing inelastic or
elastic demand? Explain your reasoning,
and make sure to cite at least one of the required readings regarding
elasticity.
Part B Quantitative Problem
Suppose the demand function for a new smartphone can be
expressed as QD = 1000 – 1.5P with QD
being quantity demanded and P being price.
The supply function can be expressed as QS = 50 + 2P
Fill out the following table using the above equations:
|
Price
|
Quantity Demanded
|
Quantity Supplied
|
Surplus Amount or Shortage Amount
|
|
200
|
|
|
|
|
220
|
|
|
|
|
240
|
|
|
|
|
260
|
|
|
|
|
280
|
|
|
|
|
300
|
|
|
|
|
320
|
|
|
|
|
340
|
|
|
|
Now answer the following questions:
What is the equilibrium price? You can compute this either using Microsoft
Excel, or by using algebra from the equations above and solving for a price
where quantity supplied equals quantity demanded. Show your work by either
showing the algebra steps or by showing how you used Excel to calculate.
Suppose the supply function changes to 100 + 2P. What is the new equilibrium? Show your work
by either showing the algebra steps or by showing how you used Excel to
calculate.
Assignment Expectations
Answer the assignment questions directly.
Stay focused on the precise assignment questions. Do not go
off on tangents or devote a lot of space to summarizing general background
materials.
For computational problems, make sure to show your work and
explain your steps.
For short answer/short essay questions, make sure to
reference your sources of information with both a bibliography and in-text
citations. See the Student Guide to Writing a High-Quality Academic Paper,
including pages 11-14 on in-text citations. Another resource is the “Writing
Style Guide,” which is found under “My Resources” in the TLC Portal.
BUS530
Managerial Economics
Module 1 SLP
SUPPLY AND DEMAND
For the SLP this session, come up with an idea for a
business you would like to start someday.
This should be a business in an industry that you are familiar with and
can find a lot of information about.
This could be a type of business that you are currently working for or
have worked for in the past, or a type of business that you are a frequent
customer of. Finally – since you will
have to make estimates about costs of starting up the business or what type of
price you can charge, it is best to keep your business idea relatively simple.
For this first SLP, discuss your business idea and do some
initial research on what prices your potential competitors in your home town
are charging. More specifically, write a
three-page paper discussing the following issues:
What business do you want to start, and why? Explain your
personal connection to this type of business and discuss sources of information
about this business that you plan to use for your SLP.
What prices are these businesses in your chosen industry
charging? Try to get at least ten
examples of businesses and the prices they are charging, and create a table
that lists the prices and any other relevant information, such as whether the
product they sell is high-end quality or lower-end quality.
Do you notice a large range of prices that businesses are
charging for the service or product? If
so, what factors do you think explain the range of prices? Is it the quality of the product or service,
location of the business, amount of advertising done by each business, other?
Based on your answers to Questions 1 and 2 above, do you
think your product or service will have elastic or inelastic demand? You don’t have to do any calculations since
you probably won’t have access to sales data on the businesses you are looking
at – but based on the range of prices, you should be able to get an idea about
how sensitive consumers of your product or service will be to changes in
price. In addition to your own research
about prices in your home town, cite some of the required background reading on
elasticity to justify your answer.
SLP Assignment Expectations
Answer the assignment questions directly.
Stay focused on the precise assignment questions. Do not go
off on tangents or devote a lot of space to summarizing general background materials.
Make sure to use reliable and credible sources as your
references. Articles published in established newspapers or business
journals/magazines are preferred. If you find articles on the Internet, make
sure they are from a credible source.
Reference your sources of information with both a
bibliography and in-text citations. See the Student Guide to Writing a
High-Quality Academic Paper, including pages 11- 14 on in-text citations.
Another resource is the “Writing Style Guide,” which is found under “My
Resources” in the TLC Portal.
BUS530
Managerial Economics
Module 2 Case
PRODUCTION AND COSTS
Assignment Overview
Before beginning this assignment, make sure you have gone
carefully through all of the required readings for this module. It is very important to carefully absorb both
the general concepts as well as the numerical examples in the background
readings. For this assignment, you will
have to answer some purely conceptual questions as well as some numerical
problems. For conceptual questions, make
sure to thoroughly explain your answers and to cite specific readings from the
required background materials to explain your answers. For numerical problems, make sure to show all
of your work and explain how you arrived at your answers (partial credit can be
given if you get the final answer wrong but do some of the steps correctly).
Note that you need to use Microsoft Excel to do the graphs for the numerical
problems.
Case Assignment
Part A: Conceptual questions
Suppose you own a television factory and at your current
level of output you have average total cost of $800 per television, average
variable costs of $700 per television, and a marginal cost of $400. If the price your buyers are willing to pay
is $500, should you decrease or increase production? Explain your reasoning, and make sure to cite
at least one of the required readings in your answer.
You are the owner of a restaurant, and currently you have
only one waiter. While this keeps costs
down, many of your customers go home because they are tired of waiting in line
or waiting for their order. You hire
four more waiters and waitresses, and you are now able to serve a dramatically
higher number of customers. Seeing the
huge productivity gains from hiring more staff, you then hire 20 more waiters
and waitresses. However, you are not
able to serve any more customers than you were able to when your staff size was
only four. In fact, your restaurant has
become overly crowded because there is not enough room in your restaurant for
all of your staff. You are confused as
to why hiring four more staff members increased your productivity, but hiring
20 more did not. What concept from the
background readings best describes what happened in this case? Explain your reasoning.
Part B: Quantitative problems
The following table gives the total weekly output of
bicycles at Al’s Bicycle Town.
Table 1
Labor Total
Product (TP) Average Product of labor
(AP) Marginal Product of labor (MP)
0 0 na na
1 100 100
100
2 300 -----
___
3 450 ___
___
4 ___ ___
110
5 630 ___
___
6 ___ 110
___
Complete this table.
Draw the graphs of the marginal product (MP) and the average
product (AP).
To learn how to plot the data in Excel, see https://www.youtube.com/watch?v=B3U9tDcoNeI
Where do the AP and MP curve cross?
The cost of 1 worker is $2000 per month. Total fixed cost is
$4000 per month.
Complete Table 2 using your answers from Table 1 and by
computing total variable cost (TVC) and total cost(TC).
Table 2
Labor Total
Product (TP) Total variable cost
(TVC) Total cost (TC)
0 0 na 4000
1 100 2000
___
2 300 -----
___
3 450 ___
___
4 ___ ___
12000
5 630 ___ ___
6 ___ 12000
___
Draw the graphs of
the TC and TVC curves. What is the relationship between these two curves?
Complete Table 3 by using your answers from the previous
Tables and calculating the AVC, ATC, and MC.
Table 3
Total Product (TP)
Average variable cost (AVC) Average total cost (ATC) Marginal cost (MC)
0 na na na
100 20 ___ 20
300 ----- ___ ___
450 ___ ___ ___
___ ___ 21.43 ___
630 ___ ___ ___
___ ___ ___ 66.67
Draw the graphs of the ATC, AVC, and MC curves. What is the
relationship between the ATC and AVC curves? Between the MC and AVC curves?
Assignment Expectations
Answer the assignment questions directly.
Stay focused on the precise assignment questions. Do not go
off on tangents or devote a lot of space to summarizing general background
materials.
For computational problems, make sure to show your work and
explain your steps.
For short answer/short essay questions make sure to
reference your sources of information with both a bibliography and in-text
citations. See the Student Guide to Writing a High-Quality Academic Paper,
including pages 11-14 on in-text citations. Another resource is the “Writing
Style Guide,” which is found under “My Resources” in the TLC Portal.
BUS530
Managerial Economics
Module 2
SLP
PRODUCTION AND COSTS
For Module 1, you did research on consumer demand and
pricing for your business idea. Continue
with the same business idea that you wrote about for Module 1, but now look at
the cost side of your business.
Do some research on various potential start-up expenses for
your business based on research on wages, office space rental rates, etc., in
your home town. More specifically, write
a three-page paper answering the following questions:
What do you think the main expenses will be for your
business? Make sure to discuss labor,
rent, equipment, and any other major expense you can think of.
Do some research on the internet or from your own personal
contacts to get a ballpark estimate of how much the specific expenses are in
your home town for the items that you listed in your answer to Question 1
above. You can use Craig’s List or
similar webpages to get an idea about wages for different positions that you
may need to hire for, and there are many webpages that have advertisements for
renting commercial property in different parts of the country.
Finally, break down your expenses into fixed plus variable
costs. Make sure to cite two of the
required background readings as justification for your classifications of your
different expenses into the fixed and variable cost categories.
SLP Assignment Expectations
Answer the assignment questions directly.
Stay focused on the precise assignment questions. Do not go
off on tangents or devote a lot of space to summarizing general background
materials.
Make sure to use reliable and credible sources as your
references. Articles published in established newspapers or business journals/magazines
are preferred. If you find articles on the Internet, make sure they are from a
credible source.
Reference your sources of information with both a
bibliography and in-text citations. See the Student Guide to Writing a
High-Quality Academic Paper, including pages 11- 14 on in-text citations.
Another resource is the “Writing Style Guide,” which is found under “My
Resources” in the TLC Portal.
BUS530
Managerial Economics
Module 3
Case
MARKET STRUCTURE AND GAME THEORY
Assignment Overview
As always, make sure to thoroughly review the required
background materials before starting the assignments. The assignment questions will require you to
do some calculations and also apply the concepts from the module. Question 3
differs from previous assignments in that you have to use an online simulation
tool; but this activity should be a fun break from the standard numerical
problems you have been doing.
Case Assignment
For this problem use the Herfindahl Index to compute market
concentration:
Suppose Apple has 45% of the U.S. market share for
smartphones, followed by Samsung with 30%, LG with 9%, Motorola with 8%, HTC
with 6%, and Nokia with 2%. What is the
Herfindahl Index for the smartphone industry based on these numbers? Based on
the Herfindahl Index, do you think the government would be willing to approve a
merger between Apple and Samsung?
Now suppose Nokia and Motorola come out with a new
smartphone that takes away a huge chunk of market share from Apple and Samsung.
The new market shares are 25% for Apple, 20% for Samsung, 20% for Motorola, 20%
for Nokia, 10% for LG, and 5% for HTC.
Use what you learned about perfect competition, monopoly,
and oligopoly to answer these questions:
In the table below is the quantity produced, the price, the
fixed costs, and variable costs for a perfectly competitive firm that faces a
constant price of $150 for its product regardless of the quantity it
sells. Use the information in the first
four columns to calculate the number for the last four columns. At what quantity should they produce based on
what you find with your results?
How do you think your answer might change if it became a
monopolist with all of its competitors leaving the market? Or if it became an oligopoly with only one or
two competitors?
|
|
|
Quantity
|
Price
|
Fixed Cost
|
Variable Cost
|
Total Cost
|
Marginal Cost
|
Total Revenue
|
Profit/
Loss
|
|
0
|
150
|
200
|
-
|
|
-
|
|
|
|
1
|
150
|
200
|
$140
|
|
|
|
|
|
2
|
150
|
200
|
$240
|
|
|
|
|
|
3
|
150
|
200
|
$320
|
|
|
|
|
|
4
|
150
|
200
|
$410
|
|
|
|
|
|
5
|
150
|
200
|
$520
|
|
|
|
|
|
6
|
150
|
200
|
$650
|
|
|
|
|
|
7
|
150
|
200
|
$810
|
|
|
|
|
|
8
|
150
|
200
|
$1,010
|
|
|
|
|
|
9
|
150
|
200
|
$1,310
|
|
|
|
|
|
10
|
150
|
200
|
$1,710
|
|
|
|
|
You’ve read about the prisoner’s dilemma in the background
readings. Suppose you are a business
owner with just one main competitor. If
neither you nor your competitor cut your prices, you will both be more
profitable. However, if your competitor
lowers its prices and you keep your prices high, then you will lose all of your
sales to your competitor. Every month
you and your competitor place advertisements in the local newspaper with your
price – so you need to decide each month whether or not to keep prices high, or
lower them based on what you think your competitor might do.
Go to the following webpage and test out some of your
potential price strategies:
http://www.gametheory.net/Mike/applets/PDilemma/Pdilemma.html
The strategy “defect” indicates lowering your prices. The
strategy “cooperate” means keep prices the same. Try out different strategies,
such as cooperating all the time or defecting sometimes. There are five different rounds of this game,
each with a competitor with different personalities and different
strategies. Play all five rounds and
experiment with different strategic approaches.
Report your scores for each round, and discuss which strategies seemed
to work the best for you.
Assignment Expectations
Answer the assignment questions directly.
Stay focused on the precise assignment questions. Do not go
off on tangents or devote a lot of space to summarizing general background
materials.
For computational problems, make sure to show your work and
explain your steps.
For short answer/short essay questions make sure to
reference your sources of information with both a bibliography and in-text
citations. See the Student Guide to Writing a High-Quality Academic Paper,
including pages 11-14 on in-text citations. Another resource is the “Writing
Style Guide,” which is found under “My Resources” in the TLC Portal.
BUS530
Managerial Economics
Module 3
SLP
MARKET STRUCTURE AND GAME THEORY
For this assignment, you will be building upon your Module 2
SLP by continuing to examine other businesses in your chosen industry. Remember
that the other businesses you wrote about in your Module 2 SLP will be your
future competitors if you decide to open your own business. So it is important to get an idea of the
competitive landscape of your chosen business.
After reviewing the required background readings and doing some more
research on your chosen industry, write a three-page paper discussing the
following issues:
What market structure is there for this line of business in
your home town? Is this a monopoly, oligopoly, monopolistic competition, or
perfect competition? Justify your answer
using both your own research on this type of business in your home town, and by
referencing some of the required background readings on different types of
market structures.
Now that you have examined market structure of your chosen
industry in your home town, do some research on IBIS World on market structure
in this industry nationwide. You can
access IBIS World by going to the main TLC Portal and clicking on “Additional
Library Resources”. A link to IBIS World
will come up. This direct link might
also work if you are already logged onto the Trident online library. What
information could you find regarding how concentrated or how competitive this
industry is?
Based on the information you found for Question 2, what
market structure do you think best describes this industry nationwide? Is this a monopoly, oligopoly, monopolistic
competition, or perfect competition? Explain your answer using both information
from IBIS World and the concepts from the required background readings.
SLP Assignment Expectations
Answer the assignment questions directly.
Stay focused on the precise assignment questions. Do not go
off on tangents or devote a lot of space to summarizing general background
materials.
Make sure to use reliable and credible sources as your
references. Articles published in established newspapers or business
journals/magazines are preferred. If you find articles on the Internet, make
sure they are from a credible source.
Reference your sources of information with both a
bibliography and in-text citations. See the Student Guide to Writing a
High-Quality Academic Paper, including pages 11- 14 on in-text citations.
Another resource is the “Writing Style Guide,” which is found under “My
Resources” in the TLC Portal.
BUS530
Managerial Economics
Module 4
Case
ECONOMICS OF ORGANIZATION AND STRATEGY
Assignment Overview
Apple and Samsung are often mentioned together, as they are
both world leading producers of smartphones.
However, they are much different companies in a variety of ways. Carefully review the background readings
concerning diversification and vertical integration. Then do some extensive research on Samsung
and Apple concerning their diversification and vertical integration strategies.
Case Assignment
When you have finished your research, write a four- to
five-page paper answering the following questions. Make sure to cite both the
required background readings as well as articles on Samsung and Apple:
To what extent does Apple engage in related
diversification? To what extent do they
engage in unrelated diversification?
To what extent does Samsung engage in related
diversification? To what extent do they
engage in unrelated diversification?
To what extent does Apple engage in backward (upstream)
vertical integration? To what extent do
they engage in forward (downstream) vertical integration?
To what extent does Samsung engage in backward (upstream)
vertical integration? To what extent do
they engage in forward (downstream) vertical integration?
Overall what major differences or similarities do you find
between Samsung and Apple’s diversification and vertical integration
strategies?
BUS530
Managerial Economics
Module 4
SLP
ECONOMICS OF ORGANIZATION AND STRATEGY
For this final SLP, imagine that your business has become
successful and you are now considering expanding the scope of your
company. Carefully review all of the
required background materials, and then write a three-page paper answering the
following questions. Make sure to cite
at least one of the required readings for each of your answers:
If you were to engage in horizontal integration, which of
your direct competitors would you decide to acquire? Overall, do you think horizontal integration
is the best long-run plan for your business if it is successful?
Do you think your business should vertically integrate over
time? Should you engage in backwards
vertical integration, forward vertical integration, both, neither? Explain your reasoning.
How about diversification/conglomerate strategy? Any advantage to diversifying your
business? Discuss unrelated
diversification and related diversification and whether or not these strategies
might be good for your business. Explain
your reasoning.
SLP Assignment Expectations
Answer the assignment questions directly.
Stay focused on the precise assignment questions. Do not go
off on tangents or devote a lot of space to summarizing general background
materials.
Make sure to use reliable and credible sources as your
references. Articles published in established newspapers or business
journals/magazines are preferred. If you find articles on the Internet, make
sure they are from a credible source.
Reference your sources of information with both a
bibliography and in-text citations. See the Student Guide to Writing a
High-Quality Academic Paper, including pages 11- 14 on in-text citations.
Another resource is the “Writing Style Guide,” which is found under “My
Resources” in the TLC Portal.
