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Project 2: Managerial Economics

Scenario

In Project 1, you confirmed that Largo GIobal Inc. (LGI) is on a downward trajectory. In Project 2 you must identify some of the root causes of the company's financial stress so that you understand what can be done to turn things around. Reversing the trend is not going to be an easy task, but you are confident because your team has years of experience working with troubled companies.

You have seen many marketing-driven CEOs bankrupt their businesses by losing sight of their company's bottom line. It is going to be a balancing act to find the right mix of decisions that will improve the efficiency of LGI as well as make it sustainable in the long run.

In Project 2 you are going to put on your "economist" hat. You will study how supply and demand affect LGI. You know that calculating elasticity will help you figure out how to reverse LGI's downward trend.

You also need to explore the structure of the industry from various angles and understand how consolidation or transformation impact LGI.

To turn things around, LGI can take one of three approaches: (1) increase revenue, (2) maintain revenue at the current level, or (3) choose a different strategy based on a limited production quantity that may be below the current level.

Competencies

Your work will be evaluated using the competencies listed below.

· 3.1: Identify numerical or mathematical information that is relevant in a problem or situation.

· 3.2: Employ mathematical or statistical operations and data analysis techniques to arrive at a correct or optimal solution.

· 3.3: Analyze mathematical or statistical information, or the results of quantitative inquiry and manipulation of data.

· 4.1: Lead and/or participate in a diverse group to accomplish projects and assignments.

· 4.3: Contribute to team projects, assignments, or organizational goals as an engaged member of a team.

· 4.4: Demonstrate diversity and inclusiveness in a team setting.

· 5.1: Develop constructive resolutions for ethical dilemmas based on application of ethical theories, principles and models.

· 10.1: Apply relevant microeconomics principles to support strategic decisions for the organization.

Project 2: Managerial Economics Step 1: Prepare for the Project

In two weeks, you will provide your business report to your team at Maryland Creative Solutions so they can advise Largo Global Inc. (LGI) on the best way to optimize production and reverse the trend. Before preparing the report, you must review information on supply and demand, elasticity, and industry structures. Complete the required reading to explore these topics.

Required Reading

Greenlaw, S. A. & Shapiro, D. (Senior Contributor), Principles of Microeconomics 2e

Chapter 1 - sections 1.1-1.4 1.1: What Is Economics, and Why Is It Important? 1.2: Microeconomics and Macroeconomics 1.3: How Economists Use Theories and Models to Understand Economic Issues 1.4: How To Organize Economies: An Overview of Economic Systems

Chapter 2 - sections 21.-2.2 2.1: How Individuals Make Choices Based on Their Budget Constraint

2.2: The Production Possibilities Frontier and Social Choices Chapter 3 - sections 31.-3.3 3.1: Demand, Supply, and Equilibrium in Markets for Goods and Services 3.2: Shifts in Demand and Supply for Goods and Services 3.3: Changes in Equilibrium Price and Quantity: The Four-Step Process Chapter 5 - sections 5.1-5.3 5.1: Price Elasticity of Demand and Price Elasticity of Supply 5.2: Polar Cases of Elasticity and Constant Elasticity 5.3: Elasticity and Pricing Chapter 7 - sections 7.1.-7.5 7.1: Explicit and Implicit Costs, and Accounting and Economic Profit 7.2: Production in the Short Run 7.3: Costs in the Short Run 7.4: Production in the Long Run 7.5: C osts in the Long Run Chapter 8 - section 8.1 8.1: Perfect Competition and Why It Matters Chapter 9 - section 9.1 9.1: How Monopolies Form: Barriers to Entry Chapter 10 - sections 10.1-10.2 10.1: Monopolistic Competition 10.2: Oligopoly

Project 2: Managerial Economics Step 2: Review and Practice

Equipped with the analyses performed in the business report you submitted for Project 1, you should feel well prepared to dive into the company data provided about the industry structure. Using the Project 2 Review and Practice Guide provided, review supply and demand, elasticity, and industry structures to determine how these affect the company's profitability. Then apply what you have learned so far by completing the exercises referenced in the Project 2 Review and Practice Guide.

You must review the material provided and do the practice exercises so that you can

· complete a supply and demand graph,

· calculate elasticity and assess market structure,

· understand the impact of an industry structure on an organization, and

· use the above information to make recommendations for improvements.

Review and Practice

You must complete the review and practice to fully collaborate with your group in Step 3.

Project 2 Review and Practice Guide

Project 2: Managerial Economics Step 3: Collaborate With Your Group

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This project is a group assignment. You have been assigned to a group. Your group assignment was communicated through the weekly announcement. If you have not completed the Team Agreement and Work Plan, do so now and submit it to the dropbox.

To fully participate with your group and prepare for the next steps, complete the Review and Practice content on your own. Then take time to interact collaboratively with your teammates in the discussion area established for each group.

It is imperative that you are well prepared and have developed synergy within your group, so that you can learn from each other and together produce a coherent business report. Your report should reflect the work of your team—not be individual responses patched together.

Regardless of your role within your group, make sure that you contribute to this team project as an engaged participant.

Take Action

Submit your assignment to your instructor for review and feedback.

Follow these steps to access the assignment:

· Click My Tools in the top navigation bar.

· Click Assignments.

· Select the relevant assignment.

Project 2: Managerial Economics Step 4: Complete the Analysis Calculation for Project 2

To help you analyze LGI so that you can make recommendations to reverse the trends, you receive an Excel workbook containing the following:

· Prices and quantities of LGI's product

After plotting a supply/demand graph and calculating elasticity, submit your team's initial findings.

Complete the analysis calculation for the project:

· Download the Project 2 Excel workbook, click the Instructions tab, and read the instructions.

· Draw a supply and demand graph and calculate elasticity.

· If you would like instructor feedback on this step, follow the instructions in the Take Action box below to submit your Excel file to the Assignments folder as a milestone by the end of Week 3. This is optional. If you choose to submit the milestone, you will receive instructor feedback on the milestone submission. To distinguish the milestone submission from the file you will submit at the end of Project 2, label your file as follows: P2_milestone_lastname_Calculation_date.

Take Action

Submit your assignment to your instructor for review and feedback.

Follow these steps to access the assignment:

· Click My Tools in the top navigation bar.

· Click Assignments.

· Select the relevant assignment.

· You should use the comments your instructor made about your optional milestone submission to revise your work as needed. Next, proceed to Step 5, where you will answer questions about your analysis, make recommendations for LGI, and compile and submit your final report.

Project 2: Managerial Economics Step 5: Prepare the Analysis Report for Project 2

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You are ready to make a recommendation about how to mitigate the decline in revenue that LGI has experienced. You looked at the industry structure, created a supply/demand graph, and calculated elasticity. Answer the questions in the Project 2 Questions – Report Template. Prepare the business report.

Complete the business report for the project:

· Download the Project 2 Questions – Report Template

· Read the instructions.

· Answer all the questions.

· Include your recommendations.

· Submit the business report (Word document) and calculation (Excel file) to the Assignments folder as your final deliverable. Here is the file name convention for both files:

· P2_Final_lastname_Report_date.docx

· P2_Final_lastname_Calculation_date.xlsx

Check Your Evaluation Criteria

Before you submit your assignment, review the competencies below, which your instructor will use to evaluate your work. A good practice would be to use each competency as a self-check to confirm you have incorporated all of them. To view the complete grading rubric, click My Tools, select Assignments from the drop-down menu, and then click the project title.