ECO550 Managerial Economics & Globalization
Week 1 Discussion
DQ1 Depending on where you are in your degree journey and where you are heading, you may be at very different points in your knowledge of economics and management. For this discussion, take some time to reflect on and respond to the following:
What master's degree are you pursuing?
What is your motivation for getting a graduate degree?
What is your ultimate career goal? How do you think this course might help you on your path toward this goal?
What, if any, are your concerns in taking this class? What supports might help to minimize your concerns?
To earn full credit for your discussion, you must complete one post and one follow-up or reply to a classmate. Make sure both the post and the reply focus on the questions asked.
DQ2 Context
In Chapter 5 of Managerial Economics, Froeb discussed post-investment holdup as a sunk cost problem associated with contract-specific fixed investments. The modern theory of contracts is sometimes called the theory of joining wills, which simply means when parties make an agreement they are joining together to complete an endeavor of mutual interest. The problem with all contracts that endure over time is that not all potential challenges can be anticipated. The idea of joining wills is that parties will attempt to seek accommodations to advance their mutual interest, so long as the return on the invested activity pays off. Froeb illustrates the idea by the example of marriage as a contract (1).
Sources
Luke M. Froeb. 2018. Managerial Economics: A Problem Solving Approach (5th ed.). p. 59. Cengage.
Instructions
Review the three scenarios below. Look for which, if any, of these scenarios presents an example of post-investment holdup.
Your firm conducted a search for a new chief financial officer and hired a highly qualified candidate with a yearly salary of $250,000. After six months, the person left to join another firm.
Your firm has an exclusive contract to assemble automobile seats for a number of luxury models. Almost 100% of the materials are imported and, of those, over 50% include parts manufactured in China. All of the prices on the parts from China increased by 25% when the U.S. imposed tariffs on China. Your company has informed all of its customers that increased cost must be passed on for your firm to continue supplying the seats. All of your customers reluctantly agreed to pay the additional cost.
Your company took note of your progress toward your MBA, and when the director for customer services left the company, you were asked to take over as interim director. You were encouraged to apply for the full-time position once you got your MBA. You served for 13 months, at which time your company was acquired by another company and your position was abolished.
In your discussion post, address the following:
Which of the above, if any, are an example of post-investment holdup?
Define the following and explain each within the context of a chosen scenario:
What is the sunk, or stranded, cost?
What is the contract?
Was the contract breached?
What are the damages?
Note: In your discussion posts for this course, do not rely on Wikipedia, Investopedia, or any similar website as a reference or supporting source.
To earn full credit for your discussion, you must complete one post and one follow-up or reply to a classmate. Make sure both the post and the reply focus on the questions asked.
ECO550 Managerial Economics & Globalization
Week 2 Discussion
Context
One source of growth is external growth from a merger or acquisition. Often mergers or acquisitions are justified on the basis of the expected benefits from "synergies" created by the merger or acquisition. Economists know these as economies of scale and economies of scope.
The focus of this discussion will be on defining economies of scale and economies of scope, as well as the key differences between the two within the context of a hypothetical scenario of your choice.
Instructions
Select one of the mergers and acquisitions below:
Sirius XM acquires Pandora.
The merger of Sprint, T-Mobile and Metro PCS.
The merger of Strayer University and Capella University.
The Renault–Nissan–Mitsubishi Alliance.
For your chosen scenario, address the following in your discussion post:
What are the synergies that come from the economies of scope?
What are the synergies that come from the economies of scale?
How do economies of scope and economies of scale differ within the context of your chosen scenario?
How are these two concepts different in general?
ECO550 Managerial Economics & Globalization
Week 3 Discussion
Context
In this week's discussion, you are going to be the CEO of a company. In anticipation of the upcoming quarterly disclosure of profits, you prepare your board of directors for the challenge that U.S. tariffs on Chinese imports are having on profits.
Conceptually, you will be asked to address elasticity as a measurement of the magnitude of a change. Additionally, you will be asked to examine how price elasticity of demand plays a role in consumer demand and how profits are affected by a tariff.
Instructions
For this discussion, please make yourself CEO of only one of these hypothetical companies.
'Tis the Season—'Tis the Season is one of the largest importers of holiday decorations, and the summer quarter is devoted to importing decorations such as lighting, artificial trees, table runners, and outdoor yard decorations—all of which have to be ready to ship by early fall. In fact, we at 'Tis the Season have a highly inelastic supply curve, ramping up to produce decorations for each season, and then once that season has been shipped, we move on to the next season. Fortunately, the price elasticity of demand for almost all of our products is 0.19.
We Build Big—We Build Big is one of the largest developers of new residential structure in the U.S. We Build Big builds everything from apartment complexes to new single-family homes. Critical materials such as lumber, gypsum board, and fabricate metal are largely imported. At We Build Big, we know that our production process, the supply curve, is relatively inelastic. The concern over profits is that the price elasticity of demand for housing is 1.0.
Very Big US Auto—Very Big US Auto is one of the oldest and largest auto manufacturers in the U.S. Very Big US Auto's supply chain is highly dependent on components manufactured in China and assembled in the U.S. Very Big US Auto knows that the price elasticity of supply is relatively inelastic and that demand is relatively elastic, with a price elasticity of demand of 1.2.
In your discussion post, address the following prompts within the context of your chosen hypothetical company of which you are the CEO:
Is the demand curve for your product relatively elastic, inelastic, or unitary elastic? Demonstrate this for your company's product by how much the quantity demanded will change if you pass on the 25% increase in cost from the tariff as a price increase for your product. In other words, show your calculation of the percentage change in the quantity demanded given a 25% change in the price.
Given your company's price elasticity of supply and price elasticity of demand, prepare a statement for your board of directors as to the potential impact of profits. Who will pay the larger share of the tariff: your firm or your customers?
ECO550 Managerial Economics & Globalization
Week 4 Discussion
Context
For this week's discussion, the focus will be on examining Porter's Five Forces as a tool for looking at the pressures on profits. Specifically, you will be looking at defining Porter's Five Forces and applying this tool to the market structures and pressures on profits of a chosen group of firms.
Instructions
Review the two groups of firms below:
Group 1: the accommodations industry (e.g., Hilton, Marriott Bonvoy, InterContintental Hotel Group).
Group 2: the wireless telecommunications industry (e.g., Verizon, AT&T, T-Mobile).
In your discussion post, address the following:
Which of these groups operates in a monopolistic competitive industry? Which operates in an oligopoly?
How did you determine the classification of each group? That is, what are the key characteristics of each group that indicate the type of industry it operates in?
Chose one of the groups and use Porter's Five Forces to analyze the pressures on profits for your chosen group's firms.
If you want to dig deeper into how one of the firms views the challenges it faces, you might want to look at the firm's investor page.
ECO550 Managerial Economics & Globalization
Week 5 Discussion
The idea that transactions in a marketplace work like an invisible hand is to some extent the idea that when a person chooses to buy an item at a given price, they are happy with the deal. There is no coercion. If the person really does not like the deal, they simply walk away.
This week's discussion will give you an opportunity to explore direct and indirect price discrimination within the context of a hypothetical scenario.
Instructions
For this discussion, use the following hypothetical scenario as the basis for your response:
Your business partner is strongly opposed to your proposal to charge your largest customers lower prices for your web-based services than you will charge your smaller customers. She is arguing it is unethical, unfair, and possibly illegal.
Address the following in your discussion post:
Make a case that both groups of customers will be satisfied with the deal and that this is a perfectly legal form of pricing in a business-to-customer relationship.
What degree is this type of price discrimination?
How will the plan increase revenue?
Why will both groups of customers be satisfied with the deal?
Why is this a legal form of pricing?
Use evidence from your textbook or other reputable sources to support your case to your business partner.
ECO550 Managerial Economics & Globalization
Week 6 Discussion
Context
What is game theory, and how do businesses use games?
In your Managerial Economics textbook, we consider a sequential-move game in which an entrant is considering entering an industry in competition with an incumbent firm (see Figure 15-1). There are several possibilities of how this sequential game will be played. We want to use the Froeb rule of look ahead and reason back.
Instructions
For your discussion post, use Figure 15-1 from the textbook as your starting point to address the following:
Can, and how does, the entrant succeed?
Is the incumbent ever in control of this game?
You may wish to review the old game known as Duopoly, as well as Antoine-Augustin Cournot, to help inform your post.
ECO550 Managerial Economics & Globalization
Week 7 Discussion
Context
This week's discussion focuses on decision error costs with regard to hiring new talent. Use the provided scenario as a basis to inform your post on decision-making impacts and Type I and Type II errors.
Instructions
The HR department is trying to fill a vacant position for a job with a small talent pool. Valid applications arrive every week or so, and the applicants all seem to bring different levels of expertise. For each applicant, the HR manager gathers information by trying to verify various claims on résumés, but some doubt about fit always lingers when a decision to hire or not to hire is made.
For your discussion post, address the following within the context of the scenario:
What are the Type I and Type II decision errors costs?
Which decision error is more likely to be discovered by the CEO?
How does this affect the HR manager's hiring decisions?
ECO550 Managerial Economics & Globalization
Week 8 Discussion
Context
There is frequent confusion about the terms asymmetric information, moral hazard, and adverse selection. Asymmetric information is the cause, while moral hazard and adverse selection are the outcome.
For this discussion, your focus will be to think through what these have to do with hiring a police officer.
Instructions
Consider the following statement:
Many police officer positions require the applicant to have a college degree even though the tasks of a police officer rarely call upon college course material.
In your discussion post, address the following:
Why don't police departments increase their applicant pool by dropping this requirement?
How does this relate to asymmetric information, moral hazard, and adverse selection?
How do Type I and Type II errors (and the human tendency to be risk-averse) relate to your answer?
ECO550 Managerial Economics & Globalization
Week 9 Discussion
Context
This week we look at the principle-agent problem and what went wrong at Wells Fargo. On March 28, 2019, Tim Sloan, the CEO of Wells Fargo, who was supposed to restore the bank's reputation, stepped down. After a very poor showing by Sloan in testimony about the bank before Congress and with long-standing restrictions by the Federal Reserve still in place, the bank seems unable to overcome the crisis created by a whole collection of deceptive practices which rose to the level of fraud. (For more information, refer to the 2018 article "Fed Won't Lift Wells' Growth Cap Until Deficiencies Are Fixed: Powell" from American Banker.)
On October 21, 2019, Charles Scharf officially assumed the role of CEO. Can he succeed in restoring the reputation of Wells Fargo as the bank that always does the right thing? This week's discussion will provide you with an opportunity to put yourself in the shoes of someone advising Mr. Scharf.
Instructions
For this discussion, you are going to advise Mr. Scharf on a key issue.
What about the incentive system employed by Wells Fargo resulted in massive creation of fake accounts by the retail operation? And why did it only get worse from there?
As you dig into this issue, remember Froeb's rule from Chapter 1: "Avoid the temptation to think about the problem from the employee's point of view . . . [and ask] how does the organization give employees enough information to make good decisions and the incentives to do so?" (1).
Your post for this discussion should answer the question above and address components of motivation and incentive in order to present Mr. Scharf with reasonable and evidence-supported advice on this issue.
Sources
Luke M. Froeb. 2018. Managerial Economics: A Problem Solving Approach (5th ed.). p. 8. Cengage.
Note: In your discussion posts for this course, do not rely on Wikipedia, Investopedia, or any similar website as a reference or supporting source.
To earn full credit for your discussion, you must complete one post and one follow-up or reply to a classmate. Make sure both the post and the reply focus on the questions asked.
ECO550 Managerial Economics & Globalization
Week 10 Discussion
Context
This week's discussion will provide you with an opportunity to apply Froeb's analytic method.
Read the example in the discussion instructions while keeping in mind the following questions:
Who made the bad decision?
What information did they have? And was it good, bad, or unclear?
What was their incentive?
Instructions
Read the following and then respond to the discussion prompt.
Intel made large loyalty payments to HP in exchange for HP buying most of their chips from Intel instead of rival AMD. AMD sued Intel under the antitrust laws, and Intel settled the case by paying $1.25 billion to AMD.
Address the following in your discussion post:
What incentive conflict was being controlled by these loyalty payments?
What advice did Intel ignore when they adopted this practice?
How did the Robinson-Patman Act apply to their practice?
Why did they ignore the advice?
ECO550 Managerial Economics & Globalization
Week 11 Discussion
Wow! You made it to the end. But it is not over. There is one more task.
We have covered a lot of subjects. We would love to hear what your takeaway is for the following:
What things do you think you will use the most?
What did you find most interesting?
What did you never know before?
Looking back, here is a list of some of the concepts and skills we covered:
Use the rational-actor paradigm, identify problems, and then fix them.
Use benefit-cost analysis to evaluate decisions.
Use marginal analysis to make extent (how much) decisions.
Make profitable investment and shutdown decisions.
Set optimal prices and price discriminate.
Predict industry-level changes using demand and supply analysis.
Understand the long-run forces that erode profitability.
Develop long-run strategies to increase firm value.
Predict how your own actions will influence other people's actions.
Bargain effectively.
Make decisions in uncertain environments.
Solve the problems caused by moral hazard and adverse selection.
Motivate employees to work in the firm's best interests.
Motivate divisions to work in the best interests of the parent company.
Manage vertical relationships with upstream suppliers or downstream customers.
