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Economic Analysis for Managers.

Group Assignment

Abbey, Cecil - 12-001
Akpati, Benson - 11-005
Alabi, Adenike - 12-003
Egbuche, Anthony - 12-012
Tetteh, Nii Amankra - 12-036

Case 1: How Uncle Sam Could Ease the Organ Shortage

P
Price of Organs

D S S

P



Quantity of Organs
SHORTAGE
Case 1: How Uncle Sam Could Ease the Organ Shortage Contd
P - Government sponsored price for organ
P - Upward Adjusted government sponsored price for organs
D Demand at the start of pricing
S - Increased supply to meet demand (D)
S - New Supply Curve

Beckers proposed solution provides an answer in the absence of any real solutions to what is
a trying problem.
There is little doubt that the impartial efficiency of a perfectly competitive market will do
much to organize demand and supply of the organs market. This will at the very least, move
the quantities demanded and supply towards some kind of equilibrium when applied.
The offer of value in terms of a price will encourage an increase in supply of organs, as more
people get motivated to offer their organs for gain.
The challenge begins around the moral pitfalls which are certain to follow around the
question of who should or should not be allowed to donate. Some guidelines may be placed
to ensure that poor are not tempted to make this sacrifice out of want.
More crucially, simple market mechanics imply that when government begins to offer a price
for organs there will be the initial surge in supply to meet demand. However, it is uncertain
how long it will be before theres no longer an incentive large enough to motivate supply and
price has to be raised to maintain supply.
We also ignore the possibility that demand could increase significantly as the demand side is
not constrained by price, but by actual need for donor organs.
How will government sustain funding for ever increasing cycles of price increase? The initial
argument is that this outlay is cheaper than keeping the invalid in the health system for years.
However, as this price sponsored by government increases, will it be sustainable?
Case 1: How Uncle Sam Could Ease the Organ Shortage
Case 2: JIANGXI MINING COMPANY (JMC)
0
5
10
15
20
25
30
35
1 2 3 4 5 6 7 8
average fixed cost
average variable cost
average total cost
marginal cost
workers output
average
fixed cost
average
variable
cost
average
total cost
marginal
cost
0 0
1 6 25 8.333333 33.33333 8.333333
2 16 9.375 6.25 15.625 5
3 29 5.172414 5.172414 10.34483 3.846154
4 44 3.409091 4.545455 7.954545 3.333333
5 55 2.727273 4.545455 7.272727 4.545455
6 60 2.5 5 7.5 10
7 62 2.419355 5.645161 8.064516 25
Case 2: JIANGXI MINING COMPANY (JMC)
1. If marginal cost is below average total cost, average total cost will:
C) be decreasing

2. If the marginal cost curve is below the average variable cost curve, then
A) be decreasing

3. If marginal cost equals average total cost, average total cost will:
A) be minimized

4. The short-run average total cost curve is U-shaped because of:
A) diminishing marginal returns

5. the law of diminishing marginal returns:
D) results in both the average total cost (ATC) and marginal cost (MC) curves being U-
shaped.

Case 3: Dell, Walmart & Zara
1. What is the common strategy that is employed by these three companies
All three firms are directing their attention at 2 key strategies, a) creating value and b) low
cost operations and in all three firms, they focus on ensuring that:

i) As much as possible, all quantities supplied are demand driven; all have mechanisms in
place to assess all their demand in order to determine the exact quantity required in order to
meet the specific quantities demanded.

ii) All three firms in different ways create value in their supply chain in order to compete.

Iii) In all cases as a result of the significant value created and cost savings, their total revenue
more than adequately compensates for total costs allowing them to make profit.




Case 3: Dell, Walmart & Zara
2. How do these companies attempt to create value and/or decrease cost?
Basically, companies have two options to attempt to create value and/or decrease cost:
1. They affect the demand
2. Decrease their cost
In most cases, most companies generally choose to decrease their cost.
Dell sells directly from its website and call centres directly to customers cutting our retailers
and distributors and their attendant costs. They build the personal computers to order,
ordering components after the order, ensuring almost no waste in production. Dell also is
producing close to its large markets where it has scale and consequently benefits from huge
economies of scale. So it creates immense value from what is also a low cost operation, but
does not necessarily pass all the value to its customers.
Zara deploys uncharacteristic speed to market that benefits from an extremely efficient
logistics operation, bringing the latest fashion on the catwalks and the backs of celebrities to
its customers in weeks. But it also creates a scarcity value artificial scarcity that works to
push up its prices. They do this by avoiding mass production and making all its clothes in
small batches, cutting out significant waste
Walmart creates value and manages a low cost operation by the deployment of high
technology ensuring that all stakeholders are constantly in possession of the information they
need to cover inventory, supply and manufacture and deliver creating an efficient ecosystem
of logistics rivaled by few companies. Since the right quantities are supplied without waste, it
does not hold large stocks and consequently benefits from huge cost saves which are not
easily accomplished in retail.
Case 3: Dell, Walmart & Zara
Monopolistic firms need to innovate in order to create new value or die, they need to find
cost saving systems of operation that complete this.
Monopolistic firms need to succeed at strategic positioning allowing them to consistently
create new blue oceans that give them the edge they need to compete repeatedly.
It is critical to understand that what is needed here is not just the ability to improve
operational effectiveness; this is easily copied and does not allow for sustained competition.
Strategic positioning allows the monopolistic firm to chart new races where it runs alone. The
way Michael Porter suggests this can be done is by designing/organising a series of
processes, and activities that allow the firm to unearth a unique set of benefits that deliver a
unique value proposition that cannot be easily copied.
This simply means that the company tries to do many things well in several dimensions at the
same time. This will give the firm considerable lead time to benefit from it successful
competition and also to innovate further to enhance its strategic position and/or diversify.
Where monopolistic competitive firms do not create value and/or reduce costs, their
economic profit will eventually be zero. To sustain growth, therefore, they have to keep
innovating.
The challenge for the monopolistic competitive firm is how to compete by being unique and
not the best; that is an error.
Case 4: Diaper Wars
Kimberly Clark (K-C)

Proctor &
Gamble
(P&G)
Innovate/R&D Dont Innovate/No
R&D
Innovate/R&D
(40, 40)

(80, -20)
Dont Innovate/No
R&D

(-20, 80)

(60,60)
Q1. Can you create a pay-off matrix for the above scenario
Q2. Is there a dominant strategy for both firms ? Which is it?

Yes, the dominant strategy for both firm is to Innovate/or invest in R & D

Case 4: Diaper Wars
Q3. Are the firms in a Prisoners Dilemma? Why? Why not?
The firms are in a Prisoners Dilemma. The eventual outcome of this game is that
they both innovate and come off with a (40, 40) score which is not the optimal
outcome (60,60) which they would have had if they had agreed to co-operate and
not innovate.
Q4. Since the two firms have been competing for so many years and the demand
for diapers in the US is stable, why dont these two firms co-operate?
There is no trust between the two firms. The issue that is perhaps most
accountable for this is the difficulty in detecting cheating in co-operation. This
means that should one firm decide to cheat and go ahead to innovate, it may be
difficult for the other firm to detect this and react to this. Therefore, the firm that
does not cheat and holds the agreement not to innovate could find itself in very
dire straits and several years behind its rival. This scenario could see the cheat take
over considerable market share and see the firm not innovating also make
significant losses as played out in alternate scenarios in the game. Because
detection is such a challenge and the consequence of being cheated so severe ,
both firms will never co-operate. The innovation wars will never end.
Case 4: Diaper Wars
Q5. Can a third firm ever be able to challenge the market share of P&G and K-C
It is near impossible for the reasons that the barriers to entry will be pretty high -
R & D investment to compete at these standards are near prohibitive.
Because the market is competitive without compelling cost-save innovations, a
price war could be suicidal.
New innovation that far outstrips the value proposition in the market of Proctor-
Gamble and Kimberly-Clarke can win market share from these two.
Bhutan
Q1. Is GDP, GDP per capita and GDP growth a good measure of performance?

While GDP captures a lot of indicators, it doesnt measure some indicators that are
important to the continued growth and sustainability of a country. For instance,
GDP per capita considers the entire population whereas it should actually be
looking at the labour force. Countries with aging population will have a skewed
GDP per capita when compared with countries with young population.
While GDP may be flawed, it still provides one of the best alternative available for
measuring performance. For a much clearer and accurate performance
measurement, it should be used in conjunction with other performance indicators
such as Human Development Index.


Bhutan Contd
Q2. What does GDP not measure?
GDP doesnt measure the distribution of income. In large countries like China and India, GDP
doesnt actually mean that much as it fails to take into account the disparity amongst the
different areas of the country. GDP doesnt show how the GDP is distributed amongst the various
segments in the population
It also doesnt measure the difference in the cost of resources which may vary from one country
to another. The future cost of utilising a resource may differ from one country to another and
GDP doesnt take this into account. It also doesnt measure the opportunity cost of resources i.e.
the degradation of the environment whenever a resource is utilised.
GDP doesnt measure social indicators such as life expectancy, volunteer work, or the loss of
natural resources due to environmental degradation.
GDP doesnt measure the opportunity cost of utilising the resources. For instance, what is the
impact on the environment for every resource that is used.
GDP does not measure the sustainability of growth. A country may achieve a temporary high GDP
by exploiting her natural resources or by misallocating investment.
Finally, GDP doesnt measure the underground economy which may have a large bearing on the
performance of a country. Including underground economic indicators may change a countrys
status from a developing to a developed country.

Bhutan Contd
Q3. Can the Gross National Happiness be a substitute? Why/Why not?
No, the Gross National Happiness cannot be a substitute .
The Gross National Happiness cannot be used as a substitute of the GDP. Rather, it
should be used as a supplementary performance indicator to the GDP
Different things make different people happy and is therefore, relative. It is
difficult to have measurements that will cut across all countries.
While it may be possible for the GDP of a country to continue to grow, it is likely
that there is a limit to happiness happiness reaches a peak and cannot be
increased and therefore, measured beyond this point.
The Gross National Happiness is expensive as it requires continuous research with
the data for such measurement not available in many countries.

Bhutan Contd
Q4. What are the other measures that could measure the true performance of an
economy?
United Nations Human Development Index - This index measures the impact of
growth (or lack thereof) on people rather than on the economy.
Fordham Index of Social Health - Measures 16 socio-economic indicators including
infant mortality, child abuse and child poverty amongst others.
Genuine Progress Indicator This indicator attempts to shift the definition of
progress from economic growth to peoples sense of well being in their lives. The
index assigns value to such things as environment sustainability.
Gross Sustainable Development Product This is the total value of production
within a region over time and is measured using market prices for goods and
services transactions in the economy.

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