Question 1

Assume that you are the new CEO of a major corporation in Bahrain that has five major
product lines each run as separate corporations. You discover that if you invested the
company’s financial resources outside of the firm that it could earn a 15% rate of return on
the investment. You tell all the presidents of each of these subsidiary companies that in
order for them to remain with the company that their return on capital must equal to or
exceed 15% rate of return. Is the advice of the CEO feasible? Use at least two economic
principles in the course to explain why the CEO’s advice is sound. Discuss your answer
fully. Maximum of 700 words.

I feel that the CEO is justified. Since he is getting 15% return that is guaranteed, it is expected

that he is able to generate the same from his investment. I shall explain it with the help of the

economic principles that I have learnt as a part of this report.

Opportunity Cost:

We all make daily decisions, regardless of who we are, rich or poor, or where we come from in

this world. It's worth noting that scarcity and opportunity cost play a role in these decisions,

which range from simple ones like what to eat for breakfast, lunch, and supper to more

sophisticated ones like earning o certain amount on our investments and also how to manage our

portfolio. These decisions are often based on the principle of sacrifice (Ansar, A., B. Flyvbjerg,

A. Budzier and D. Lunn (2016)). It shows that if we are choosing a certain alternative, what

would be value of the sacrifice that we are making to use that alternative. In this case, the CEO is

already receiving 15% for his investment from an alternate investment. Therefore he has to now

choose between investing in that alternative or keep running the firm. Since he is getting 15% he

is interested to receive at least 15% on his investment in the company which is very much

realistic. He is foregoing 15% and therefore is expecting his managers of sub decisions to get
him at least 15%. The expense of swapping one product or action for another is known as the

opportunity cost. This notion allows people to assess the benefits and drawbacks of various

decisions. It indicates that humans are required to recognize accessible options, weigh the

benefits and drawbacks of each option, and finally choose the optimal option (Buckley, T., S.

Nicholas, and M. Brown (2017)). That decision symbolizes the opportunity cost; you have to

lose one side in order to win the other. Therefore the CEO is justified according to this economic

principle.

Marginal Principle:

The marginal principle aids in economic decision-making and determining how a change in one

variable affects another. As a result, it is easier to compare the marginal benefit and marginal

cost. The marginal principle states that in order to maximize profits it is necessary that units are

produced which have lower marginal costs (Easterly, W. (2003)). As a result, the managerial

control variable should be increased to the point where marginal benefit equals marginal cost in

order to maximize overall benefits. The marginal cost rises as the degree of activity rises,

whereas the marginal gain falls.

The firm will profit from that unit if the marginal revenue (the increased revenue from selling an

additional unit) is greater than the marginal cost (the additional cost of selling an additional unit).

If the marginal cost is less than the marginal revenue, on the other hand, the firm should produce

less (Ekanayake, E.M. and A. Mukherjee (2010)). When the marginal cost and income are

identical, the profit maximizing level is reached. The price is then established so that the amount

required equals the output level that maximizes profit.

This shows that since the cost controls are in the hand of the company itself, it can always

maximize profit from one unit more than the other and therefore would be able to get the desired

rate of 15% or more. However, if it goes for investment in the other company, it shall not have

that much control on the operations and therefore the CEO can guide and monitor the costs to

make sure that he gets at least 15% return from each department.

References

1. Ansar, A., B. Flyvbjerg, A. Budzier and D. Lunn (2016), does infrastructure investment lead

to economic growth or economic fragility? Evidence from China, Oxford Review of

Economic Policy, Volume 32, Number 3 https://doi.org/10.2139/ssrn.868631.

2. Buckley, T., S. Nicholas, and M. Brown (2017), China 2017 Review: World’s Second-

Biggest Economy Continues to Drive Global Trends in Energy Investment, Institute for

Energy Economics and Financial Analysis https://doi.org/10.1016/j.rser.2011.07.151.

3. Easterly, W. (2003), “IMF, and World Bank Structural Adjustment Programs and Poverty”,

in Dooley and Frenkel (eds) Managing Currency Crises in Emerging Markets.

4. Ekanayake, E.M. and A. Mukherjee (2010), “Trade Blocs and the Gravity Model: A Study of

Economic Integration among Asian Developing Countries”, Journal of Economic Integration

25(4), December.

5. European Parliament (2017), EU framework for FDI Screening.

Question 2

Fossil fuels (oil, coal, and natural gas) are our most traditional source for power
generation. These days, alternative energy sources, often touted for their environmental
friendliness and even as potential sources of economic growth by our elected officials, have
opportunity costs associated with them. In view of this, compare between the values of the
current tradeoffs made by switching to alternative energy sources to the potential future
environmental benefits from using less polluting sources of energy in the country. Do you
believe that Bahrain should switch to greater usage of alternative energy? Maximum of 800
words.

Several renewable energy sources, including as solar, hydrothermal, geothermal, and wind
power, are currently the primary sources of energy in various states. This is also a positive
attribute for Bahrain since it is sunny through out the year in Bahrain (Basso, L. C. (2019)). The
Sun, which is considerable as a great source of renewable energy is available in abundance. This
makes it susceptible to use it as an alternate energy source.

As a result, alternative energy sources help the economy, citizens in a country, and the

environment, and are rapidly gaining traction as primary energy sources for homes and

companies. Alternative energy sources such as wind, solar, and hydrothermal are pollution-free

and do not contribute to climate change. Wind, solar, and nuclear energy are examples of

renewable energy sources that do not emit carbon or other greenhouse gases (Kalogirou, S.

(2020)). As a result, they have aided in lowering the harmful effects that are caused by the

emission of greenhouse gases that harm the environment in a bad way. (Moriarty, 2020)

Electricity generation from renewable sources of energy provides for two-thirds of the reduction

in greenhouse gas emissions that contribute to global warming, especially when solar, wind,

nuclear atoms, geothermal, and even hydro thermals are used (Kalogirou, 2020). Renewable

energy technologies, on the other hand, are supposed to employ even more people. For example,

the solar business employed around 100,000 people full and part time in production, solar

installation, and sales. In 2009, the hydroelectric power business employed over 250,000 people,

while the geothermal energy industry employed over 5200 people (Moriarty, P., & Honnery,

D. (2020)). Increasing the usage of renewable energy has the potential to generate even more

jobs). In 2009, the Union of Concerned Scientists examined the economic benefits of a 25%
renewable energy standard and found that policies promoting these alternative energy sources

would generate three times as many jobs as fossil-fuel-based electricity, which is expected to

generate more than 202,000 jobs by 2025. (Basso, 2019)

Apart from the jobs that these renewable energy businesses directly produce, their growth and

development also have a positive economic ripple effect (Trifu, Prof. A. (2020)). The renewable

energy supply chain, for example, as well as other unrelated industries, will greatly profit.

Increased business and household earnings, as well as other important economic development

benefits the owners of renewable energy projects pay the local government income and property

taxes, as well as other contributions .The funds raised can be used to support critical public

services, particularly in rural areas where projects are typically located. (Kalogirou, 2020)

Furthermore, these energy sources are limitless and have a large energy supply. Sunny skies,

powerful winds, solar heat, rapid moving water, and plant wastes can all contribute to a

constantly replenished and large energy resource supply on a global scale. Renewable energy

resources of various types have the technical capability and promise to provide all of a country's

electricity needs on a consistent basis unlike fossil fuels, which are unevenly spread over the

globe, the global economy is reliant on a small number of countries that export them. Alternative

energy can greatly reduce reliance, hence improving energy security by ensuring a reliable and

cost-effective energy supply. (Usman, 2021)

To summarize Bahrain companies should use them as they are numerous, emission-free, have

lower costs associated with equipment repair, and have been shown to promote human health.

They are widely available, thus they are unlikely to be depleted and leave consumers in a bind.

The generation of electricity or power from these many energy sources is "green" and "clean."
People switching to power or electricity generated by these alternative energy sources will

greatly reduce carbon dioxide emissions from conventional energy sources, therefore minimizing

and solving the problem of global warming (Usman, M., Khalid, K., & Mehdi, M. A. (2021).

Alternative energy sources can help to mitigate the consequences of traditional energy sources'

water, air, and soil pollution in a reasonable way. The manufacturing and industrial revolution

have caused significant damage to the globe, necessitating rapid action in order to maintain the

planet sustainable for future generations. As a result, the utilization of alternative energy sources

is the most significant step that can be taken to avert additional environmental damage.

References

1. Basso, L. C. (2019). Opportunity Cost - Critique of a Concept. SSRN Electronic Journal.

https://doi.org/10.2139/ssrn.868631

2. Kalogirou, S. (2020). Renewable Energy. In www.journals.elsevier.com. Retrieved from

https://www.journals.elsevier.com/renewable-energy

3. Moriarty, P., & Honnery, D. (2020). What is the global potential for renewable energy?

Renewable and Sustainable Energy Reviews, 16(1), 244–252.

https://doi.org/10.1016/j.rser.2011.07.151

4. Trifu, Prof. A. (2020). The Marginal Diminishing Returns/Marginal Increasing Returns in

The Pursuit of Happiness. Global Journal of Management and Business Research, 9–11.

https://doi.org/10.34257/gjmbrbvol20is1pg9

5. Usman, M., Khalid, K., & Mehdi, M. A. (2021). What determines environmental deficit in

Asia? Embossing the role of renewable and non-renewable energy utilization. Renewable

Energy, 168, 1165–1176. https://doi.org/10.1016/j.renene.2021.01.012