CASE STUDY + QUESTION EXAM – BUS 5323 - -22FYT08

Managerial Economics

Session 2: Case study - Kodak Case

https://acasestudy.com/kodak-case-study/
(Tìm case study trong link này)

Session 3: Executive Summary - Staples case

The essence of the present case is related to impact of a proposed merger between two
Companies Staples and Office Depot dealing in the Office Superstore market. These
companies deal in an existing highly competitive triopoly market where the three
players are Staples, Office Depot and Office Max. Because of this competition
consumers are enjoying a benefit of competitive lower prices. Statistically there is
almost zero probability of any other player entering the market owing to the large scale-
low cost operations of the existing players. If the proposed merger of the two bigger
players ultimately materializes, there will be a virtual monopoly. This is because all
other players will be reduced to non-existing minorities owing to resulting gigantic size
of the merged entity in terms of market share. The same is reflected by the resulting
market concentration of these firms calculated in terms of the HHI index which is
expected to be 10000 in 15 markets where they will have absolute monopoly, 5003-
9049 in 27 metropolitan areas and 1800-5000 in 42 geographical areas where the
marginal players are already competing. Added to this will be the elimination of planned
competition between the two. From the pro-merging perspective, this merger would
bring an end to destructive price competition – not reason enough, we anlayse, in the
face of resulting in no competition era. The second projected benefit is to generate
significant cost savings - still in our analysis this is rather speculative one and can be
achieved through other means without any anticompetitive effect. Finally the third plus
point speculated is that of avoiding even the remotest possibilities of the acquisition in
the long run -the reality though is otherwise as other retailers catering to small
businesses are unable to reposition in markets where these Companies operate. The anti-
merging views suggest that the resulting massive entity will have a free will to set its
own rules in terms of uncontrolled price setting, increased consumer suffering due to
sustained demand, suggested by the current facts that the entity may increase price
where they do not face any competition and reduce the price so low, where they face
competition, that any potential competitor will be driven out of the market. This clearly
shows that the proposed merging will lead to a duopoly-The merged entity and
OfficeMax, which will be ineffective in every aspect and fast giving away space for
monopoly to set in and the Consumers will be bound to face a steep price rise in the
new set-up. This justifies every way for the regulatory authorities to interfere and affect
an injunction to the proposed merger to preserve the benefits of a free and open
competition for the public.

Session 4 – Timed Midterm Exam

Question 1: College Retirement Equities Fund (CREF) is a pension fund that has
billions of dollars invested in the stock market. Fund participants recently voted on a
proposal that would have placed strict limits on the amount of compensation paid to
CREF executives. Why do you think 75 percent of the participants voted against the
proposal?

Question 2: Airlines give away millions of tickets each year through their frequent
flyer programs, with the typical airline awarding a free ticket for each 25,000 miles
flown on the airline. The average airline ticket costs $500 and is for a 2,500-mile
round trip. Given this information, evaluate the following statement: Airlines could
have the same effect on demand by eliminating their frequent flyer programs and
simply lowering the average ticket price by 10 percent.

Question 3: You have been hired to replace the manager of a firm that used only two
inputs, capital and labor, to produce output. The firm can hire as much labor as it
wants at a wage of $5 per hour and can rent as much capital as it wants at a price of
$50 per hour. After you look at the company books, you learn that the company has
been using capital and labor in amounts that imply a marginal product of labor of 50
and a marginal product of capital of 100. Do you know why the firm hired you?
Explain.

Session 8 – Non-Proctored Final Exam

Question 1: Two executives were arrested by authorities for embezzling money
from their firm. Even though there was no confession, the prosecutor only had
enough evidence to put them in prison for 10 years. Given a confession,
however, she was certain to jail them for life without parole, since they killed a
law enforcement officer who was investigating the case. The prosecutor put the
two prisoners in separate rooms, and told them the following: "If you confess
and your partner does not, I'll give you a year's probated sentence but put your
partner in prison for life without a chance of ever getting out. Of course, if your
partner confesses and you don't, you'll get the life sentence without a chance of
ever getting out and he'll get one year's probation. I must warn you, however,
that if you both confess I'll have enough evidence to put you both away for life
without parole."

a. Do you think the prosecutor's bargain will induce the two executives to
confess? Explain.

b. Would your answer change if the life sentence carried the possibility of
parole? Explain.

Question 2: Firms like McDonald's and Wendy's sell hamburgers, salads, and
other products that are differentiated in nature. While numerous fast-food
restaurants exist in most locations, the differentiated nature of the firms' products
permits them to charge prices that are in excess of marginal cost. Given these
observations, is the fast-food industry most likely a perfectly competitive
industry, a monopoly, monopolistically competitive, or an oligopoly? Use the
causal view of structure, conduct, and performance to explain the roles of product
differentiation in the industry, and explain how the feedback critique applies in
this context.

Question 3: A risk-averse manager is considering a project that will cost $100.

There is a 10 percent chance the project will generate revenues of $100, an 80
percent chance it will yield revenues of $50, and a 10 percent chance it will yield
revenues of $500. Should the manager adopt the project? Explain