CD07.Managerial Economics London Business School

Each question consists of parts (i) and (ii). Please answer only one of the six essay question options but answer both parts. Please state clearly the question number but do not repeat the text of the question. Your answer should ideally be 1000 words or fewer and must fit within two (not three!) standard sized pages; do not use a cover page. Longer answers (above approximately 1000 words) may earn reduced credit. I will only read the first two pages of any submission. This is part of your graded individual assessment and is individual work. Do not communicate about it other than with the instructor and administrator. Please credit any sources used including books articles and web pages; the references are excluded from the length limit. Any standard method of citation is acceptable. Youmust indicate clearly direct quotations: any directly quoted text should be surrounded by quotation marks and it should be absolutely clear that this is quoted text. Please read the standard LBS “plagiarism declaration” on the final page of this assignment. Questions: answer only ONE (but both parts) out of the selection Q1 (i) Is a price in a competitive or “frictionless”) market system a good mechanism for the allocation of resources? When it is explain why. If it is not then document reasons for either inefficient or undesirable outcomes. (ii) Describe a real-world situation (either in the private sector or public sector) in which a price system either was or could be used to achieve more desirable outcomes for the relevant stakeholders. Q2 (i) In a competitive market what are the impacts on price quantity and the outcomes for producers and consumers of a shock to marginal cost that hits one sector of suppliers? (Alternatively: consider a shock to the demand side or the imposition of a tax or subsidy.) How do these impacts depend upon the size of the affected sector and the properties of supply and demand? (ii) Describe a real situation in which a sector of supply or demand was or will be hit by a change to costs to benefits or to taxes and subsidies. Using your analysis from (i) evaluate the consequences for the market’s participants. Q3 (i) How does the number of competitors in an industry influence performancemeasures such as profit and consumer surplus? What determines the likely number of players? Are we likely to see too much competition or too little? (ii) Describe a real-world situation inwhich the intensity of competition (for example via the number of players) changed. What was the likely explanation for this change? How do your observations connect to your answers to (i)? Q4 (i) Consider a profit-maximising supplier with market power (for example a monopolist selling a single product). Explain how aspects of the product’s design and the market environment may influence the shape of demand the supplier’s optimal output and price and the supplier’s profitability. (ii) Describe an actual product (or products) where a supplier controls the design and marketing. How might your answer to (i) inform the choices of advertising marketing and product design? Q5 (i) Pick one type of price discrimination ormarket segmentation technique. Explain: (a) how this technique should be used; (b) what constraints are faced in the use of the technique. (ii) Describe a real-world example of this price discrimination strategy and relate it to your explanations (a) and (b). Q6 (i) In the context of an appropriate oligopoly theory explain the channels via which either a cost reduction (a process innovation) or a quality increase (a product innovation) influence a supplier’s profitability. (ii) Describe a real situation in which a supplier faced (or faces) an innovation opportunity. Explain why the oligopoly theory described in part (i) is suitable for this situation. Evaluate the supplier’s innovation decision. 3.Assessment Guidelines and Grading Scheme This short essay is an opportunity to apply microeconomic principles to a real-world case. It should review briefly the central ideas describe an example (real not hypothetical) that illustrates them and find insights that are have relevance for the decisions of managers. Try to balance and connect parts (i) and (ii). Because of the restrictive length constraint you should review only the concepts that are relevant. The discussion of the case should be selfcontained and be a balance of description interpretation and analysis. You are welcome (and encouraged) to use your first-hand experience if that is available. Try to avoid examples that were extensively discussed in the class sessions. Support your claims with facts and examine whether the case matches the economic ideas. Please give credit to any important source you used for your analysis such as books research articles and web pages. The list or notes containing bibliographic and source references are not included in the word count. Any quoted text used in your essay must be indicated very clearly; for example using quotation marks. There are twenty points (20% of the total) available to contribute toward your final grade. The following criteria will be used in assessing your essay: 7.5 pts Part (i): How relevant is the theory to the question? How accurate and appropriate is the statement and explanation of the theory? 7.5 pts Part (ii): How relevant is the example? Is it a real case documented with facts? How careful is the explanation of these facts? Does the example go beyond what a casual observer would know? How good is the quality of the analysis of the case? Is it well connected to the theory described in part (i)? Taking a business or other perspective how interesting are the case the implications and the conclusions? 5 pts Exposition: Is the essay well structured appropriately concise clearly written and suitably referenced? ‘

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