Project Description
This project is designed for you to apply many of the economic principles learned in your economics classes to a real-world business application. Specifically, you will choose a publicly traded company (or at least on that has widely available info) that has recently (in the last few years) launched a new product. Your team (ideally four members) will then act as project managers and prepare a paper and presentation to the board of directors of this company. All members will agree on the project.1 I will provide a list of key economic concepts, ranging from price elasticity of demand to adverse selection. You are expected to include at least 20 of these. Each concept MUST BE APPLIED, with corresponding citations. Describing the concept is not sufficient: you MUST show how each concept applies to the profit-maximizing behavior of the firm/product. You will have the opportunity to present your report to the entire class in the last weeks of class.
More Details
You are expected to discuss the main features of the industry (not just the firm and product) and are encouraged to explore the strategic interactions in the selected company’s industry. You should also highlight the global context that this firm engages in. You are further encouraged to take on questions related to ethics and sustainability. Again, your project needs to clearly be directed to the board of directors (unless you follow footnote 1, in which case you’ll need to have a discussion with the professor). The report should have 3–5 (or more) sections to provide structure and organization; it should NOT have 20. Instead, the 20 concepts should be brought seamlessly into the sections. While not every paragraph/sentence has to touch on one of the 20 concepts, every paragraph/sentence should support the purpose for the report and the section. To assist you and me, please bold the concepts when you first introduce them. Also, you should have an Appendix A (or similar) in which you provided a numbered list of all 20 concepts in the order they are introduced. The paper should follow APA formatting and citation rules. These include double-spaced, letter-size paper, 12-pt font and 1-inch margins. Further, there are clear guidelines regarding bibliography, in-text citations and more. You can find embedded citations in both Google Docs (Tools > Citations) and Microsoft Word (References > Insert Citation) that you should use. Plagiarism will result in severe penalties (up to a zero on the project). The simplest way to avoid it is to cite the source you are referencing. Note two important cases: 1) if you are taking ideas from a source, but not taking quotes/words, then you simply need to include a citation (see APA guide above); 2)if you are taking direct quotes from a source then you must include a citation AND put the quote in quotations marks. If you are worried about including a source because it is low-quality, then you should probably find another source. You will provide an executive summary, instead of an abstract. This is NOT an introduction, rather it is an overview of the entire document: there should be nothing in the executive summary that isn’t also in the main document. The final project will be between 15–25 pages in length. This is text only; tables, figures and references will go beyond this limit. You will have the opportunity to present your report to the entire class in Week 12. This will be a 15–20-minute presentation, and points will be lost for going too much over. You will not have time to cover the entire paper, so instead focus on the most important takeaways. You will, however, have additional time to field questions from your audience.
Examples
Sample 1
Tesla can benefit from economies of scope. Economies of scope means using the same factory for more than 1 product. (No points: incorrect explanation of concept and doesn’t apply it to the firm)
Sample 2
Tesla can benefit from economies of scope. Economies of scope implies that the costs of two separate product lines is higher than the cost of one integrated production operation for the two product lines. (No points: while that is a true statement, it still doesn’t apply the concept to the firm) Sample 3
The Giga factory, which will produce batteries for cars as well as America’s 50 million households, can help Tesla to achieve economies of scope. The costs of a combined operation for these related product lines should be less than the costs of operating. (No points: missing necessary citations; should cite Tesla (that the costs will be reduced) and the US Census (where you could find that there are more than 50M US households)
Sample 4
The Gigafactory will produce batteries for cars as well as households (Tesla, 2015). As the costs of a combined operation for these related product lines should be less than the costs of operating separate production processes, one expects economies of scope for Tesla (Medium, 2014). (Full points: valid and helpful application and has correct citations.
Key Concepts List
Each bullet point counts as ONE potential concept. Use concepts from the whole course. As such, try to use at least one concept from each week, noting that you do not HAVE to use concepts from the macro weeks (weeks 12 and 13) given the due date of the project.
Week1: Introduction, Supply, Demand
• The One Lesson of Business
• Demand (Shifts, Movements)
• Supply (Shifts, Movements)
• Market Equilibrium– NB: A successful way to bring in Supply and Demand and Market Equilibrium is to discuss actual shocks to the industry and how it has impacted the firms.
Week2: Costs
• Fixed and Variable Costs
• Sunk Costs
• (Implicit) Opportunity Costs
• Average Costs
• Law of Diminishing Marginal Product • Returns to/Economies of Scale
• Economies of Scope
Week3: International Trade
• Comparative Advantage
• Tariffs and Import Quotas
Week4: Marginal and Break-Even Analysis
• Marginal Analysis; MR vs MC
• Net-Present Value
• Break-Even Analysis
• Shut-Down Analysis
Week5: Pricing and Elasticity
• Price Elasticity of Demand
• Income Elasticity of Demand (normal, inferior, luxury)
• Cross-Price Elasticity of Demand (substitutes, compliments)
• Optimal Mark-up Rule– NB: Remember to apply these concepts to profit-maximizing behavior, not simply say what these are for the product.
Week6: Risk, Data
• Uncertainty/Risk
• Risk Premium
• Risk Aversion
• Surveys, Controlled Market Data, Uncontrolled Market Data
• Difference-in-difference
• Selection Bias
Week7: Markets I
• Perfect Competition
• Monopolistic Competition
• Oligopoly
• Monopoly– NB: Likely only the market type that best describes the product’s market should make it into the paper.
• Barriers to Entry
• Indifference Principle
• Antitrust Laws, Enforcers
Week8: Markets II
• Concentration Ratio and/or HHI
• (Sustainable) Competitive Advantage
• Porter’s Five Forces (counts as 3 concepts!)
• Resource-Based View • Price Wars
• Prisoner’s Dilemma
• Price Fixing and/or Cartels
• Mergers and/or Acquisitions
Week9: Strategic Decision Making
• Game Theory
• Nash Equilibrium
• Repeated Games and/or Trigger Strategies
• First- and/or Second-Mover Advantage
• Nonstrategic View of Bargaining • Market Division (Antitrust)
Week10: Pricing for Greater Profit
• Direct Price Discrimination
• Indirect Price Discrimination (Versioning, Metering, Volume Discounts, Bundling)
• Laws and Price Discrimination (Robinson-Patman, Protected Groups)
• Pricing of Commonly Owned Products
• Advertising
• Psychological Pricing
Week 11: Asymmetric Information, Organizational Design
• Adverse Selection
• Moral Hazard
• Agency Cost
• Signaling and/or Screening (for Adverse Selection!)
• Principal-Agent Problem
• Incentive Pay
• Franchising
• Firm (De)Centralization
• Vertical Integration
• Double Marginalization
• Vertical Resale Price Maintenance
Weeks 12–13: Macro
• Inflation
• GDP (Nominal and Real)
• Interest Rates (Nominal and Real)
• Unemployment
• Phillips Curve
• Expectations
• Monetary Policy
• Fiscal Policy
• Balance of Payments
• Money Multiplier
• Income Multiplier
• Rational Expectations
• Exchange Rates (Nominal and Real)
• Purchasing Power Parity