PHILIPPINE CHRISTIAN UNIVERSITY - DASMARIÑAS

Emilio Aguinaldo Highway Dasmariñas City, Cavite 4114

GRADUATE SCHOOL OF BUSINESS AND MANAGEMENT

MANAGERIAL ECONOMICS

CASE ANALYSIS

SAFLOR, JOMINA D.
20101172

3 APRIL 2020
CASE 1:

Amcott loses $3.5M; Manager Fired

On Tuesday software giant Amcott posted a year-end operating loss of $3.5M.

Reportedly, $1.7M of the loss stemmed from its foreign language division. At a time when
Amcott was paying First National a hefty 7% rate to borrow short-term funds, Amcott decided to
use $20M of its retained earnings to purchase three-year rights to Magic word, a software
package that converts generic word processor files saved as French text into English. First year
sales revenue from the software was $7M, but thereafter sales were halted pending a copyright
infringement suit filed by Foreign, Inc. Amcott lost the suit and paid damages of $17M. Industry
insiders say the copyright violation pertained to “a very small component of Magicword”. Ralph,
the Amcott manager who was fired over the incident, was quoted as saying, “I’m a scapegoat for
the attorneys (at Amcott) who didn’t do their homework before buying the rights of Magicword.
I projected annual sales of $7M per year for three years. My sales forecast were right on target”.

Question: Do you know why Ralph was fired?

Ralph probably didn’t re-examine the marketing department for sales forecasts and on
the legal department for the advice on contract and copyright law. Given that the sales forecast
are accurate, the legal department didn’t foresee the issue on copyright infringement. He was
fired because of his managerial incompetence; he didn’t process and verified the information
given to him.
CASE 2:

Samsung and Hynix Semiconductor to cut chip production

Sam Robbins, owner and CEO of PC Solutions, arrived at the office and glanced at the
front page of The Wall Street Journal waiting on his desk. One of the articles contained
statements from executives of two South Korea’s largest semiconductor manufacturers-Samsung
Electronics Company and Hynix Semiconductor- indicating that they would suspend all their
memory chip production for one week. The article went on to say that another large
semiconductor manufacturer was likely to follow suit. Collectively, these three chip
manufacturers produce about 30% of the world’s basic semiconductor chips. PC Solution is a
small but growing company that assembles PC’s and sells them in the highly competitive market
for “clones”. PC Solutions experienced 100% growth last year and is in the process of
interviewing recent graduates in an attempt to double its workforce. After reading the article,
Sam picked up the phone and called a few of his business contacts to verify himself the
information contained in the Journal. Satisfied that the information was correct, he called the
director of personnel, Jane Remak.

Question: What do you think Sam and Jane discussed?

The probable discussion would be considering the idea about hiring new people in the
company since the company is growing. In view of the suspending all the semi-conductor
production they might be planning on producing its own semiconductors since the company is
growing at a fast pace. This would require more labor and generate job opportunities.
CASE 3:

Walmart hoping for another big holiday showing

In October of every year, Walmart’s national sales director knows the calls are coming
for his holiday forecasts. This year, the firm’s holiday performance is especially important after
disappointing sales to date. While the directors has no problem expressing his hope for strong
holiday sales, investors and reporters as well as local managers are seeking a prediction that has
evidence to back it. Consequently he turns to his analytics department which has been collecting
wide swaths of data for Walmart over many years across the 381 metropolitan statistical areas
(MSA’s) in the United States. Some variables of particular interest include holiday sales, average
prices, and consumer confidence. Using these data, the analyst arrives at the following equation,
designed to predict holiday sales measured as revenues.

In(Holiday sales) = 25.8 - 0.8 In(Price) + 0.9 In(Consumer Confidence)

The directors note that most MSA’s saw a decrease in consumer confidence of
approximately 4%.

Question: 1.Based on this information does the evidence support optimism for holiday sales
if prices remain unchanged?

Yes, the evidence support optimism on good holiday sales given that the prices remain
unchanged. Considering the equation given when the price was changed to a higher price the
holiday sale will decrease.

2. Could a change in price help to bolster revenues?

Yes, given that the price will be lowered than the usual. Assuming that the consumer
confidence is decreased, when the price will be lowered it will garner higher sales and if the
price will be higher it will garner lesser sales.
CASE 4:

Packaging Firms uses overtime pay to overcome labor shortage

Boxes Ltd. Produces corrugated paper containers at a small plant in Sunrise Beach,
Texas. Sunrise Beach is a retirement community with an aging population and over the past
decade the size of its working population has shrunk. In 2016, this labor shortage hampered
Boxes Ltd.’s ability to hire enough workers to meet its growing demand and production targets.
This is despite the fact that it pays $16 per hour almost 30% more than local average to its
workers. Last year, Boxes Ltd. hired a new manager who instituted overtime wage plan at the
firm. Under her plan, workers earn $16 per hour for the first eight hours worked each day and a
$24 per hour for each hour worked in a day in excess of eight hours.

This plan eliminated the firm’s problem, as the firm’s production level and profits are up
by 20% this year.

Question: Why did the new, manager institute the overtime plan instead of simply raining
the wage rate in an attempt to attract more workers to the firm?

Raising the wage rate is more expensive as compared to offering overtime pay. This is
because the raising of wages will increase the fixed costs of the firm since wages are fixed
expenses. But the introduction of overtime pay can enable Boxes Ltd. to meet its increased
demand as well as meet its production targets at a relatively lower labor cost. Also, since the
labor supply is low in Sunrise Beach, Texas, raising the wage may not help the firm to solve its
problems since it may fail to attract workers. As a matter of fact, this firm pays a wage rate that
is higher than other firms but it has not been able to attract more workers. This, therefore, means
that raising the wage rate with the aim of attracting more workers may fail to work. Perhaps,
this is the reason the new manager decided to institute the overtime plan instead of just raising
the wage rate. The overtime pay will make the workers extend their working hours as they know
they will be compensated. Boxers Inc. will be able to meet its increased demand as well as
production targets with the increased production following the introduction of overtime plan.
CASE 5:

Boeing losses the battle but wins the war

After nearly eight weeks, Boeing and its International Association of Machinist and Aerospace
Workers Union(IAM) reach an agreement that ended a strike involving 27,000 workers. The
strike followed several days of “last minute”, around the clock talks that began when
management and union negotiators failed to reach an agreement over compensation and job
protection issues. As a result of the agreement, IAM workers won benefits in areas that include
healthcare, pension, wages and job security for 2,900 workers in inventory management and
delivery categories. Boeing also agreed to retrain workers who are laid off or displaced. Despite
these concessions, a spokesman of Boeing was quoted saying that “the agreement gives us the
flexibility we need to run the company”. The four years agreement allows Boeing to retain
critical subcontracting provisions it won in past struggles with the union.

Question: Commenting on all this, one analysis concludes that “the union probably won the
battle and Boeing probably wins the war”. Can you explain what this analyst means?

In the opening headline, the phrase “wins the battle” refers to the short-run implications
of the agreement between Boeing and the IAM, while “wins the war” refers to the agreement’s
long-run implications. The analyst recognizes that the agreement benefited union workers in the
short run, but the agreement also increased Boeing’s long-term value by giving it the flexibility
to substitute away from more costly unionized inputs. More specifically, Boeing’s new union
contract provided a number of “short-term” provisions (health and pension benefits, higher
wages, and job security for some of the union’s more senior workers) that were costly to Boeing
but beneficial to the union. In the long run, however, the higher labor costs associated with the
agreement provide Boeing with an incentive to substitute away from more expensive union labor,
and the agreement provides Boeing the flexibility to do so. For instance, the subcontracting
provisions Boeing won in the agreement may, in the long run, permit the company to substitute
away from its costly and heavily unionized Pacific Northwest inputs toward assembly facilities in
less costly areas. In short, the analyst concluded that the long-run flexibility imbedded in the
agreement translates into cost-reducing substitution possibilities for Boeing that generate long-
run benefits that probably more than offset the short-run costs.