# Trident BSU530 full course 2017

Question # 00496927 Posted By: mac123 Updated on: 03/07/2017 03:52 PM Due on: 03/08/2017
Subject Economics Tutorials:
Question
Module 1 - Case

## THE DEMAND AND SUPPLY MODEL

### Case Assignment

The Case assignment is performed using information on a company of your choice that is publicly traded in the stock market. If you are unsure which company to choose, you can look through the list of companies in the S&P 500 at the Yahoo Finance Portal (http://finance.yahoo.com/q/cp?s=%5EGSPC) or choose from a list of companies provided in theAppendix. Search the company’s website and obtain information about the company’s products, their markets, their recent price, revenue and profit history, and the main characteristics of the industry the company operates.

Using this information, write a 4 to 5 page paper commenting on two of the following four questions:

• Government regulators are concerned with market power. Does your company have market power? Or does your company operate in a competitive market? If so, provide a few examples.
• Does your company operate using only a price strategy, or does it employ other strategies, such as advertising and product differentiation? If so, explain why and provide a few examples.
• Do prices and other incentives play a significant role in your company? If so, explain why and provide a few examples. For example, how is the CEO of your company compensated? Salary only? Salary and bonuses? Salary and stock options? What is the reason for these alternative arrangements?
• Your company wants to increase its total revenue. One strategy is to offer a 10% discount. Your company, however, knows that its customers can be divided into two distinct groups according to their likely responses to the discount. The accompanying table shows how the two groups respond to the discount.

Group A Group B

(sales per week) (sales per week)

Sales before the 10% discount 1.55 million 1.50 million

Sales after the 10% discount 1.65 million 1.70 million

Using this information, and your knowledge of the relationship between total revenue and price elasticity of demand, compute using the midpoint method, the price elasticity of demand for Group A and Group B and explain how the discount will affect total revenue from Group A and Group B. If your company want to increase its total revenue, should the 10% discount be offered to Group A only, to Group B only, to neither Group, or to both Groups? For simplicity, assume in both cases that the price before the discount is \$100, and after the discount is \$90. For the computations of the arc elasticity of demand, please refer to theThe Demand and Supply Model handoutandPrice Elasticity of Demand handout.

### Assignment Expectations

In the Module 1 Case Assignment, you are expected to:

• Describe the purpose of the paper and provide a conclusion.
• Present information in a professional manner.
• Answer the Case Assignment questions clearly and provide necessary details.
• Write clearly and correctly—that is, no poor sentence structure, no spelling and grammar mistakes, and no run-on sentences.
• Provide citations to support your argument and place references on a separate page. (All the sources that you listed in the references section must be cited in the paper.) Use APA format to provide citations and references [http://owl.english.purdue.edu/owl/resource/560/01/].
• Type and double-space the paper.
• Whenever appropriate, please use Excel to show supporting computations in an appendix, present economic information in tables, and use the data to answer follow-up questions.
Module 1 - SLP

## THE DEMAND AND SUPPLY MODEL

Managerial economics utilizes tools from economic theory and econometrics to derive optimal solutions to managerial decision problems.

Read the background material and then write a 3 to 4 page report describing the diverse tools that managerial economics uses to derive optimal solutions, i.e., explain, using a variety of examples, the main tools of economic theory (the theory of markets, the role of prices, and the drive to profit maximization). Then express your views on the following questions:

• Are these concepts, tools and methodologies universal? That is, do they apply to any institutions? For example, do they apply to the military? Or to City Hall? If not, should they?
• Can a company that operates in the market afford to be inefficient (i.e., to waste resources)? For how long? What about the military? Or City Hall? That is, what are the forces and incentives that, in your opinion, are present in the market and absent in the military and in City Hall?

### SLP Assignment Expectations

In the Module 1 SLP Assignment, you are expected to:

• Describe the purpose of the paper and provide a conclusion.
• Present information in a professional manner.
• Answer the SLP Assignment question clearly and provide necessary details.
• Write clearly and correctly—that is, no poor sentence structure, no spelling and grammar mistakes, and no run-on sentences.
• Provide citations to support your argument and place references on a separate page. (All the sources that you listed in the references section must be cited in the paper.) Use APA format to provide citations and references [http://owl.english.purdue.edu/owl/resource/560/01/].
• Type and double-space the paper.
• Whenever appropriate, please use Excel to show supporting computations in an appendix, present economic information in tables, and use the data to answer follow-up questions.

Module 2 - Case

## PRODUCTION AND COST ANALYSIS

### Case Assignment

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?

Suppose that Al discovers new technology that boosts the productivity of his workers, so that more bicycles can be produced than before.

• Complete Table 4, which presents production data with the new technology.

Table 4

Labor Total Product (TP) Average Product of labor (AP) Marginal Product of labor (MP)

0 0 na na

1 120 120 120

2 360 ----- ___

3 540 ___ ___

4 672 ___ ___

5 756 ___ ___

6 792 ___ ___

Al’s fixed cost remains at \$4000, and he can continue to hire workers at the monthly rate of \$2000.

• Use the new technology data to complete Tables 5 and 6.

Table 5

Labor Total Product (TP) Total variable cost (TVC) Total cost (TC)

0 0 na ___

1 120 ___ ___

2 360 ----- ___

3 540 ___ ___

4 672 ___ ___

5 756 ___ ___

6 792 ___ ___

• Draw the ATC and MC curves you just entered in Table 5. How do the old and new ATC curves compare? The old and the new MC curves?

Table 6

Total Product (TP) Average variable cost (AVC) Average total cost (ATC) Marginal cost (MC)

0 na na na

120 ___ ___ ___

360 ----- ___ ___

540 ___ ___ ___

672 ___ ___ ___

756 ___ ___ ___

792 ___ ___ ___

Return to the old technology data. Suppose that the cost of Al’s fixed inputs remains the same at \$4000, but the cost of labor rises. Specifically, suppose that a worker now receives \$3000 per month.

• Complete Table 7. For the two missing TP copy your answers from Table 1

Table 7

Labor Total Product (TP) Total variable cost (TVC) Total cost (TC)

0 0 na 4000

1 100 3000 ___

2 300 ----- ___

3 450 ___ ___

4 ___ ___ 16000

5 630 ___ ___

6 ___ 18000 ___

In Table 8 compare the cost before and after the increase

Table 8

Before the increase After the increase

TP ATC MC ATC MC

0 ___ ___ ___ ___

100 ___ ___ ___ ___

300 ___ ___ ___ ___

450 ___ ___ ___ ___

___ ___ ___ ___ ___

630 ___ ___ ___ ___

___ ___ ___ ___ ___

• Last question: how did the rise in variable costs affect the average total cost? The marginal cost?

### Assignment Expectations

In the Module Case Assignment, you are expected to:

• Describe the purpose of the paper and provide a conclusion.
• Present information in a professional manner.
• Answer the Case Assignment questions clearly and provide necessary details.
• Write clearly and correctly—that is, no poor sentence structure, no spelling and grammar mistakes, and no run-on sentences.

Module 2 - SLP

## PRODUCTION AND COST ANALYSIS

Discuss the relationships between total cost, output, and the price of labor and capital. Provide examples that illustrate how the prices of inputs affect managerial decisions. Consider, in particular, the current market for fuel and its implication for corporate profits.

### SLP Assignment Expectations

In the Module 2 SLP Assignment, you are expected to:

• Describe the purpose of the paper and provide a conclusion.
• Present information in a professional manner.
• Answer the SLP Assignment question clearly and provide necessary details.
• Write clearly and correctly—that is, no poor sentence structure, no spelling and grammar mistakes, and no run-on sentences.
• Provide citations to support your argument and place references on a separate page. (All the sources that you listed in the references section must be cited in the paper.) Use APA format to provide citations and references [http://owl.english.purdue.edu/owl/resource/560/01/].
• Type and double-space the paper.

Module 3 - Case

## MARKET STRUCTURES

### Case Assignment

Explain the Prisoner’s Dilemma game, the notion of dominant strategy, and the concept of Nash equilibrium and cooperation. Using these concepts, then, analyze the following duopoly game.

Philip Morris and R.J. Reynolds spend huge sums of money each year to advertise their tobacco products in an attempt to steal customers from each other. Suppose each year Philip Morris and R.J. Reynolds have to decide whether or not they want to spend money on advertising. If neither firm advertises, each will earn a profit of \$2 million. If they both advertise, each will earn a profit of \$1.5 million. If one firm advertises and the other does not, the firm that advertises will earn a profit of \$2.8 million and the other firm will earn \$1 million.

• If the two companies decide to collude to maximize profits, what will each company do? What profit will each company earn?
• What is the dominant strategy for each company, and what profit will each company earn if they follow those strategies?
• Is the solution you found in the first question a Nash equilibrium?
• Is the solution you found in the second question a Nash equilibrium?

### Assignment Expectations

In the Module 3 Case Assignment, you are expected to:

• Describe the purpose of the paper and provide a conclusion.
• Present information in a professional manner.
• Answer the Case Assignment questions clearly and provide necessary details.
• Write clearly and correctly—that is, no poor sentence structure, no spelling and grammar mistakes, and no run-on sentences.
Module 3 - SLP

## MARKET STRUCTURES

Describe the dominant characteristics of the industry in which your company operates, addressing the following questions:

• Who are your main competitors?
• Are they significant barriers to entry?
• What is your company’s market share?
• What is the market share of your main competitors?
• What is the four-firm concentration ratio in your industry? Over time, has this ratio increased, decreased, or remained constant?
• Is your company a military contractor? If so, how are prices determined?
• Based on your previous answer, is your industry moving more in the direction of competition or is it moving more in the direction of market power?

### SLP Assignment Expectations

In the Module 3 SLP Assignment, you are expected to:

• Describe the purpose of the paper and provide a conclusion.
• Present information in a professional manner.
• Answer the SLP Assignment question clearly and provide necessary details.
• Write clearly and correctly—that is, no poor sentence structure, no spelling and grammar mistakes, and no run-on sentences.
Module 4 - Case

## ASYMMETRIC INFORMATION AND MARKET OUTCOMES

### Case Assignment

Asymmetric information is a problem in many markets, such as the used car market, the insurance markets, and the credit markets. Choose one of these three markets, and using some of the concepts you learned from this module, discuss the questions below:

• What is the market response to asymmetric information? (Hint: Does Coca-Cola have an asymmetric information problem?).
• What is the market response to adverse selection? (Hint: When you purchased life insurance, did you have to take a physical exam?).
• What is the market response to moral hazard? (Hint: Remember last time you saw a doctor you had to pay a \$30 deductible?).
• Do you think that education is a "market signal" that can help companies make better economic decisions when asymmetric information exists?
• What would be the market response if there was perfect information?

### Assignment Expectations

In Module 4 Case Assignment, you are expected to:

• Describe the purpose of the paper and provide a conclusion.
• Present information in a professional manner.
• Answer the Case Assignment question clearly and provide necessary details.
• Write clearly and correctly—that is, no poor sentence structure, no spelling and grammar mistakes, and no run-on sentences.
Module 4 - SLP

## ASYMMETRIC INFORMATION AND MARKET OUTCOMES

Tim Shaughnessy, Chapter 7 -- Demand Estimation and Forecasting, available from https://www.youtube.com/watch?v=daiTjsnznjM

Matt Kermode, Explanation of Regression Results, Available athttps://www.youtube.com/watch?v=c5blVUkkjTM

Jason Delaney, Introduction to Multiple Regression, Available athttps://www.youtube.com/watch?v=eLpfEml4Vak

Session Long Project

PART 1

In 2006 the CEO of Bear Sterns, James Caynes, received a compensation package of \$34 million. The following year Bear Sterns cost \$2.7 billion to the taxpayers. In 2006, the CEO of Lehman Brothers received a compensation package of \$27 million. On September 15, 2008, Lehman Brothers filed for bankruptcy. The collapse of Lehman Brothers is seen by many as the key event that sparked the Global Financial Crisis. In 2006, the CEO of Citigroup, Charles Prince, received a compensation package of \$25 million. Since then the stock price has fallen from \$50 a share to \$3.5 a share. The CEO of Countrywide Financial, Angelo Mozilo, did even better. His compensation package was \$43 million. Angelo Mozilo and two other top executives were charged by the Security and Exchange Commission (SEC) with fraud. According to the SEC, from 2005 through 2007, Countrywide Financial engaged in an unprecedented expansion of its underwriting guidelines and was writing riskier and riskier loans, which these senior executives were warned might ultimately curtail the company's ability to sell them. Countrywide Financial was the third biggest originator of subprime mortgages and the nation's leader in subprime mortgage- backed securities. The tragedy is that these individuals did not make decisions that were in their companies’ best interest. Why? What went wrong? What caused the relation between the CEO and the stockholders to go so badly awry? Discuss.

PART 2

An important component of this course is experience with analyzing economic data at the managerial level. The computer is a perfect tool for manipulating data and performing statistical analyses. While the focus of BUS 530 is not on learning statistics, this course will utilize and improve your computer skills with a computer assignment designed to illustrate the interconnections between data, information and managerial decisions.

The primary software will be Microsoft Excel and the Excel statistical add-in:Data Analysis. Microsoft Excel 2010 (and previous versions) provides a set of data analysis tools calledAnalysis ToolPakwhich you can use to save steps when you develop complex statistical analyses. You provide the data and parameters for each analysis; the tool uses the appropriate statistical macro functions and then displays the results in an output table. The Analysis ToolPak is aMicrosoft Office Exceladd-in program that is available when you install Microsoft Office or Excel. To use the Analysis ToolPak in Excel, however, you need to load it first. Click the Microsoft Office Button, and then click Excel Options. Click Add-Ins, and then in the Manage box, select Excel Add-ins. Click Go. In the Add-Ins available box, select the Analysis ToolPak check box, and then click OK. (If Analysis ToolPak is not listed in the Add-Ins available box, click Browse to locate it.) If you get prompted that the Analysis ToolPak is not currently installed on your computer, click Yes to install it. After you load the Analysis ToolPak, the Data Analysis command is available in the Analysis group on theData tab.

In the Module 4 SLP assignment you are also asked to estimate a market demand or a cost function (your choice) using the tools of regression analysis and the regression software outlined above.

The estimation of demand follows two approaches:

• the classical approach, whereby the quantity demanded of a product is explained by its own price, the prices of related goods (complements and substitutes), income, tastes and preferences, and the size of the population, among others;
• the hedonic approach, whereby the price of an asset (car, house) is explained by the characteristics of the asset itself (i.e., the price of housing depends on the number of bedrooms, the number of bathroom, the view from the house (using a dummy variable: 1 = view, 0 = no view), the square footage of the house, the square footage of the lot, etc).

PART 2: Assignment

You are given the data on housing. The data are collected from the real estate pages of theBoston Globeduring 1990. These are homes that sold in the Boston, MA area. The source of the data is Wooldridge (2009)Introductory Econometrics: A Modern Approach, 4thEdition, Cengage

VARIABLES

1. price price, in dollars

2. assess assessed value, in dollars

3. bdrms number of bedrooms

4. lotsize size of lot, square feet

5. sqrft size of house, square feet

Cut and paste in Excel the data set. Then, in Excel, obtain the logarithmic transformation of the following variables using the Excel function =LOG( . )

6. lprice log(price) : dependent variable

7. lassess log(assess) : independent variable

8. llotsize log(lotsize) : independent variable

9. lsqrft log(sqrft) : independent variable

DATASET 1

OBSERVATIONS

 PRICE SQRFT ASSESS BDRMS LOTSIZE 300 2438 349.1 4 6126 370 2076 351.5 3 9903 191 1374 217.7 3 5200 195 1448 231.8 3 4600 373 2514 319.1 4 6095 466 2754 414.5 5 8566 332 2067 367.8 3 9000 315 1731 300.2 3 6210 206 1767 236.1 3 6000 240 1890 256.3 3 2892 285 2336 314 4 6000 300 2634 416.5 5 7047 405 3375 434 3 12237 212 1899 279.3 3 6460 265 2312 287.5 3 6519 227 1760 232.9 4 3597 240 2000 303.8 4 5922 285 1774 305.6 3 7123 268 1376 266.7 3 5642 310 1835 326 4 8602 266 2048 294.3 3 5494 270 2124 318.8 3 7800 225 1768 294.2 3 6003 150 1732 208 4 5218 247 1440 239.7 3 9425 275 1932 294.1 3 6114 230 1932 267.4 3 6710 343 2106 359.9 3 8577 477 3529 478.1 7 8400 350 2051 355.3 4 9773 230 1573 217.8 4 4806 335 2829 385 4 15086 251 1630 224.3 3 5763 235 1840 251.9 4 6383 361 2066 354.9 4 9000 190 1702 212.5 4 3500 360 2750 452.4 4 10892 575 3880 518.1 5 15634 209 1854 289.4 4 6400 225 1421 268.1 2 8880 246 1662 278.5 3 6314 713 3331 655.4 5 28231 248 1656 273.3 4 7050 230 1171 212.1 3 5305 375 2293 354 5 6637 265 1764 252.1 3 7834 313 2768 324 3 1000 417 3733 475.5 4 8112 253 1536 256.8 3 5850 315 1638 279.2 4 6660 264 1972 313.9 3 6637 255 1478 279.8 2 15267 210 1408 198.7 3 5146 180 1812 221.5 3 6017 250 1722 268.4 3 8410 250 1780 282.3 4 5625 209 1674 230.7 4 5600 258 1850 287 4 6525 289 1925 298.7 3 6060 316 2343 314.6 4 5539 225 1567 291 3 7566 266 1664 286.4 4 5484 310 1386 253.6 6 5348 471 2617 482 5 15834 335 2321 384.3 4 8022 495 2638 543.6 4 11966 279 1915 336.5 4 8460 380 2589 515.1 4 15105 325 2709 437 4 10859 220 1587 263.4 3 6300 215 1694 300.4 3 11554 240 1536 250.7 3 6000 725 3662 708.6 5 31000 230 1736 276.3 3 4054 306 2205 388.6 2 20700 425 1502 252.5 3 5525 318 1696 295.2 4 92681 330 2186 359.5 3 8178 246 1928 276.2 4 5944 225 1294 249.8 3 18838 111 1535 202.4 4 4315 268 1980 254 3 5167 244 2090 306.8 4 7893 295 1837 318.3 3 6056 236 1715 259.4 3 5828 202 1574 258.1 3 6341 219 1185 232 2 6362 242 1774 252 4 4950

Please keep in mind that when you interpret a regression coefficient, you are assuming that all the other variables remain constant.

A Note on ANOVA

The ANOVA table is used to test the null hypothesis that all regression coefficients (excluding the intercept term) are equal to zero against the alternative hypothesis that at least one is different from zero. This test is known as the F test for regression. The F test is computed as follows, under the assumption that the null hypothesis is true:

The F statistics has two sets of degrees of freedom: numerator (attached to the Regression SS) and denominator degrees of freedom (attached to Residual SS).

Excel computes the F statistic for you in the ANOVA table, and computes in the last column the level of significance (p-value). If the level of significance of the test is less than 5%, you will reject at the 5% level the null hypothesis that all regression parameters are zero. On the other hand, if the level of significance is greater than 5%, you will accept (i.e., fail to reject) the null hypothesis that all regression parameters are zero.

### SLP Assignment Expectations

In the Module 4 SLP Assignment, you are expected to:

• Describe the purpose of the paper and provide a conclusion.
• Present information in a professional manner.
• Answer the SLP Assignment question clearly and provide necessary details.
• Write clearly and correctly—that is, no poor sentence structure, no spelling and grammar mistakes, and no run-on sentences.
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1. ## Solution: Trident BSU530 full course 2017

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