Economics Class Discussions

Week 2 Discussion

 

One source of growth is external growth from a merger or acquisition. Often mergers or acquisitions are justified on the basis of the expected benefits from “synergies” created by the merger or acquisition. Economists know these as economies of scale and economies of scope.

The focus of this discussion will be on defining economies of scale and economies of scope, as well as the key differences between the two within the context of a hypothetical scenario of your choice.

Instructions

Select one of the mergers and acquisitions below:

· Sirius XM acquires Pandora.

· The yet to be concluded merger of Sprint, T-Mobile, and Metro PCS.

· The merger of Strayer University and Capella University.

· The Renault–Nissan–Mitsubishi Alliance.

For your chosen scenario, address the following in your discussion post:

· How are the concepts of economies of scope and economies of scale different? How do they differ within the context of your chosen scenario? What are the synergies that come from the economies of scope? What are the synergies that come from the economies of scale?

· 1

· 2

· 3

· 4

 

Week 3 Discussion

 

In this week’s discussion your are going to be the CEO of a company.  In anticipation of the upcoming quarterly disclosure of profits, you prepare your Board of Directors for the challenge that cost-push inflation having on profits.  Please make yourself CEO of only one of these hypothetical companies.

 

All America Grocery Inc – We serve communities in the middle of the income market providing low prices for all basic grocery needs. Our modest income consumers expect goods deals on good quality foods.  The Covid-19 pandemic has put upward pressure on the price of everything we sell. We have also experience rising cost in every aspect of our operation as we have to put extra resources in to protecting both our employees and the public.  We are both fortunate and unfortunate that the price elasticity of demand for food is .20.

Very Big US Auto – Very Big US Auto is one of the oldest and one of the largest auto manufacturers of autos in the US.  Very Big US Auto’s supply chain is highly dependent components manufactured in China and assembled in the US.  Like the US economy the Chinese continue to have major stoppage in production due to Covid-19.  Additionally manufacturing facilities like ours must take extra precaution to keep workers safe.  Costs are rising we are experiencing rising costs.  Very Big US Auto know that demand is relatively elastic with a price elasticity of demand of 1.2. We also know that the supply of auto is relatively inelastic and all our competitors are facing the same cost increase.

Big Time Entertainment – Big Time Entertainment is a nationwide firm providing movies, arcades and other entertainment venues such as bowling and roller skating.  Our operations have been heavily impacted during the Covid-19 pandemic.  On reopening we have been faced with a host of regulations that have greatly increased our cost of operation, everything to operating far below our optimal number of patron to higher cost for cleaning and other measure to protect the public and our employees.  Price elasticity of demand is 1.6 and we are also face with competitors, online entertainment and gaming, that are not experiencing these cost pressures.

Now explain:

 

· Is the demand curve for your product relatively elastic, inelastic or unitary elastic?  Demonstrate for your company’s product, by how much the quantity demanded will change if you pass on a 10% increase in cost. In other words, show your calculation of the percentage change in the quantity demanded given a 10% change in your price. You must provide a calculations showing the percentage change in quantity demanded. 

· Given your company’s and price elasticity of demand and the industry supply/competitive environment you face prepare a statement for your board as to the potential impact on profits.   Who will pay the larger share of the cost increases, your firm or your customers?

Clarification on policy on references.  In general you will not actually need a reference to reply to a discussion.  These are problem solving exercise. You are creating a solution, but you may chose to use a reference.  If you do use a reference, it must be an academically credible reference.  Remember that the reference you select is part of your credibility.  Never use investopedia, wikipedia, or any other predia.  These are not acceptable.  Use of one of these will mean zero credit on the exercis

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