Managerial Economic Additional Question from Shaani_911

Q1. A competitive constant cost industry always has a horizontal long run aggregate supply curve, true or false, explain

A long-term industry supply curve signifies that the minimum price at which the firm will offer various number for sale. Moreover, it also means that sufficient time is given for two things i.e. for adjusting plant size and to enter or leave the industry. The shape of the long-run industry supply curve depends on the behaviour of costs of production of an industry because the output of the whole industry is altered. Competitive constant cost industry is those industry in which in spite of expansion of input for the industry, the price and cost of production remains same. In other words, the long run supply curve is horizontal. An example of the competitive constant cost industry is match industry. Since, the entry of new firms brings about an increase in demand and does not affect the long-run average cost curve of an individual firm. It means that the minimum efficient level of production doesn’t change. The above-explained case is an example where the industry supply will have perfectly elastic curve because the factor i.e. the price remains unchanged, even when the industry expands, the additional unit will be produced at same unit cost. The reason for the occurrence of constant cost industry is most likely attributed to the industry’s very small demand for resources. The short-run supply curve will be shifted to the right as the production has already been stimulated, thereby increase in the supply. This process will continue until the market price drives it down to the initial level as a result the excess profit will also disappears completely. However, if the condition of the constant cost remains same the larger quantity will be offered for sale at the same price in long run. Therefore, in above discussed situation, the long-run industry supply curve will be completely elastic-----a horizontal straight line. Thus, the statement is correct.

Q2. In the short run profit maximizing firm produces output if it covers all its marginal costs. True or false, explain?

According to one of the output determining rule (i.e. MR=MC rule) make clear that in short run, the firm will maximize profit by producing the output at which marginal revenues equals marginal cost. That means, in the short-run, the firm has a fixed plant. Thus, the firm can adjust its output by making changes in its variable resources such as materials, labour etc that are used in producing the output. Perhaps, it adjusts its variable resources to achieve the output level that maximize its profit. Moreover, specifically, the firm compares the amounts or cost that each additional unit of output will add to total revenue and to total cost. In other words the firm compares the marginal revenues (MR) to the marginal cost (MC) of each successive unit of the output. Therefore, by estimating all above described values, if a firm covers all its marginal cost then its marginal revenues will exceed the marginal cost; this means that the firm will gain more revenues from selling that unit. Also, then producing will be more preferable than to shutting down the same. In addition to this, a firm can maximize its profit when an increment in margin percentage is equals to the reciprocal of the absolute value of the price elasticity of demand. That price will be its profit-maximizing price. Also, it has been analysed that when the marginal revenue cost is equal to the marginal cost, then the incremental margin percentage will be also equals to the reciprocal of the absolute value of the price elasticity of demand. Therefore, for maximizing profit the firm should set the price such that incremental margin percentage = -1/price elasticity of demand. Lets explain it with an example, suppose a firm find that at its present level of output, the cost of making another unit per month (marginal cost) is less than the revenue that would be gained by selling that unit (marginal revenue). So, producing another unit will be the better option for increasing the total profit by the firm. A change in the optimal level of output will be required by the firm in the short-run if there is a change in the market price to maximize its profit. It will lead to optimal output when the price will be equal to its marginal cost, as long as marginal cost will be greater than the average variable cost. Lastly, the firm will shut down the production only if the price falls below average variable cost. So, from the above discussion it is clear that the statement is true.

Q3. A monopolist continues to produce output even if it is suffering from loss given the good has positive income elasticity, true or false, explain?

Understanding of income elasticity is an important factor for the firm to see how changes in the macro-economy will change or convert into the demand for the good or service produced by it. There are two types of factors one which is influencing and dependent i.e. the consumption of goods items related to the luxuries is very much dependent on the changes in economic growth and consumer incomes. But on other side, factor does not have much impact on one other i.e. the necessities items such as food and housing are comparatively less affected by economic swings and the corresponding changes in consumer incomes. Accordingly, there are two possibilities for the goods to have positive income elasticity of demand i.e. the first possibility is to attain value greater than one for income elasticity of demand and second is that it lie in the range of 0 and 1.The former is in the case of luxury goods where for a 1% change in income, demand for the good changes by more than 1%. However the later one corresponds to the necessities goods where for a 1% change in income, demand for the good changes by less than 1%. Therefore, a firm is which is facing loss will continue to produce an output for following reasons. 1) As it will be recovered in the long-run when the economy will change which will brings changes in the income of the consumer in turn and thereby increase in the demand for its good. This is because the goods produced by the firm belong to the category of positive income goods. Increase in income will correspond to increase in demand either in greater (luxury) or comparatively lesser (general goods). 2) The shutting down the production is seems to be less favourable in terms of its profits. As the profit from production will likely to be more than the shutting down the same.

Q4. A monopolist having only fixed cost always sets a price at which price elasticity is greater than unity. True or false? Explain

Price elasticity is denoted as the percentage change in quantity demanded or supplied over the associated percentage change in price. Popularly, it is used to know the changes in quantity demanded or supplied will price increases or decreases of that commodity. This is known as either price elasticity of demand or price elasticity of supply. When the monopolists have only fixed cost but not variable cost, then maximizing revenue will be exactly same as maximizing profit. So, the monopolist will simply choose that point on the demand curve where the price elasticity is equal to one. A natural monopoly has found to have very disparate cost structure. For example, having a high fixed cost for a product and it does not depend on the output, but its marginal cost of producing one more good is more or less constant and found to be small. An important aim for any firm is significant return on investment, in order to fulfil this; the firm with high fixed costs should have a large number of customers. This is the main point where an economy of scale becomes important.

It is important to note that each firm incurs huge initial costs, but with the business gaining larger market share and increases it’s output. This results in reduction of fixed cost in large number of customers. Therefore, in industries that is having large initial investment as capital requirements, the average total cost decreases as there is increase in output over a large range of output levels.

Maritime Law – International Convention for the Safety Of Life At Sea 1974 (SOLAS ’74) – Chapter I (General provisions)

Q1. Define “International Voyage”

Under regulation 2: Definitions

A voyage from a country to which the present Convention applies to a port outside such country, or conversely.

Q2. Define :

a. Passenger

Every person other than: the master and the member of the crew or other persons employed or engaged in any capacity on board a ship on the business of that ship and a child under one year of age.

b. Passenger ship

A ship which carries more than twelve passengers.

c. Cargo ship

Any ship which is not a passenger ship

d. Tanker

A cargo ship constructed or adapted for the carriage in bulk of liquid cargoes of an inflammable nature.

e. Age of a ship

The elapsed period of time determined from the year of build as indicated on the ship’s registry papers.

3. Explain who may carry out surveys for the enforcement of the provisions of SOLAS

Under regulation 6: Inspection and surveys

Officers of the Administration or entrust the inspections and surveys either to surveyors nominated for the purpose or to organizations recognized by it.

4. Describe the procedures which apply if the surveyor finds that the ship does not comply with the provisions or is in such a condition that it is not fit to proceed to sea without danger to the ship or to persons on board.

Under regulation 19: Control

Ensure that the ship shall not sail it can proceed to sea or leave the port for the purpose of proceeding to the appropriate repair yard without danger to the ship or persons on board.

5. Explain who will decide whether a survey required when any accident or defect affecting safety, efficiency or completeness of LSA of the ship?

Under regulation 11: Maintenance of conditions after survey

The nominated surveyor or recognized organization responsible for issuing the relevant certificate, who shall cause investigations to be initiated to determine whether a survey as require.

6. Describe the circumstances in which certificates cease to be valid.

Under regulation 14: Duration and validity of certificates

i. if the inspections and surveys are not carried out within the periods specified.

ii. upon transfer of the ship to the flag of another Government.

Maritime Law-International Convention on Load Lines 1966

Q1. Explain to which ships the conventions applied?

Under regulation 2: Application

a. Ships with mechanical means of propulsion or lighters, barges or other ships without independent means of propulsion.

b. Ships carrying timber deck cargoes

c. Ships designed to carry sail, whether as the sole means of propulsion or as a supplementary means, and tugs

d. Ships of wood or of composite construction, or of other materials the use of

e. every ship to which a minimum freeboard is assigned

Q2. What is the duration of the validity of an ILLC 1966?

5 Years

Q3. On what circumstances the ILLC cancelled by the administration?

a. Infringement of Freeboard Condition:

– Ships Proceed to sea with less freeboard than that approved or

– Load line marks have been altered in any way.

b. Material alterations have taken place in the hull or superstructure which infringed the assigned freeboard.

c. No or poor maintenance of fittings and appliances for protection of openings and means of safe for crews.

d. No periodic ILLC endorsement

e. Structural strength of the ship is reduced causing the ship to be unsafe

Q4. Define the purpose of the regulations:

a. Freeboard

b. Freeboard deck

c. Superstructure

 Recognize that limitations on the draught to which a ship may be loaded make a significant contribution to her safety.

 Ensure sufficient reserve buoyancy and adequate stability and avoid excessive stress on the ship's hull as a result of overloading.

 External weathertight integrity

 Watertight integrity.

Q5. What is the requirement of painting Plimsoll mark on the ship side hull?

Under regulation 8: Details of marking

The ring, lines and letters shall be painted in white or yellow on a dark ground or in black on a light ground. They shall also be permanently marked on the sides of the ships to the satisfaction of the Surveyor General. The marks shall be plainly visible and, if necessary, special arrangements shall be made for this purpose

Q6. Describe the requirements concerning the provision of closing appliances for ventilations?

Under regulation 19:Ventilator

a. Ventilators in position 1 the coamings of which extend to more than 4.5 metres (14.8 feet) above the deck, and in position 2 the coamings of which extend to more than 2.3 metres (7.5 feet) above the deck need not be fitted with closing arrangements unless specifically required by the Surveyor General.

b. Except as provided in paragraph (3) of this Regulation ventilator openings shall be provided with efficient weathertight closing appliances. In ships of not more than 100 metres (328 feet) in length the closing appliances shall be permanently attached; where not so provided in other ships, they shall be conveniently stowed near the ventilators to which they are to be fitted. Ventilators in position 1 shall have coamings of a height of at least 900 millimetres (35½ inches) above the deck; in position 2 the coamings shall be of a height at least 760 millimetres (30 inches) above the deck.

Position 1 - Upon exposed freeboard and raised quarter decks, and upon exposed superstructure decks situated forward of a point located a quarter of the ship’s length from the forward perpendicular.

Position 2 - Upon exposed superstructure decks situated abaft a quarter of the ship’s length from the forward perpendicular

Q7. Describe the provision for the protection of the crew?

Regulation 25: Protection of the crew

a. The strength of the deckhouses used for the accommodation of the crew shall be to the satisfaction of the Surveyor General.

b. Efficient guard rails or bulwarks shall be fitted on all exposed parts of the freeboard and superstructure decks. The height of the bulwarks or guard rails shall be at least 1 metre (39½ inches) from the deck, provided that where this height would interfere with the normal operation of the ship, a lesser height may be approved if the Surveyor General is satisfied that adequate protection is provided.

c. The opening below the lowest course of the guard rails shall not exceed 230 millimetres (9 inches). The other courses shall be not more than 380 millimetres (15 inches) apart. In the case of ships with rounded gunwales the guard rail supports shall be placed on the flat of the deck.

d. Satisfactory means (in the form of guard rails, life lines, gangways or underdeck passages etc.) shall be provided for the protection of the crew in getting to and from their quarters, the machinery space and all other parts used in the necessary work of the ship.

e. Deck cargo carried on any ship shall be so stowed that any opening which is in way of the cargo and which gives access to and from the crew’s quarters, the machinery space and all other parts used in the necessary work of the ship, can be properly closed and secured against the admission of water. Effective protection for the crew in the form of guard rails or life lines shall be provided above the deck cargo if there is no convenient passage on or below the deck of the ship

Q8. Closing the opening of air pipes to ballast tanks and other tanks should be provided permanently attached. Why?

Act as water tight integrity purposes. It will ensure the containment of any egress.

Nasi Kukus Sempoi Alias, Gong Badak, Kuala Terengganu

It was a sunny day and I just come from an hour of hot sun swimming. I was too hungry. I planned to for Kuala Terengganu town to find a good restaurant. On the way to Kuala Terengganu from Batu Rakit, I saw this restaurant. Lot of customer in queue self serving the food. Normally if any restaurant full with customer in peak hours means the food must be tasty. I did “U” turn my car and park at side of the restaurant.

There was lot of variety food at the food table; verity style of chickens, verity style of sea food and curry (gravy) which hot. I just queue for my turn to get the rice. It first time I saw steam rice in cup form. They were steaming the rice with small cups and 1 cup per serving. Sorry, I could not able to get the photo of the cup steam rice as the queue still long and people are pushing to take their food. As usual I took my chicken, ikan billis cooked with onion and pappadam. The doctor advised me to go on non sea food diet. One more thing either you ate there or took away the rice served on the wrapping paper.

The moment I get my place to eat, the waitress (young girl) was taken my drink order. The food was as I expected; very nice and tasty. No wonder why lots of people are lining up for the food. The hot creamed Nescafe also as I expected.

I not get changes to look around and take more photos as the crowd still increasing and I am tired because of the swimming. Anyhow, I will be back there is get time. This restaurant located just at the “T“ junction for the Tok Jembal and Kubang Badak traffic light at Gong Badak; road to Kuala Terengganu Golf Resort.

Gem Beach Resort, Batu Rakit, Kuala Terengganu

If you all guys did know what to on weekend at Kuala Terengganu, then go for swimming at pool beside beach. It will be good scenery looking at the wave pattern while you swim. The resort is located off from main road. If you driving from Kuala Terengganu to Merang via Batu Rakit, after the roundabout at Batu Rakit Police station, slow down and watch for the sign board on your right side. There will be a ‘keropok Lekor” stall on both side of the road. Careful while you enter the small road to the resort as some big trailer will be on your way as the Gem Beach Resort currently extending the resort.

The resort looked like very poor maintenance on gardening and overall appearance. Even the reception guy with low information as I asked for the price for using the swim pool, he bit confuses and instructs me to see the pool side administration for more info. It’s usual this kind of place where not much customer. I approach the pool side admin. There was a clear sign displayed; RM 10 for an adult and RM 5 for children (Non residence). I ask the time frame for the usage of the swim pool, he answered it is a per entry fee and until 1900 hrs.

From not moving from his seat he shows the shower & changing room. I paid RM 10 and went to changing room. The changing rooms not as I expected and the door even not have the any closing arrangement. Somehow I manage and change my cloth to swimming entire.

There was some family at the pool with their kids are swimming at the children pool. The water was chill and nice for the swimming. It was long time I never practicing my swimming skills. I was bit difficult at earlier but fine later stage. It was about noon time and the sun was burning my skin. About an hour of swimming I decided to go back. My last lap from side to side on free style was 27 seconds and it’s not a good record. I will be back here to improve my swimming record.

Swimming is a good work out and tiring. I probably will have good lunch and a deep nap.

Thanks.

Salamath Restaurant, Kuala Terengganu

To my fellows Indian friends, if you are looking for a thosai as a breakfast at Kuala Terengganu city, then proceed to this road side corner stall. It a tamilan-muslim or Mamak stall has a thosai, vadai and paratha (roti canai). This stall located in Jalan Hiliran Pulau Kambing just near by the MSET (Mara Shipyard and Engineering Terengganu). Now days, I start roaming like “Jalan Jalan Cari Makan” program to evaluate the local foods.


I enter this stall today morning. No one greeted me. I find my own table middle of the stall. The shop looked clean with clean tables and chairs. No waitress here. Only three staff handling this stall. One cook, one tea master and another one cashier or waiter. After one minute of sitting, then the tea master ask what drink I wants. No formal order taking. I order a hot creamed Nescafe as usual because it is my favored drink at outside. He deliver the drink and forgotten to take food order. Then he come after one minute and asks for the food I would like to eat. I order two thosai as I saw on wall written “Here sold thosai”.

The cook took another 5 minutes to cook the thosai as the hot plate occupied with paratha. The thosai served in good order with chatney, dal curry and fish curry (I think as taste alike). I start my tasting sense each of it. The chatney was superb; up to my taste. Normally some of the stall owner took the coconut milk for their curry and make the chatney with the no milky coconut. So, the chatney will have the juice taste. This one I sure they did not done that. The chaney was made with pure coconut puree.

It’s my nature that I hate to eat dal curry, rasam and sothi in south Indian cooking. So that, I did not enjoy the dal curry served to gather with the thosai. No comment on that. The fish curry was good as it tasted a sour. It was delicious with thosai which the chuney was bit spicy. The combination of spicy and sour earlier morning will give you all good taste of the food. I sure the thosai was made on new blended flour as I not taste any sour or yeast formation. Normally the thosai flour must blend a night before and kept at hot place to give the flour get little sour taste. If they blend to early or kept too longer outside chiller the flour will get sourer taste and it will give displeasure to the customer.

The total breakfast cost me RM 3.60 and it’s consider same as klang valley. Observed there isn’t any re-welcoming greeting from the cashier. My opinion, they should practicing he customer relationship like greeting, interaction if regular customer and more like the “smile”. I would grade this stall “B (-)“ even though the food is good. As a MBA student, I consider the customer satisfaction is play main roll in all firm. Remember, the taste and beauty is always difference on individual views.

Thanks.

Naj D’ Leaf Restaurant, Kuala Terengganu

If you had change go to Kuala Terengganu City or you are at Kuala Terengganu City, please don’t forget to drop by this restaurant if you wanted to have a banana leaf served meal for your lunch. I went today for my lunch as I was on business trip to Kuala Terengganu. As you aware Friday is a weekend for this state and most the restaurants are closed for Friday prayer, I had no much choices then an Indian or Chinese food.

I knew that there was a banana leaf restaurant in middle of town as I been there in the year of 2004. Since it’s been long time I was roam around to look for the restaurant. Finally, I found it at the Jalan Tok Lam near Mid Town Hotel. I parked my car nearby. Remember to carry coin all the time at Kuala Terengganu. The Kuala Terengganu public parking is fitted with the coin meter. 10 cents require parking your car for 10 minutes.

The restaurant was clean and tidy. No much decoration on the walls. Decent ceiling lights and wall fans on both sides’ shows a pleasant location for a nice lunch. The foods displayed at the entrance to ease your choices before made your mind to eat. All tables are marble top finishing and present a cleanliness of the restaurant operator.

I was greeting by one of the waitress and she took order so clearly to avoid any mistake. She did asked me either I want a white rice or briyani rice, she did ask either I wish to have a vegetarian or non vegetarian food. She knew that some of the Indians are normally take a vegetarian food on Friday. She explained the main dishes.

I ordered a non vegetarian food with fish curry and a honey chicken. She served me on the table with three vegetables with rice, fish curry topping and a piece of honey chicken (leg piece). She did also ask for the type of drink politely. I request a hot Nescafe with milk. The food served in attractive way.

I started tasting all food separately. The curry powder mixture in the fish curry are not been cooked properly as I can smell or taste the powder differently. They may add the water before the curry powder fried nicely with the hot oil. I knew little bit of cooking as I used to spend some times in kitchen since I was young. Beside of it, the curry was nice with balance spice, salt and gravy.

The vegetables are cooked with oil less cooking and healthier. The combination and selection of the vegetables also consider balance. Long beans cut and cooked in small sizes. A cucumber slice mixed with carrot slice haft cooked with salt for preserve the nutrients. The pumpkins cooked on thick juice turmeric cooking increase the aura of the food.

The honey chicken was less sweet and taste much delicious mixed with fish curry. The food was ranggoli colors. White rice topped with brownies fish curry surrounded by yellow pumpkin, greenies long beans and cucumber, orange carrots and brightens by the red honey chicken.

The hot milked Nescafe was not as I expected. I normally drink the coffee’s aroma must touch my nose before it reach my mouth. This was considering to milky as not brownies in color. I do understand why it is so when I saw an advertisement at their counter “Looking for kitchen assistant and tea master”. They not have a proper person to prepare the drinks.

In overall, this restaurant advice for good lunch as I rated this restaurant as a “B” in term of service, cleanliness, food preparedness and price. Forgotten, above food was charged as RM 8.50 which I consider reasonable for city like Kuala Terengganu where it very hard to find a banana leaf restaurant.

Guys and girls, the banana leaf also acted as you complain or comment letter. Normally in Tamilan culture, if we fold the banana leaf toward your body after the food means you like the food and wish to come back again. It will be other way around, if you fold the banana leave outward of your body means you not like the food and may probably not coming back there. I am not sure the current generation following this or not. This is a silent and polite way to express your opinion.

So, I did fold the banana leaf toward my body and you all know what does means now. Enjoy your lunch there and share your thoughts if I was a tasteless guy.

Thanks.

Managerial Economic Assignment

QUESTION 1


How does the theory of the firm provide an integrated framework for the analysis of managerial decision making across the functional areas of business? Discuss.

[10 marks]

Theory of firms says that the objective of any firm is to maximize the shareholders wealth. Hence when any managerial decision comes into question this framework is used to make the final call. If the decision is going to increase firms wealth then the decision is taken for the work, otherwise the call is rejected.(Answered)

QUESTION 2

Profit rates differ among firms in a given industry and even more widely among firms in different industries. Please explain the factorswhich contribute to different profit rates.

10 marks]

Profit rates differ across industries and also inside a particular industry. The main reason is the margin that is available to all the firms. All industries don’t enjoy the same macro factors and hence are different on margins they can make. Finally in a particular industry the option to command margins is not same for all firms. This is because of cost structure and pricing differ for all firms.(Answered)

QUESTION 3


What is price discrimination? What are the conditions to make price discrimination effective? Discuss some examples from the Airline Industry.

[10 Marks]

Price discrimination or price differentiation exists when sales of identical goods or services are transacted at different prices from the same provider. In a theoretical market with perfect information, perfect substitutes, and no transaction costs or prohibition on secondary exchange (or re-selling) to prevent arbitrage, price discrimination can only be a feature of monopolistic and oligopolistic markets, where market power can be exercised. Otherwise, the moment the seller tries to sell the same good at different prices, the buyer at the lower price can arbitrage by selling to the consumer buying at the higher price but with a tiny discount. However, product heterogeneity, market frictions or high fixed costs (which make marginal-cost pricing unsustainable in the long run) can allow for some degree of differential pricing to different consumers, even in fully competitive retail or industrial markets. Price discrimination also occurs when the same price is charged to customers which have different supply costs.

The effects of price discrimination on social efficiency are unclear; typically such behavior leads to lower prices for some consumers and higher prices for others. Output can be expanded when price discrimination is very efficient, but output can also decline when discrimination is more effective at extracting surplus from high-valued users than expanding sales to low valued users. Even if output remains constant, price discrimination can reduce efficiency by misallocating output among consumers.

Price discrimination requires market segmentation and some means to discourage discount customers from becoming resellers and, by extension, competitors. This usually entails using one or more means of preventing any resale, keeping the different price groups separate, making price comparisons difficult, or restricting pricing information. The boundary set up by the marketer to keep segments separate are referred to as a rate fence. Price discrimination is thus very common in services, where resale is not possible. Price discrimination can also be seen where the requirement that goods be identical is relaxed

Airlines and other travel companies use differentiated pricing regularly, as they sell travel products and services simultaneously to different market segments. This is often done by assigning capacity to various booking classes, which sell for different prices and which may be linked to fare restrictions. The restrictions or "fences" help ensure that market segments buy in the booking class range that has been established for them. For example, schedule-sensitive business passengers who are willing to pay $300 for a seat from city A to city B cannot purchase a $150 ticket because the $150 booking class contains a requirement for a Saturday night stay, or a 15-day advance purchase, or another fare rule that discourages, minimizes, or effectively prevents a sale to business passengers.

Notice however that in this example "the seat" is not really always the same product. That is, the business person who purchases the $300 ticket may be willing to do so in return for a seat on a high-demand morning flight, for full refundability if the ticket is not used, and for the ability to upgrade to first class if space is available for a nominal fee. On the same flight are price-sensitive passengers who are not willing to pay $300, but who are willing to fly on a lower-demand flight (say one leaving an hour earlier), or via a connection city (not a non-stop flight), and who are willing to forgo refundability.

On the other hand, an airline may also apply differential pricing to "the same seat" over time, e.g. by discounting the price for an early or late booking (without changing any other fare condition). This could present an arbitrage opportunity in the absence of any restriction on reselling. However, passenger name changes are typically prevented or financially penalized by contract.

Since airlines often fly multi-leg flights, and since no-show rates vary by segment, competition for the seat has to take in the spatial dynamics of the product. Someone trying to fly A-B is competing with people trying to fly A-C through city B on the same aircraft. This is one reason airlines use yield management technology to determine how many seats to allot for A-B passengers, B-C passengers, and A-B-C passengers, at their varying fares and with varying demands and no-show rates.

With the rise of the Internet and the growth of low fare airlines, airfare pricing transparency has become far more pronounced. Passengers discovered it is quite easy to compare fares across different flights or different airlines. This helped put pressure on airlines to lower fares. Meanwhile, in the recession following the September 11, 2001, attacks on the U.S., business travelers and corporate buyers made it clear to airlines that they were not going to be buying air travel at rates high enough to subsidize lower fares for non-business travelers. This prediction has come true, as vast numbers of business travelers are buying airfares only in economy class for business travel.

There are sometimes group discounts on rail tickets and passes. This may be in view of the alternative of going by car together.

QUESTION 4


What should be the business strategy under:


a. Highly competitive market structure

Under a highly competitive market structure there are two options to work upon. One is to stay differentiated and stay competitive by this way and keep the market share intact by way of better and unique offering to customer. The other is to stay price competitive with competitors since the nature of market allows consumers to switch loyalty based on price changes.

b. Oligopoly

Under Oligopoly scenario since the market conditions are such that the demand is very high for products but providers are very less and the ones who are there are extremely powerful and dominating the market dynamics. The business strategy under this scenario is to create high barrier to switch and high barrier to entry thereby not letting other players enter the market and by not letting consumer switch brands easily, the more widely practiced strategy is of entry barriers.

c. Monopoly

In monopolistic setups also the business strategy of producers is not to allow new entrants to market by way of creating entry barriers like technological set-ups and by way of killing strategies which make the entrant lose money and do not allow him to run in long term. Since the players in these markets are minimal they are as big in every aspect that countering them becomes extremely difficult.

[10 Marks]

QUESTION 5


Write short notes on:


a. Cobb-Douglas production function

In economics, the Cobb–Douglas functional form of production functions is widely used to represent the relationship of an output to inputs. It was proposed by Knut Wicksell (1851–1926), and tested against statistical evidence by Charles Cobb and Paul Douglas in 1900–1928. It was later updated by Dick Boin who splitted productive assets from residential real estate.

For production, the function is

Y = ALαKβ,

where:

• Y = total production (the monetary value of all goods produced in a year)

• L = labor input

• K = capital input

• A = total factor productivity

• α and β are the output elasticities of labor and capital, respectively. These values are constants determined by available technology.

Output elasticity measures the responsiveness of output to a change in levels of either labor or capital used in production, ceteris paribus. For example if α = 0.15, a 1% increase in labor would lead to approximately a 0.15% increase in output.

Further, if:

α + β = 1,

the production function has constant returns to scale. That is, if L and K are each increased by 20%, Y increases by 20%. If

α + β < 1,

returns to scale are decreasing, and if

α + β > 1

returns to scale are increasing. Assuming perfect competition and α + β = 1, α and β can be shown to be labor and capital's share of output.

Cobb and Douglas were influenced by statistical evidence that appeared to show that labor and capital shares of total output were constant over time in developed countries; they explained this by statistical fitting least-squares regression of their production function. There is now doubt over whether constancy over time exists.

b. Diminishing returns to variable input

In economics, diminishing returns (also called diminishing marginal returns) refers to how the marginal production of a factor of production starts to progressively decrease as the factor is increased. According to this relationship, in a production system with fixed and variable inputs (say factory size and labor), each additional unit of the variable input (i.e., man-hours) yields smaller and smaller increases in outputs, also reducing each worker's mean productivity. Consequently, producing one more unit of output will cost increasingly more (owing to the major amount of variable inputs being used, to little effect).

This concept is also known as the law of diminishing marginal returns or the law of increasing relative cost.

c. Economies of scale and economics of scope

Economies of scope are conceptually similar to economies of scale. Whereas 'economies of scale' for a firm primarily refers to reductions in average cost (cost per unit) associated with increasing the scale of production for a single product type, 'economies of scope' refers to lowering average cost for a firm in producing two or more products. The term and concept development are due to Panzar and Willig (1977, 1981). Here, economies of scope make product diversification efficient if they are based on the common and recurrent use of proprietary knowhow or on an indivisible physical asset.

d. The Learning Curve

A learning curve is a graphical representation of the changing rate of learning (in the average person) for a given activity or tool. Typically, the increase in retention of information is sharpest after the initial attempts, and then gradually evens out, meaning that less and less new information is retained after each repetition.

The learning curve can also represent at a glance the initial difficulty of learning something and, to an extent, how much there is to learn after initial familiarity

e. Global economies of production

Economic globalization refers to increasing economic interdependence of national economies across the world through a rapid increase in cross-border movement of goods, service, technology and capital. It is the process of increasing economic integration between countries, leading to the emergence of a global marketplace or a single world market. Depending on the paradigm, globalization can be viewed as either a positive or a negative phenomenon.

Economic globalization comprises the globalization of production, markets, competition, technology, and corporations and industries. Whilst economic globalization has been occurring for the last several hundred years (since the emergence of trans-national trade), it has begun to occur at an increased rate over the last 20–30 years. This recent boom has been largely accounted by developed economies integrating with less developed economies, by means of foreign direct investment, the reduction of trade barriers, and the modernization of these developing cultures.

[10 Marks]

Supply Chain Management Case Study

THE DEAR JOHN MOWER COMPANY

The Dear John Mower Company is an old-line manufacturer of gasoline-powered lawn mowers and riding mowers. Increased competition has resulted in Dear John’s share of the mower market declining to 10 percent. Profits have declined to the point that many are questioning Dear John’s ability to survive.

The firm employs three engineers who are responsible for the development and design of all new mowers. When the engineers are not involved in the development of new products, they apply their energy to value analysis work in an effort to engineer costs out of the firm’s products.

Material costs at Dear John range from 55 to 65 percent of the cost of goods sold. Supply management has been a routine function, responsible for issuing purchase orders confirming the sourcing decisions of the engineers and for issuing order releases against these purchase orders. Recently, Mr. Tom Dalton, CPM, was hired in an effort to reduce the cost of purchased materials. Mr. Dalton had some success through the application of price and cost analysis and professional negotiation concepts. Material costs have dropped an average of 12.5 percent. These savings have been the basis of a badly needed shot in the arm for Dear John’s financial report.

Tom believes that he’s done about all he can to reduce costs—short of getting himself and his key suppliers involved early in the design of new mowers. Tom has initiated discussions on this approach with John Steel, chief of engineering—to no avail. Mr. Steel is adamant that his engineers are the best in the industry and develop the industry’s finest mowers. He acted insulted when Tom suggested that early supply management and early supplier involvement would improve Dear John’s profitability.

Having had no success with engineering, Tom has initiated discussions on the matter with Mr. Helmich, COO of Dear John. Mr. Helmich has requested Mr. Steel and Mr. Dalton to meet with him to discuss the merits and possible implementation of early supply management and early supplier involvement.

As a consultant for THE DEAR JOHN MOWER COMPANY, you are required to assess the aspects of Supply Chain Management and use your own assumptions to answer the following questions:

QUESTION 1

Discuss the advantages of the inclusion of supply management and prequalified suppliers.

(10 Marks)

QUESTION 2

Discuss the disadvantages of excluding supply management and suppliers from the new product development process.

(10 Marks)

QUESTION 3

Assuming that the three executives agree on early involvement of supply management and suppliers, develop a plan to implement this new way of doing business.

(10 Marks)

END OF QUESTION

ANSWER:-

1. Massachusetts Institute of Technology Centre for Transportation Studies, “Integrated Supply Chain Management (ISCM)” is an integrated and process-oriented approach to procuring, delivering and producing products and services to customers. ISCM includes internal operations, sub-suppliers, suppliers, retail customers, trade customers and end users. It covers management of information material and fund flows.

Every organization is a part of one or more supply chain. Weather a company provides a service, sells directly to the end customer, manufactures a product or even extracts material from earth, it is characterized within its supply chain. Earlier, organizations placed little emphasis on organizations within their supply chain network. However, supply chain management had become a forefront of management’s attention due to three major developments(Balsmeier 1996)

1. The information revolution

2. Customer demands in areas of service and product cost, delivery, quality, technology and concept of cycle time brought about by increased global competition.

3. Emergence of newer forms of inter-organizational relationships.

These developments have nurtured the emergence and integration of supply chain approach. The following model illustrated the integration of supply chain in all the three developments mentioned above.

2. (Balsmeier 1996)The Supply Chain is considered as the set of frameworks and processes that have helped organizations in development and delivery of products. The supply chains represents the complex relationships of an organization with its trading partners through whom it sources materials, manufactures products and delivers products or services to the customers. The supply chain links all the activities in the procurement, transformation and storage of raw materials and intermediate products, and sale of finished goods.

The entire Supply Chain (Figure 1) is looked across my Supply chain management, rather than a single entity or level. The SCM aims to increase alignment and transparency of supply chain’s configuration and coordination, regardless of corporate or functional boundaries.

Supply Chain Management is considered as the integrated process of the management of all the networks of the businesses that are interconnected to each other. The Supply Chain Management is involved towards the provision for all product and services that are demanded by the customers. (Harland,1996). The SCM includes the varies tasks such as raw materials, work in process, inventory management and also the finished goods moment from the origin point to the point where they will be consumed.

3. Integrating the supply chain to improve logistics efficiency is a key challenge. The composition today is not between the companies but between the supply chains. Hence, for the supply chains to be successful, it should integrate the three individual business processes of procurement, manufacturing, and distribution by consolidating the sub-components in each of the above functional areas(Ashkenas. R 1995).

Procurement: This is one of the major cost drivers in the supply chan. Procurement cost is influenced by the following factors:

1. The way procurement decision is made

2. Procedures adopted in the procurement process

3. Relationship with suppliers

4. Firms credibility

5. Market Intelligence

Procurement cost can be controlled through long-term relationships with suppliers by considering the supplier as an extension of the manufacturing facility. The philosophy of co-partnership is based on the sharing of resources and benefits on a long term basis. The major step in this process is reduction in supplier’s base and induction of a few reliable suppliers into the supply chain, who are ready to work for the firm and can align themselves with the policy framework and requirements of the supply chain.

Material Requirement Planning is a critical element in the procurement process. In an integrated supply chain, material planning will have a cascading effect in the entire supply chain. Hence, in co-partnership arrangements the material planning will cover inventory requirements in the entire supply chain, including both firms and suppliers.

Processing: For a lean supply chain the emphasis today is not on curtailing the processing/ manufacturing cost through economies of scale, but by curtailing the huge inventory carrying cost resulting from mass production ahead of demand. In the past, the emphasis was on building mega capacity factories to produce standard products in millions in order to reduce manufacturing costs and flood the market with low priced products. This approach resulted in the build up of a large reservoir of finished goods, which remain unsold and dead due to its inability to respond to the changing needs of the customers. Hence, today firms instead of banking on cost reduction through economies of scale are thinking of strategies of reducing the total supply chain cost through manufacturing flexibility to rapidly respond to changing markets demands of products volumes and varieties.

Distribution: Traditionally, the role of distribution in the business process is warehousing transportation. However, in the supply chain model, the major task of distribution is the management of demand, i.e. to make available the right product, at the right place, at the right time, and at the least cost. Demand management covers all the activities involving anticipating the customer requirements of products and fulfils that requirements against defined customer service norms. Requirement fulfilment is done through proper distribution network.

The first and foremost task in demand management is to forecast customer requirement accurately. This is done only if the firm is able to satisfy the customer as per the service level acceptable to the customer. Logistics play a vital role in understanding the demand through improved informational flow by way of quick response to customer’s demands.

Dale Carnegie’s Golden Book

Principles from How to Win Friends and Influence People


Become a Friendlier Person

1. Don’t criticize. Condemn or complain.

2. Give honest, sincere appreciation.

3. Arouse in the other person an eager want.

4. Become genuinely interested in other people.

5. Smile.

6. Remember that a person’s name is to that person the sweetest and most important sound in any language.

7. Be a good listener. Encourage others to talk about themselves.

8. Talk in terms of the pther person’s interests.

9. Make the other person feel important and do it sincerely.


Win People to Your Way of Thinking

10. The only way to get the best of an argument is to avoid it.

11. Show respect for the other person’s opinion. Never say, “you’re wrong”.

12. If you are wrong, admit it quickly and emphatically.

13. Begin in a friendly way.

14. Get the other person saying, “yes, yes” immediately.

15. Let the other person do a great deal of the thinking.

16. Let the other person feel that the idea is his or hers.

17. Try honestly to see things from the other person’s point of view.

18. Be sympathetic with the other person’s ideas and desires.

19. Appeal to the nobler motives.

20. Dramatize your ideas.

21. Throw down a challange.


Be a Leader

22. Begin with praise and honest appreciation.

23. Call attention to people’s mistakes indirectly.

24. Talk about your own mistakes before criticizing the other person.

25. Ask questions instead of giving direct orders.

26. Let the other person save face.

27. Praise the slightest improvement and praise every improvement. Be “hearty in your approbation and lavish in your praise”.

28. Give the other person a fine reputation to live up to.

29. Use encouragement. Make the fault seen easy to correct.

30. Make the other person happy about doing the thing you suggest.


Principles from How to Stop Worrying and Start Living

Fundamental Principles for Overcoming Worry

1. Live in “day-tight compartment”.

2. How to face trouble:

    a. Ask yourself, “What is the worst that can possibly happen?”

    b. Prepare to accept the worst.

    c. Try to improve on the worst.

3. Remind yourself of the exorbitant price you can pay for worry in terms of your health.


Basic Techniques in Analyzing Worry

1. Get all the facts.

2. Weigh all the facts – then come to a decision

3. Once a decision is reached, act!

4. Write out and answer the following questions:

a. What is the problem?

b. What are the causes of the problem?

c. What are the possible solutions?

d. What is the best possible solution?


Break the Worry Habit Before it breaks You

1. Keep busy.

2. Don’t fuss about trifles.

3. Use the law of averages to outlaw your worries.

4. Cooperate with the inevitable .

5. Decide just how much anxiety a thing may be worth and refuse to give it more.

6. Don’t worry about the past.


Cultivate a Mental Attitude that will Bring You Peace and Happiness

1. Fill your mind with thoughts of peace, courage, health and hope.

2. Never try to get even with your enemies.

3. Expect ingratitude.

4. Count your blessings – not your troubles.

5. Do not imitate others.

6. Try to profit from your losses.

7. Create happiness for others.


The Perfect Way to Conquer Worry

1. Pray


Don’t Worry about Criticism

1. Remember that unjust criticism is often a disguised compliment.

2. Do the very best you can.

3. Analyze your own mistakes and criticize yourself.


Prevent Fatigue and Worry and Keep Your Energy and Spirits High

1. Rest before you get tired.

2. Learn to relax at your work.

3. Protect your health and appearance by relaxing at home.

4. Apply these four good working habits:

a. Clear your desk of all papers except those relating to the immediate problem at hand.

b. Do things in the order of their importance.

c. When you face a problem, solve it then and there if you have the facts necessary to make a decision.

d. Learn to organize, deputize and supervise.

5. Put enthusiasm into your work.

6. Don’t worry about insomnia.