Module 1 – Case
THE DEMAND AND SUPPLY MODEL
Case Assignment
The Case assignment is performed using information on a
company of your choice that is publicly traded in the stock market. If you are
unsure which company to choose, you can look through the list of companies in
the S&P 500 at the Yahoo Finance Portal (http://finance.yahoo.com/q/cp?s=%5EGSPC)
or choose from a list of companies provided in the Appendix. Search the
company’s website and obtain information about the company’s products, their
markets, their recent price, revenue and profit history, and the main
characteristics of the industry the company operates.
Using this information, write a 4 to 5 page paper commenting
on two of the following four questions:
Government regulators are concerned with market power. Does
your company have market power? Or does
your company operate in a competitive market? If so, provide a few examples.
Does your company operate using only a price strategy, or
does it employ other strategies, such as advertising and product
differentiation? If so, explain why and provide a few examples.
Do prices and other incentives play a significant role in
your company? If so, explain why and provide a few examples. For example, how
is the CEO of your company compensated? Salary only? Salary and bonuses? Salary
and stock options? What is the reason for these alternative arrangements?
Your company wants to increase its total revenue. One
strategy is to offer a 10% discount. Your company, however, knows that its
customers can be divided into two distinct groups according to their likely responses
to the discount. The accompanying table shows how the two groups respond to the
discount.
Group A Group B
(sales per
week) (sales per week)
Sales
before the 10% discount
1.55 million 1.50
million
Sales
after the 10% discount
1.65 million 1.70 million
Using this information, and your knowledge of the
relationship between total revenue and price elasticity of demand, compute
using the midpoint method, the price elasticity of demand for Group A and Group
B and explain how the discount will
affect total revenue from Group A and Group B.
If your company want to increase its total revenue, should the 10%
discount be offered to Group A only, to Group B only, to neither Group, or to
both Groups? For simplicity, assume in both cases that the price before the
discount is $100, and after the discount is $90. For the computations of the
arc elasticity of demand, please refer to the The Demand and Supply Model
handout and Price Elasticity of Demand handout.
Assignment Expectations
In the Module 1 Case Assignment, you are expected to:
Describe the purpose of the paper and provide a conclusion.
Present information in a professional manner.
Answer the Case Assignment questions clearly and provide
necessary details.
Write clearly and correctly—that is, no poor sentence
structure, no spelling and grammar mistakes, and no run-on sentences.
Provide citations to support your argument and place
references on a separate page. (All the sources that you listed in the
references section must be cited in the paper.) Use APA format to provide
citations and references [http://owl.english.purdue.edu/owl/resource/560/01/].
Type and double-space the paper.
Whenever appropriate, please use Excel to show supporting
computations in an appendix, present economic information in tables, and use
the data to answer follow-up questions.
