Prepare a written response to the prompt below using a word processor. Please save your file in .doc or .docx format. Your response should be complete and your final document should be five (5) to seven (7) pages in length, and should comply with APA writing requirements. All work should be in the student’s own words, and no more than 10% of the paper may have direct quotations, cited in APA format. The focus of this paper is on critical application of module terms and concepts to the chosen business.
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Consider each of the scenarios below from the perspective of a manager. Use the insights that you have gained throughout this course to compose complete and thoughtful responses to each scenario’s directions. Total of four scenarios.
After experiencing a few years of some modest success, your company (Indiana, Inc.) wants to expand operations, but it needs to borrow a considerable sum of money from its commercial bank to do this. In this regard, it has been determined that borrowing will be undertaken within the next few weeks if the interest rates are reduced from their current level, but borrowing will be delayed if the interest rates remain the same or are increased from their current level. The bank always follows the lead and direction of the Federal Reserve when it comes to the interest rates it charges for loans, so analyzing what the Federal Reserve does is crucial to making the right decision to borrow now or borrow later.
Below are three separate hypothetical actions that the Federal Reserve could take that would impact the commercial bank’s interest rates. Follow the specific directions for each hypothetical, and respond to each one in separate paragraphs. Also number your paragraphs to coincide with the number of each hypothetical you are writing about.
1 The Federal Reserve has decided to sell treasury bonds on a regular basis over the next few weeks. Identify by name and describe in detail the specific tool that is being used by the Federal Reserve, and then based on what it is doing, explain whether you would recommend borrowing at this time or waiting until later, and explain why.
2 The Federal Reserve has just advised the commercial banks that it must increase the percentage of money it keeps in its vaults from 10% of all deposits to 12% of all deposits over the next few weeks. Identify by name and describe in detail the specific tool that is being used by the Federal Reserve, and then based on what it is doing, explain whether you would recommend borrowing at this time or waiting until later, and explain why.
3 The Federal Reserve has just lowered the interest rate that it charges commercial banks that seek to borrow money directly from the Federal Reserve from 5% to 4%, and this will remain in effect over the next few weeks. Identify by name and describe in detail the specific tool that is being used by the Federal Reserve, and then based on what it is doing, explain whether you would recommend borrowing at this time or waiting until later, and explain why.
Assume you have recently been hired as the new manager of EyeTech Company, an innovative company that sells specialized eye care equipment, primarily to Ophthalmologists, Optometrists, Eye Surgeons, Clinics, and Hospitals. You have decided that in an effort to increase sales, EyeTech will use one form of price discrimination for at least one year. There are typically three different degrees of price discrimination to choose from: First Degree, Second Degree, and Third Degree.
1 Explain in detail the meaning of First Degree Price Discrimination, Second Degree Price Discrimination, and Third Degree Price Discrimination.
2 Assume that each degree of price discrimination can be successfully implemented by EyeTech Company. Select the degree of price discrimination that you believe will be the most successful in improving sales, and explain why. (Note that you can only select one specific degree. Do not select more than one degree or a combination of degrees.)
3 To also gain more insights into EyeTech’s primary consumers and their demand for EyeTech’s products, you have decided to use one of the four strategic tools for managers highlighted in the Module Three Lecture to better understand consumer demand. Identify and describe the tool (one only) you believe would provide the best insights into EyeTech’s primary consumers, and explain why you believe this particular tool would be the best one to use.
Bilbo Company wants to expand operations into one foreign country. As the company manager, you have been directed to explore both the economic conditions and economic freedom conditions of four foreign countries, and then make a recommendation based on the data you obtain on the countries from the Index of Economic Freedom that can be accessed at https://www.heritage.org/index/ Do not use any other data source.
The countries under consideration are the following:
For each country above, make a small chart that reports the following statistics provided in the index: A. GDP, B. GDP Per Capita, C. Unemployment, D. Inflation, and E. Population.
Then for each country above, make a small chart that reports the following economic freedom scores: A. Property Rights, B. Government Integrity, C. Business Freedom, D. Tax Burden, and E. Trade Freedom.
After you collect and report all of the required statistics and economic freedom scores for each country, recommend one country (only one) among the four that you believe would be the best one for Bilbo Company to expand into, and explain why. Be sure to base your recommendation on all of the data you collect for each country in order to make a more complete comparison, and don’t base your recommendation on only one or a few of the statistics and/or scores.
Macrohard Aluminum, Inc. wants to increase its overall size in the hopes of gaining greater market shares of the various products it sells. As manager, you have to analyze this plan by reviewing and then recommending specific ways that the expansion will be able to enjoy some economies of scale in order to justify the increase in the size of the company.
1 Describe in detail the meaning of economies of scale.
2 Identify 4 specific ways that the company might be able to achieve economies of scale from increasing its size, and describe each one separately.
3 Describe in detail the meaning of diseconomies of scale, and explain 2 specific ways how increasing the size of Macrohard Aluminum, Inc. could unintentionally result in some diseconomies of scale.
Bonus (worth up to 5 points)
1 Does the Balance of Trade always balance? Briefly explain why or why not.
2 Based on the economic meaning of supply and the economic meaning of demand, explain whether supply creates demand or demand creates supply.
Indiana Inc. has experienced some years of hardship and wants to expand its operations. The only viable option is borrowing money from a commercial bank to make the dream reality. The organization seeks to borrow money from the federal reserve, which lends money. By increasing or decreasing the money supply, the Fed influences interest rates. When the Fed increases the money supply, banks will have more to lend. Their lending capacity will increase. The supply of loans will increase, and as a result rate of interest will decrease. If the Fed decreases the money supply, banks will have less money to lend. Their lending capacity will decrease. The supply of loans will decrease; competition among the buyers will increase the interest rate.
2) Reserve Requirement: Reserve prerequisite is the guideline on banks that it needs to keep up a base save store proportion. When the Fed needs to expand the cash gracefully, it diminishes the save store proportion so that banks can have more money to loan. Whenever the Fed needs to decrease the funds gracefully, it increments the hold store proportion so that banks have less cash to give as credits.
3) Discount rate: The discount rate is Fed charges when it makes advances to banks. Lower the rebate rate, less expensive the bank credits. Henceforth, a decrease in rebate rates prompts an expansion in the financial base and cash flexibility. The higher the markdown rate, the higher is the expense of getting inferring more costly the bank advances (“How Monetary Policy Works | In Plain English | St. Louis Fed”, 2020). Henceforth, an expansion in markdown rates prompts a decrease in the financial base and the cash gracefully.
EyeTech has hired a new manager to control its operations to sell their products and increase sales. Price discrimination is a concept in economics whereby businesses charge different prices for the same product or service they produce. This practice is generated from the profits that companies make due to the separation of markets. Alternatively, consumer surplus is the benefits that the consumers receive due to paying more for a product or service than the current market pricing (Baye & Prince, 2016). There are three types of price discrimination that can be utilized by the EyeTech company to achieve its desired sales.
First-degree price discrimination occurs once the business alters with the maximum sales of the products they offer (Twin, 2020). The effects vary in price, and the firm manages to capture the customer’s surplus by itself. They are hence gaining an advantage in the market.
Second-degree price discrimination is a situation that occurs once the organization decides to charge a commodity differently. Hence, giving discounts once the consumer buys bulk products.
Third-degree price discrimination is a philosophy adopted by an organization to charge consumers differently. The products keep varying in price depending on the class and the standard of the consumer.
EyeTech company will utilize first-degree price discrimination, which is referred to as perfect price discrimination, to improve sales. The firm will charge consumers depending on what they have consumed. Consumers are charged different prices on the units they consume. In perfect price discrimination, it is advantageous to the firm because it can charge maximum rates on what products or services the consumer needs. This practice enables the firm to capture all the presented consumer surplus. There are different effects that consumer surplus encounters during the first-degree type. Firstly, it is essential to note that consumers are willing to pay while the firm charges on every unit of the product or service (Baye & Prince, 2016). Due to this concept, businesses benefit more than the consumer because the more the consumers take the product or service, the lesser they are ready to expend for it. It also makes the business firm advocate more of its products and services, but every unit is priced, thus benefiting. It is satisfied due to the law of diminishing marginal utility. In a graphical presentation, the consumer surplus the pricing trends down the demand curve depending on the product’s quantity or service. These are the lesser benefits that clients enjoy in first-degree price discrimination as much as it is rare to happen in a market.
To understand EyeTech consumers and their demand as the manager, I will utilize the four strategic tools. The strategic tool that I will adopt is the use of mind maps. The mind map is the visual tool that is crucial in strategic planning as it connects ideas, words to generate one theme. It is a form of brainstorming that starts with the primary question written down on a whiteboard or paper piece. For instance, the manager writes down EyeTech consumers’ demands. After writing down the central theme ideas, concepts then start to be branched to develop a concrete solution.
Bilbo organization wishes to expand its operations into other nations, including Qatar, Chile, Poland, and the Philippines. They are various issues that ought to be considered by Bilbo before deciding where it is going to venture its operations. Qatar’s economy depends on petroleum products, and drop in the prices of oil affects the nation’s GDP. Poland is a nation whose rate of unemployment accounts for 3.04 percent. However, it has a stable economy as it lies sixth in the EU. The quality of unemployment decreases over the years. Chile inflation keeps on increasing every year starting from 2017. With the current pandemic the figure is estimated to keeps increasing.
The charts above show property rights, trade freedom, tax burden, government integrity and property rights. The best country that Bilbo company should invest is Poland due to its economy. The economy of the nation is stable and the government allows investment in the nation. Also, the population of the nation is not high, and the rate of unemployment is low. The nation has trade freedom which will allow the organization to invest and progress in the nation. The government integrity of the nation is moderately and an investor will have the freedom. Hence, the nation allows new entrants in the market which will favor foreign investors.
Economies of scope happen to be an economic concept that states that the production average total cost reduces the number of products being produced increases. If a firm produces a number of products under one operation, these products share the same resources to be produced. This becomes an added advantage to the firm as it optimizes its resources and capabilities to develop competitive products. Through economies of scope, greater control concerning manufacturing operations, more flexibility, more reliability, and a quick response time towards market changes can be realized (Nickolas, 2018). The firm enjoys producing competitive products while maintaining low production costs.
Factors that sensible defines the product may be determined by economic conditions, consumer needs, business strategies, and competitive conditions among other things. Firms find it challenging to identify a key differentiator when it comes to an industry with several competitors. On the other hand, this is easier for firms operating in an oligopoly competition, where only a few competitors are available in the market. Differential advantage may further be utilized in identifying a product’s target market based on advantages or benefits enjoyed by customers.
Minimum efficient scale happens to be the smallest production amount achieved by a firm while still taking advantage of the economies of scale regarding costs and supplies. It is the lowest point of production at which entire long-run costs are minimized (Arnold, 2008). The minimum efficient scale capacitates the ability of entry into the market; hence, new firms must achieve it.
On the other hand, economies of scale occur as a result of the unit cost increasing as the quantity produced increases. In this case, the firm’s attempt to boost its output transcends to an equivalent rise in unit cost in association with the unit increase of the production (Arnold,2008). Factors causing diseconomies of scale include the firm becoming too large. It cannot manage itself properly, decreasing returns of scale, and higher resource prices leading to supply constraints. Business functions’ overlapping and product line duplication may also lead to diseconomies of scale.
Arnold, Roger A. (2008). Economics. San Marcos: Cengage Learning.
Baye, M., & Prince, J., (2016). Managerial Economics & Business Strategy, 9th Edition. McGraw-Hill Irwin Publishers.
How Monetary Policy Works | In Plain English | St. Louis Fed. Stlouisfed.org. (2020). Retrieved 26 November 2020, from https://www.stlouisfed.org/in-plain-english/how-monetary-policy-works#:~:text=The%20Fed%20can%20use%20four,operations%2C%20and%20interest%20on%20reserves.
Nickolas, Steven (2018). “What Is the Difference Between Economies of Scope and Economies of Scale?” .
Twin, A. (2020). How Price Discrimination Comes About. Investopedia. Retrieved 26 November 2020, from https://www.investopedia.com/terms/p/price_discrimination.asp#:~:text=First%2Ddegree%20discrimination%2C%20or%20perfect,itself%2C%20or%20the%20economic%20surplus.
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