Business Finance - Accounting HELP WITH MBASSIGNMENT DUE IN 16 HOURS
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Project2Questions-ReportTemplate.docx
Project2ReviewandPracticeGuide.pdf
Project2Questions-ReportTemplate.docx
Project 2 Report
Instructions
Largo Global Inc. is a fictious firm that is will be used to allow you to understand the market forces of supply and demand as they impact a company as well as the industry in which the company operates. The company produces several different product lines two of which are a simple Standard box and a more elaborate Deluxe box. These boxes are also produced by many other companies.
In Project 2, you will learn about how to apply the tenets of microeconomics to improve the company's profitability. In tab 1 after reading the instructions, you will chart the supply and demand curves for the two different boxes. In tab 2 you will focus on the price elasticity of demand for these two products. In tab 3 you will approximate the prices that maximize the profit for both boxes.
Project 2 is the team assignment in MBA 620. Follow these steps to complete the project:
1. In step 3 the team will complete their Team Agreement and Work Plan and submit it to their faculty member by the due date noted by their faculty member.
1. In step 4, the team will complete this Excel file by answering the questions for all three tabs in the boxes provided. One member of the team will submit this file to the Project 2 Milestone assignment folder by the stated due date to receive feedback from their faculty member. Upon receipt of the feedback, the team will coordinate any necessary corrections.
2. In step 5, each team member must answer all questions for two of the five topics provided in the Word file. These questions constitute the core of your team's report. Each team member will serve as the team’s primary respondent for one of the five topics and coordinate the answers for that topic. Each team member will also serve as the secondary respondent to one of the five topics and submit their answers to the primary respondent.
a. The faculty member will create a separate Team Project 2 Discussion forum for each team which includes all five topics. All team members should prepare their answers to the questions for their two chosen topics as separate Word files. They should post their two files in the appropriate topics in the Team Project 2 Discussion forum.
b. After coordinating with the other members of the team, the primary respondent for each topic will submit their answers to the editor of the team’s Word file. The editor will then consolidate the answers to the questions for all five topics in a single Word file and submit that file along with the team's revised Excel file to the Project 2 Final assignment folder.
c. If the team does not receive a grade of Meets Requirements or Exceeds Requirements, the primary respondents will coordinate any necessary changes to the answers for their topic questions and resubmit them to the editor. The editor will then consolidate all changes to the Word file and resubmit the file along with the team's Excel file to the Project 2 Final assignment folder.
Title Page
Name
Course and section number
Faculty name
Submission date
First Revision Changes (if necessary)
Second Revision Changes (if necessary)
Supply and Demand
1. Explain why an understanding of the law of demand and the law of supply is important to being an effective manager.
2. Identify the supply factors that are most important in determining the market equilibrium for the Deluxe box.
3. Identify the demand factors that are most important in determining the market equilibrium for the Standard box.
Market Structure
1. Explain why an understanding the market structure in a which company operates is important to being an effective manager.
2. Explain the market structure that is most likely operating in the market for the Deluxe boxes.
3. Explain the market structure that is most likely operating in the market for the Standard boxes.
Price Elasticity
1. Discuss what actions the company should take in setting the price of the Standard box given its price elasticity of demand.
2. Discuss what actions the company should take in setting the price of the Deluxe box given its price elasticity of demand.
3. Assuming the price elasticity of supply for the Standard box is inelastic, explain the key factors that the company must consider in expanding production.
Profit Maximization
1. Explain under what conditions profit maximization would be appropriate for the Standard box.
2. Explain why the concepts of marginal revenue, marginal cost and economies of scale are important to the financial objective of maximizing profit.
3. Assuming the company only manufactures these two product lines and they have customers who purchase both products from them, discuss what the overall company financial objective should be.
Economics and Decision Making
1. Explain how an understanding of economics is important to being an effective manager.
2. Explain why understanding the economic concept of opportunity cost is essential to managers making better decisions.
3. Explain why understanding the economic concepts of marginal revenue and marginal cost are essential to managers making better decisions.
Project2ReviewandPracticeGuide.pdf
UMGC MBA 620: Financial
Decision Making
Project 2: Review and
Practice Guide
Project 2: Review and
Practice Guide
Managerial Economics
Contents Topic 1: Economics Principles ....................................................................................................................... 3
How People Make Decisions ..................................................................................................................... 3
Topic 2: Market Equilibrium.......................................................................................................................... 4
Demand Curve .......................................................................................................................................... 4
Supply Curve ............................................................................................................................................. 4
Market Equilibrium ................................................................................................................................... 5
What moves the Supply/Demand Curves ................................................................................................. 5
Topic 3: Elasticity .......................................................................................................................................... 6
What is Price Elasticity .............................................................................................................................. 6
Elasticity of Demand: Inelastic .................................................................................................................. 6
Elasticity of Demand: Unit Elastic ............................................................................................................. 7
Elasticity of Demand: Elastic ..................................................................................................................... 8
Topic 4: Market/Industry Structure .............................................................................................................. 9
Industry Structure Examples ..................................................................................................................... 9
Market Structure Comparison .................................................................................................................. 9
Perfect Competition ................................................................................................................................ 10
Topic 5: How Companies Make Decisions .................................................................................................. 11
Principle 3 ............................................................................................................................................... 11
Maximizing Profit .................................................................................................................................... 11
Problems/Exercises ..................................................................................................................................... 12
What to do .............................................................................................................................................. 12
Exercises .................................................................................................................................................. 12
............................................................................................................................................. 12
............................................................................................................................................. 12
............................................................................................................................................. 12
References .............................................................................................................................................. 12
Project 2 Review and Practice Guide
3
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Topic 1: Economics Principles
How People Make Decisions • Principle 1: People face trade-offs
• Principle 2: The cost of something is what you give up to get it (opportunity cost)
• Principle 3: Rational people thing at the margin (MR=MC)
• Principle 4: People respond to incentives
Project 2 Review and Practice Guide
4
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Topic 2: Market Equilibrium
Demand Curve
The market demand curve: a downward-sloping curve.
It depicts a movement along a stationary demand curve.
Based on Webster (2015, p. 22)
Supply Curve
The market supply curve: an upward-sloping curve.
It depicts a movement along a stationary supply curve.
Based on Webster (2015, p. 32)
Project 2 Review and Practice Guide
5
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Market Equilibrium
A market equilibrium: determination of market price and
output.
It depicts a market equilibrium where the quantity
demanded equals the quantity supplied.
Based on Webster (2015, p. 37)
What Moves the Supply/Demand Curves
Demand:
• Price
• Income
• Price of related goods
• Tastes
• Expectations
• Number of buyers
Supply:
• Price
• Input prices
• Technology
• Expectations
• Number of sellers
Project 2 Review and Practice Guide
6
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Topic 3: Elasticity
What is Price Elasticity? • Price elasticity—how sensitive demand or supply is to price changes
• Formula:
Absolute value of (% 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑖𝑒𝑠
% 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑃𝑟𝑖𝑐𝑒 )
% change = (new value - old value) / average of new and old values
• Three Types of Elasticity
1. Inelastic: elasticity < 1
2. Elastic: elasticity > 1
3. Unit Elastic: elasticity = 1
Based on information in Mankiw (1997)
Elasticity of Demand: Inelastic
Source: Mankiw (1997)
Project 2 Review and Practice Guide
7
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Elasticity of Demand: Unit Elastic
Source: Mankiw (1997)
Project 2 Review and Practice Guide
8
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Elasticity of Demand: Elastic
Source: Mankiw (1997)
Project 2 Review and Practice Guide
9
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Topic 4: Market/Industry Structure
Industry Structure Examples
Source: Mankiw (1997)
Market Structure Comparison Market Structure
Characteristic Perfect Competition Monopolistic Competition Oligopoly Monopoly
Type of
competition Perfect Imperfect Imperfect Imperfect
Number of firms Very many Many Few One
Type of product Homogeneous Differentiated. Many close substitutes
Homogeneous or
differentiated
Unique. No close Substitutes
Market power None; firms are “price
takers” Some; limited by availability
of close substitutes Limited; pricing
decisions
characterized
by strategic
behavior
Considerable;
firms are “price
makers.”
Barriers to entry
and exit Few to none; easy
entry and exit Few; easy entry and exit Considerable Entry impossible
Non-price
competition None Considerable,
advertising, brand-name
recognition, and trademarks
to promote customer loyalty
Considerable;
especially with
respect to
differentiated
products
None since there
is only one firm;
monopolies
frequently
advertise for
other reasons
Source: Webster (2015)
Project 2 Review and Practice Guide
10
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Perfect Competition • Theoretical benchmark of market structure, six assumptions (Mankiw, 1997):
1. All companies have an identical (homogeneous) product
2. All competitors are price takers (they cannot influence the market price of their
product)
3. Market share does not influence price
4. Buyers have complete ("perfect") information at all times (past, present, future) about
the product and prices
5. Resources like labor are perfectly mobile
6. Companies can enter or exit the market without cost
Project 2 Review and Practice Guide
11
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Topic 5: How Companies Make Decisions
Principle 3 Rational people thing at the margin—so do companies! (Mankiw, 2015)
Maximizing Profit Profit
𝜋 = TR – TC*
Marginal Revenue
MR = TR/Q; MC = TC/Q
Maximize (𝜋) when the following is true:
Marginal Revenue = Marginal Cost or MR – MC = 0
(Example: An empty seat on a flight at takeoff is a lost profit opportunity, because
there is almost no variable cost.)
* MR – marginal revenue, MC – marginal cost, TR – total revenue, TC – total cost, Q – quantity, --
change
Project 2 Review and Practice Guide
12
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Problems/Exercises
What to do You are encouraged to complete all the practice exercises listed below. They will help you gain the
knowledge and skills needed to fully participate in the group assignment in Step 3 and complete the
final Project 2 deliverable. The answers are provided, so you can check your own work.
Exercises (in Webster, 2015)
• Solve exercises on pages 28, 31, 42, 45, 49
• Solve exercise on pages 57, 60, 68, 70, 71
• Solve exercises on pages 178, 181, 183, 184
References Mankiw, N. G. (1997). Principles of Economics (1st ed.). Harcourt.
Webster, T. J. (2015). Managerial economics: tools for analyzing business. Lexington Books.
http://ezproxy.umgc.edu/login?url=https://search.ebscohost.com/login.aspx?direct=true&db=n
lebk&AN=935122&site=eds-live&scope=site&ebv=EB&ppid=pp_cover
Back to Table of Contents
Now that you have read this Review and Practice Guide and completed the exercises, you are ready to participate in the group assignment in Step 3.
Project2Questions-ReportTemplate.docx
Project 2 Report
Instructions
Largo Global Inc. is a fictious firm that is will be used to allow you to understand the market forces of supply and demand as they impact a company as well as the industry in which the company operates. The company produces several different product lines two of which are a simple Standard box and a more elaborate Deluxe box. These boxes are also produced by many other companies.
In Project 2, you will learn about how to apply the tenets of microeconomics to improve the company's profitability. In tab 1 after reading the instructions, you will chart the supply and demand curves for the two different boxes. In tab 2 you will focus on the price elasticity of demand for these two products. In tab 3 you will approximate the prices that maximize the profit for both boxes.
Project 2 is the team assignment in MBA 620. Follow these steps to complete the project:
1. In step 3 the team will complete their Team Agreement and Work Plan and submit it to their faculty member by the due date noted by their faculty member.
1. In step 4, the team will complete this Excel file by answering the questions for all three tabs in the boxes provided. One member of the team will submit this file to the Project 2 Milestone assignment folder by the stated due date to receive feedback from their faculty member. Upon receipt of the feedback, the team will coordinate any necessary corrections.
2. In step 5, each team member must answer all questions for two of the five topics provided in the Word file. These questions constitute the core of your team's report. Each team member will serve as the team’s primary respondent for one of the five topics and coordinate the answers for that topic. Each team member will also serve as the secondary respondent to one of the five topics and submit their answers to the primary respondent.
a. The faculty member will create a separate Team Project 2 Discussion forum for each team which includes all five topics. All team members should prepare their answers to the questions for their two chosen topics as separate Word files. They should post their two files in the appropriate topics in the Team Project 2 Discussion forum.
b. After coordinating with the other members of the team, the primary respondent for each topic will submit their answers to the editor of the team’s Word file. The editor will then consolidate the answers to the questions for all five topics in a single Word file and submit that file along with the team's revised Excel file to the Project 2 Final assignment folder.
c. If the team does not receive a grade of Meets Requirements or Exceeds Requirements, the primary respondents will coordinate any necessary changes to the answers for their topic questions and resubmit them to the editor. The editor will then consolidate all changes to the Word file and resubmit the file along with the team's Excel file to the Project 2 Final assignment folder.
Title Page
Name
Course and section number
Faculty name
Submission date
First Revision Changes (if necessary)
Second Revision Changes (if necessary)
Supply and Demand
1. Explain why an understanding of the law of demand and the law of supply is important to being an effective manager.
2. Identify the supply factors that are most important in determining the market equilibrium for the Deluxe box.
3. Identify the demand factors that are most important in determining the market equilibrium for the Standard box.
Market Structure
1. Explain why an understanding the market structure in a which company operates is important to being an effective manager.
2. Explain the market structure that is most likely operating in the market for the Deluxe boxes.
3. Explain the market structure that is most likely operating in the market for the Standard boxes.
Price Elasticity
1. Discuss what actions the company should take in setting the price of the Standard box given its price elasticity of demand.
2. Discuss what actions the company should take in setting the price of the Deluxe box given its price elasticity of demand.
3. Assuming the price elasticity of supply for the Standard box is inelastic, explain the key factors that the company must consider in expanding production.
Profit Maximization
1. Explain under what conditions profit maximization would be appropriate for the Standard box.
2. Explain why the concepts of marginal revenue, marginal cost and economies of scale are important to the financial objective of maximizing profit.
3. Assuming the company only manufactures these two product lines and they have customers who purchase both products from them, discuss what the overall company financial objective should be.
Economics and Decision Making
1. Explain how an understanding of economics is important to being an effective manager.
2. Explain why understanding the economic concept of opportunity cost is essential to managers making better decisions.
3. Explain why understanding the economic concepts of marginal revenue and marginal cost are essential to managers making better decisions.
Project2ReviewandPracticeGuide.pdf
UMGC MBA 620: Financial
Decision Making
Project 2: Review and
Practice Guide
Project 2: Review and
Practice Guide
Managerial Economics
Contents Topic 1: Economics Principles ....................................................................................................................... 3
How People Make Decisions ..................................................................................................................... 3
Topic 2: Market Equilibrium.......................................................................................................................... 4
Demand Curve .......................................................................................................................................... 4
Supply Curve ............................................................................................................................................. 4
Market Equilibrium ................................................................................................................................... 5
What moves the Supply/Demand Curves ................................................................................................. 5
Topic 3: Elasticity .......................................................................................................................................... 6
What is Price Elasticity .............................................................................................................................. 6
Elasticity of Demand: Inelastic .................................................................................................................. 6
Elasticity of Demand: Unit Elastic ............................................................................................................. 7
Elasticity of Demand: Elastic ..................................................................................................................... 8
Topic 4: Market/Industry Structure .............................................................................................................. 9
Industry Structure Examples ..................................................................................................................... 9
Market Structure Comparison .................................................................................................................. 9
Perfect Competition ................................................................................................................................ 10
Topic 5: How Companies Make Decisions .................................................................................................. 11
Principle 3 ............................................................................................................................................... 11
Maximizing Profit .................................................................................................................................... 11
Problems/Exercises ..................................................................................................................................... 12
What to do .............................................................................................................................................. 12
Exercises .................................................................................................................................................. 12
............................................................................................................................................. 12
............................................................................................................................................. 12
............................................................................................................................................. 12
References .............................................................................................................................................. 12
Project 2 Review and Practice Guide
3
Back to Table of Contents
Topic 1: Economics Principles
How People Make Decisions • Principle 1: People face trade-offs
• Principle 2: The cost of something is what you give up to get it (opportunity cost)
• Principle 3: Rational people thing at the margin (MR=MC)
• Principle 4: People respond to incentives
Project 2 Review and Practice Guide
4
Back to Table of Contents
Topic 2: Market Equilibrium
Demand Curve
The market demand curve: a downward-sloping curve.
It depicts a movement along a stationary demand curve.
Based on Webster (2015, p. 22)
Supply Curve
The market supply curve: an upward-sloping curve.
It depicts a movement along a stationary supply curve.
Based on Webster (2015, p. 32)
Project 2 Review and Practice Guide
5
Back to Table of Contents
Market Equilibrium
A market equilibrium: determination of market price and
output.
It depicts a market equilibrium where the quantity
demanded equals the quantity supplied.
Based on Webster (2015, p. 37)
What Moves the Supply/Demand Curves
Demand:
• Price
• Income
• Price of related goods
• Tastes
• Expectations
• Number of buyers
Supply:
• Price
• Input prices
• Technology
• Expectations
• Number of sellers
Project 2 Review and Practice Guide
6
Back to Table of Contents
Topic 3: Elasticity
What is Price Elasticity? • Price elasticity—how sensitive demand or supply is to price changes
• Formula:
Absolute value of (% 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑖𝑒𝑠
% 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑃𝑟𝑖𝑐𝑒 )
% change = (new value - old value) / average of new and old values
• Three Types of Elasticity
1. Inelastic: elasticity < 1
2. Elastic: elasticity > 1
3. Unit Elastic: elasticity = 1
Based on information in Mankiw (1997)
Elasticity of Demand: Inelastic
Source: Mankiw (1997)
Project 2 Review and Practice Guide
7
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Elasticity of Demand: Unit Elastic
Source: Mankiw (1997)
Project 2 Review and Practice Guide
8
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Elasticity of Demand: Elastic
Source: Mankiw (1997)
Project 2 Review and Practice Guide
9
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Topic 4: Market/Industry Structure
Industry Structure Examples
Source: Mankiw (1997)
Market Structure Comparison Market Structure
Characteristic Perfect Competition Monopolistic Competition Oligopoly Monopoly
Type of
competition Perfect Imperfect Imperfect Imperfect
Number of firms Very many Many Few One
Type of product Homogeneous Differentiated. Many close substitutes
Homogeneous or
differentiated
Unique. No close Substitutes
Market power None; firms are “price
takers” Some; limited by availability
of close substitutes Limited; pricing
decisions
characterized
by strategic
behavior
Considerable;
firms are “price
makers.”
Barriers to entry
and exit Few to none; easy
entry and exit Few; easy entry and exit Considerable Entry impossible
Non-price
competition None Considerable,
advertising, brand-name
recognition, and trademarks
to promote customer loyalty
Considerable;
especially with
respect to
differentiated
products
None since there
is only one firm;
monopolies
frequently
advertise for
other reasons
Source: Webster (2015)
Project 2 Review and Practice Guide
10
Back to Table of Contents
Perfect Competition • Theoretical benchmark of market structure, six assumptions (Mankiw, 1997):
1. All companies have an identical (homogeneous) product
2. All competitors are price takers (they cannot influence the market price of their
product)
3. Market share does not influence price
4. Buyers have complete ("perfect") information at all times (past, present, future) about
the product and prices
5. Resources like labor are perfectly mobile
6. Companies can enter or exit the market without cost
Project 2 Review and Practice Guide
11
Back to Table of Contents
Topic 5: How Companies Make Decisions
Principle 3 Rational people thing at the margin—so do companies! (Mankiw, 2015)
Maximizing Profit Profit
𝜋 = TR – TC*
Marginal Revenue
MR = TR/Q; MC = TC/Q
Maximize (𝜋) when the following is true:
Marginal Revenue = Marginal Cost or MR – MC = 0
(Example: An empty seat on a flight at takeoff is a lost profit opportunity, because
there is almost no variable cost.)
* MR – marginal revenue, MC – marginal cost, TR – total revenue, TC – total cost, Q – quantity, --
change
Project 2 Review and Practice Guide
12
Back to Table of Contents
Problems/Exercises
What to do You are encouraged to complete all the practice exercises listed below. They will help you gain the
knowledge and skills needed to fully participate in the group assignment in Step 3 and complete the
final Project 2 deliverable. The answers are provided, so you can check your own work.
Exercises (in Webster, 2015)
• Solve exercises on pages 28, 31, 42, 45, 49
• Solve exercise on pages 57, 60, 68, 70, 71
• Solve exercises on pages 178, 181, 183, 184
References Mankiw, N. G. (1997). Principles of Economics (1st ed.). Harcourt.
Webster, T. J. (2015). Managerial economics: tools for analyzing business. Lexington Books.
http://ezproxy.umgc.edu/login?url=https://search.ebscohost.com/login.aspx?direct=true&db=n
lebk&AN=935122&site=eds-live&scope=site&ebv=EB&ppid=pp_cover
Back to Table of Contents
Now that you have read this Review and Practice Guide and completed the exercises, you are ready to participate in the group assignment in Step 3.