Managerial Economics

I.                   You have a job interview with a local bank that has been in business for less than seven years in your area. The search committee wants you to give a talk or a presentation on how to solve one of their major concerns. According to the loan officers, they have provided more loans to people they thought they were good in doing business and had some business experience or history. However, they found out that some of the people they rejected deserved to get loans from the bank. Furthermore, some of the people who got money from the bank (even those with good credit history) did not invested in the business they ask the money for. This situation has resulted in more than 30 % of loan defaults.

Based on your knowledge (what you have learned from your Managerial Economics class):

1.      Describe the problem this bank faces

2.      Why did  it happen

3.      You have to mention in your talk or presentation that this problem  happens in other institutions too ( mention some of them )

4.       How can you help the bank solve this problem ( in your solution, mention what have been done in the other institutions you mentioned in question 3)

II.                It is said that the current generation of workers will have a very small probability of being employed by the same firm throughout their work life. In previous generations it was common for people to have just one employer. Is a more rapid turnover among employees beneficial to the firm? To the employee? Explain

III.             Over the past year, Barned and Noble shifted production of their Nook electronic book reader to Samsung, which allowed B&N to cut cost by focusing on the Production of digital content like e-books. Please use the Porter’s Five Forces to analyze the potential that B&N and other firms in the e-book market will have to earn positive economic profits. For example, one of the forces is Threat of Substitutes – you should briefly list any substitute products for digital books and describe whether this situation may lead to high profits (if there are few substitutes) or low profits (if there are many potential substitutes). After analyzing each of the five forces, please provide a brief summary of the overall potential for economies profits in the market.

IV.             Use the information below to answer the different questions.

a.       For the following simultaneous advertising game, please determine the best strategy for each player (for example if AMD advertise, what Intel will do and so on). State if either firm has a dominant strategy. The payoffs for AMD are in the lower left comer of each cell, and the payoffs for Intel are in the upper right corner of each cell. Then, please determine if the game has one or more Nash equilibria and state these possible outcomes.             

b.      For this sequential entry game, the incumbent firm can make an advertising expenditure (i.e., sunk cost) to potentially deter entry. First, please determine the entrant’s optimal decision if the incumbent advertises and if the incumbent does not advertise. Recall that the number in the (x, y) is the incumbent’s profit, and the second number is the entrant’s profit. Second, please determine the incumbent’s optimal decision (Advertise or do not advertise). Third, please determine the optimal outcome from the game if the sequence of decisions is reversed (i.e., the entrant moves first). Finally, what is the incumbent’s first-mover advantage?

                                                                                                       Does not enter         (1000, 0)

                                            Does not advertise                                                                                                     

                                                                                                                                       Enters                       (400,300)

               Incumbent

                                                                                                       Does not enter            (500, 0)

                        Advertise                                                                                                     

                                                                                                       Enters                        (200, -100)