Managerial Economics

Managerial Economics

Question

Week 2 – Discussion 1

1. What is the marginal
rate of substitution (MRS) and why does it diminish as the consumer substitute’s
one product for another? Use examples to illustrate.

Guided Response:
In 300 words or more, please, provide your
response to the above discussion question. Find two goods from your own
consumption basket and explain how the MRS changes for the two products as you
substitute one for the other.

Week 2 – Discussion 2

1. Please, read the article Hainer, R. (2010), provided in
the required readings section for this week. The tobacco industry is a prime
example to consider when talking about price elasticity of demand. While
nicotine use can be addictive for many users, it is not addictive for the
so-called “social smokers”.

What can we say about the price elasticity of demand for
nicotine products (such as cigarettes, pipes, tobacco) in the group of nicotine
addicted users, versus the group of “social smokers”? Can we say
whose demand is likely to be more elastic? Why?

Guided Response:

Provide your response to the discussion question in 300
words or more. Further, comment on the effectiveness of government policy aimed
at reducing the negative effects of smoking on health. For example, consider
high taxation on producers? – is that effective?

Week 3 – Discussion 1

1. Two partners
own together a small landscaping business in North Carolina, called Summer Lawn
Care. They have been specializing in summer grass seeding, installation, and
maintenance. Recently, the partners acquired special technology and know-how
for winter grass installations and maintenance. They also added a tree cutting
service as recent storms in the area had caused demand for this service to
soar. One of the partners insists that the name of the business should change to
Lawn and Tree Care, so that it better reflects the range of services and, thus,
generates more customer interest, and thus contracts. The second partner wants
to keep the old name and argues, “We have already paid for business cards,
vehicle paint, signage, and ads in Yellow Pages”. Evaluate the arguments
of the two partners. Explain and illustrate their points by identifying the
relevant and irrelevant costs for this decision.

Guided Response:
In 300 words or more, please, provide your
response to the above discussion question. Identify all the costs in the
decision process, including explicit costs, implicit costs and sunk costs.

Week 3 –
Discussion 2

1. Explain what is meant by “contribution analysis”.
Carefully define the term and provide examples to illustrate it.

Guided Response:

Can you think of a recent example where you had to evaluate
the incremental costs and benefits of different options in order to make a
decision? In 300 words or more, please, provide your response to the above
discussion question.

Week 4 – Discussion 1

1. An interesting
example of strategic behavior comes from a 1997 article about Microsoft’s
investment in Apple (New Straits Times, 1997). The article is included in the
Required Readings list. Facing tough anti-trust scrutiny from government
agencies, Microsoft provided financial support to Apple in order to ensure
Apple’s survival and, therefore, to ensure that competitiveness in the industry
remains. Moreover, the partnership with Apple provided an additional market for
Microsoft’s products – the MS Office and the IE products were to be bundled
with the MAC OS as one of the conditions for this financing. Discuss this case
in the context of market structure and strategic behavior. What market
structure do these firms operate in? Why did Microsoft need to preserve
competitiveness in the industry? What was Microsoft afraid of in the event that
Apple did not survive?

Guided Response:
In 300 words or more, please, provide your
response to the above discussion question. Further, do you think Microsoft
regrets taking action in light of Apple’s performance today?

Week 4 – Discussion 2

1. Bulls Eye
department store specializes in the sales of discounted clothing, shoes,
household items, etc. similar to the offerings at a regular Walmart or Target.
Bulls Eye is the only department store in Show Low and the nearest other
discount retailer is Target, located 49 miles away in Eagar. Bulls Eye,
therefore, has some market power in its local area. Despite having some market
power, Bulls Eye is currently suffering losses. An analyst at Bulls Eye is
recommending to the manager to raise prices, so that profitability can be
improved. The manager is unsure of this strategy as recent data points to
increasing numbers of individuals shopping more and more. What are the pros and
cons of raising the prices at Bulls Eye and would that strategy be profitable?

Guided Response:
Consider demand elasticity and market structure
in your response. How is increasing of the price going to impact the company’s
revenues given its demand elasticity? In 300 words or more, please, provide
your response to the above discussion questions.

Week 5 – Discussion 1

1. Sometimes, a bidder
on a work contract may bid lower than what would maximize his/her profit from
the contract and the reason for that is to create goodwill (to increase
expected future business from the buyer). How would you value the goodwill that
is obtained in this way?

Guided Response:
Think about an example that pertains to you. If
there is expected goodwill would you be prepared to bid lower to get a
contract? Explain your reasons. In 300 words or more, please, provide your
response to the above discussion question.

Week 5 – Discussion 2

1. Bayer Schering Pharma
AG, Germany owns Alka-Seltzer, which was launched in 1931 and was meant for
relief of minor aches, pains, inflammation, fever, headache, heartburn, sour
stomach, indigestion, and hangovers. Alka-Seltzer Plus was a spin-off of the
original medicine, meant to relieve colds and flu.

The company has recently introduced a new and
improved Alka-Seltzer Plus, as described in this.youtube.com/watch?v=953SiLcvujk”>TV ad.

The ad shows that Alka-Seltzer Plus can fight
congestion, unlike NyQuil.

Explain how Alka-Seltzer Plus has been quality
and price-positioned in an existing market. In your opinion, has Bayer
positioned their product appropriately in the market for cold and flu symptoms
relief products? Would you advise Bayer to use a skimming or a penetration
pricing strategy? Explain your reasoning.

How do you think Proctor and Gamble, the company
who produces Vicks NyQuil, would respond to the ad?

Guided Response:
In 300 words or more, please, provide your
response to the above discussion question. If Bayer is currently making normal
profits on most of the products in its product line, but is making pure profits
on its new Alka-Seltzer Plus with decongestant, what should Bayer do to
increase its profits?

Week 6 – Discussion 1

1. Suppose that GE is
trying to prevent Maytag from entering the market for high efficiency clothes
dryers. Even though high efficiency dryers are more costly to produce, they are
also more profitable as they command sufficiently higher prices from consumers.
The following payoffs table shows the annual profits for GE and Maytag for the
advertising spending and entry decisions that they are facing.

GE

MAYTAG


Advertising = $12m

Advertising = $0.7m


Stay Out

$0, $30m

$0, $35m


Enter

$1m , $20m

$12m, $15

Based
on this information, can GE successfully prevent Maytag from entering this
market by increasing its advertising levels? What is the equilibrium outcome in
this game?

Suppose
that an analyst at GE is convinced that just a little bit more advertising by
GE, say another $2m, would be sufficient to deter enough customers from buying
Maytag, thus, yield less than $0 profits for Maytag in the event it enters.
Suppose that spending an extra $2m on advertising by GE will reduce its
expected profits by $1.5 m, regardless of whether Maytag enters or stays out.
Would this additional spending on advertising achieve the effect of deterring
Maytag from entering? Should GE pursue this option?

Guided
Response:

In
300 words or more, please, provide your response to the above discussion
question. Please, show all your calculations and explain your responses.

Week 6 – Discussion 2

Describe the
circumstances under which a firm chooses a low-cost strategy to attain
sustainable competitive advantage. What about the situations when a differentiation
strategy is chosen? Provide specific real world examples.

Guided Response:
In 300 words or more, please, provide your
response to the above discussion question. You may research the current events
websites listed in the recommended resources for ideas of real world examples.

Managerial Economics