BUSINESS ECONOMICS

Adinda Rahma Dewanti Muhammad Hermosa Widiadi

Amanda Di Fauzi Satyawenda Nadia Farahiya
Aulia Nur Cahyo Nadira Noorzalika
Aulia Ridho Muhammad Okta Paulia
Christoper Bonauli Savitri Ayu Saraswati
Delina Fitri Takhyun Joh
Dwimiranti Andini Yogo Prihandoko
Fadel Ilhami Nasr
SCHOOL OF BUSINESS MANAGEMENT
MASTER OF BUSINESS AND ADMINISTRATION
GENERAL MANAGEMENT 9
BANDUNG INSTITUTE OF TECHNOLOGY
Global Foods Inc.
Essence of the Case
The Global Food Inc. has gone through several situations that comes up
with key questions and resulted a different solutions taken from managerial
economics aspects
Analysis
Situation
Introduction Bob Burns, CEO of Global
Foods, Inc., ask the board of
directors to approve a
decision to enter the soft
drink business
The Firm and Its Goals In an effort to increase the
company’s revenues, Bob
Burns considers entry into
the market for energy drinks,
a segment of the beverage
market that has grown
rapidly in recent years
Key Question
“Should we enter the soft
drink business?”
“How can we improve the
value of our company when
the Wall Street analysts are
judging us primarily on our
ability to grow our revenue
and profit?”
Solution
The board approves the
decision, and Global Foods
enters the soft drink
business
Bob decides to take Global
Foods into the energy drink
business
 Situation
Supply & Demand Bob Burns, CEO, and Nicole
Goodman, vice president of
marketing, consider
developing and launching a
product line of gourmet tea
Demand Elasticity Henry Caulfield, the
proprietor of a Gas ‘n Go
convenience store, must
evaluate the desirability of
various pricing schedules for
soft drinks set by the major
beverage companies
Key Question
“What are the current and
future supply and demand
conditions in the consumer
market for premium and
specialty tea?”
“For what price should I sell
this new soft drink?”
Solution
Anecdotal information and a
survey or articles in trade
journals and business
periodicals indicate that tea
could be the next “big thing”
in the U.S. beverage
industry. However, Bob is
not completely convinced
and asks Nicole to do further
quantitative analysis of the
supply and demand for tea
He decides that the relative
inelasticity of the products in
question makes it difficult to
increase sales by lowering
the price
 Situation
Demand Estimation & Frank Robinson, newly
Forecasting appointed head of Global’s
forecasting department, is
asked to estimate the next
year’s sales of Citronade,
the company’s lemon-lime
soda
Key Question Solution
“What will the next year’s Frank uses a trend analysis,
sales for Citronade be?” adjusted seasonally as well
as cyclically, to forecast the
coming year’s sales

The Theory & Estimation of Christopher Lim, production “Should we package the Chris recommends that
Production manager, is concerned water in glass bottles?” plastic bottles should be
about the best way to bottle used to package both the
the water that the company carbonated soft drink and
now intends to sell. To the bottled water products
differentiate Global Foods’
product in a highly
competitive market, the
marketing people want to
use glass bottles. In Chris’s
view, this may help in the
marketing of the product, but
may well increase
production costs significantly

The Theory & Estimation of
Cost
Pricing & Output Decisions:
Perfect Competition &
Monopoly
Situation
Shayna Soda Company, an
independent bottler of
Global Foods soft drinks, is
looking for new ways to
increase the profitability of
its soda production. Adam
Michaels, the plant
manager, receives a
marketing flyer from a new
potential supplier in the next
state. Lawrence Aluminum
Products.
Frank Robinson is appointed
product manager of the new
energy drink product. One of
his first tasks is to
recommend a price for the
product
Key Question
“Should the company stay
with its current main supplier
in the next town, Kayla
Containers, Inc., or switch to
this new supplier?”
“What price should we
charge for our new
product?”
Solution
Shayna Soda Co. decides to
stay with Kayla Containers,
Inc., after considering all the
other factors involved in the
switch. Raw material cost
were lower with Lawrence
Aluminum, but other
associated costs resulted in
a net increase
After analyzing the demand
elasticity and short-run cost
structure of the product,
Frank recommends a price
based on the MR = MC rule

Appendix B Break-Even
Analysis (Volume - Cost -
Profit)
Pricing & Output Decisions:
Monopolistic Competition &
Oligopoly
Situation
Suzanne Prescott, a senior
analyst for the energy drink
division, is asked to
prepare a profit plan for the
coming year.
The management committee
of Global Foods asks Frank
to reconsider his
pricing recommendation
because his analysis did not
take into account certain
competitive and market
issues.
Key Question
What is the profit outlook for
the coming year for our
energy drink
product
What is the best price for a
product, given its demand,
cost, and competition?
Solution
She uses break-even
analysis to forecast the
coming year’s profit for this
product. She also uses
sensitivity analysis to
provide best-case and
worst-case scenarios
After much debate, the
management committee,
with Frank’s additional
help, decides to set the price
of its product slightly lower
than the premium-priced
competitors but slightly
higher than the “value
brands.”
 Situation
Special Pricing Practices Rebecca James must
decide what price bid she
should submit to a large air-
port caterer that wants to
award a contract to a single
supplier.
Game Theory & Asymmetric Henry Caulfield’s daughter,
Information Erica, believes she can help
her father better understand
and anticipate the pricing
reactions of his closest
competitors by applying to
his business some of the
principles of game theory
that she learned in her
college business courses.
Key Question
How should the bid price be
set to give Global Foods a
good shot at obtaining the
large caterer’s contract?
How can managers deal
with dynamic business
conditions in which their
decisions often trigger
reactions by their
competitors?
Solution
Because demand elasticities
differ in different markets,
the price offered in this
price-sensitive market will
have to be sufficiently low to
give Global a good chance
of winning the contract
Although game theory can
help Henry understand the
underlying dynamics of his
pricing tactics against his
competitors, in practical
terms it falls short of
providing him with a definite
solution about what to do
 Situation
Capital Budgeting & Risk George Kline, the manager of
Global’s capital planning
department, is considering a
proposal for the expansion of
company activities into a new
geographical region.
Managerial Economics In A Global Foods is interested in
Global Environment building a plant in Central
Europe, where costs
are lower than in Western
Europe, but where productivity
and quality are not as good as
any country in which it operates
around the world. George Kline,
manager of Global’s
capital planning department, is
asked to conduct a capital
budgeting analysis of an
existing
plant in the Czech Republic
Key Question
Should we expand into a new
geographical area?
Should Global make an
investment in a plant in the
Czech Republic?
Solution
Using capital budgeting
techniques involving the
calculation of net present
value and internal rate of
return, George recommends
that the firm accept the project.
He also performs a scenario
analysis to present an
optimistic and a pessimistic set
of results.
George calculates the NPV and
IRR for both the subsidiary and
for the parent company.
Although the results for the
subsidiary are favorable, the
NPV for the parent is negative.
He therefore recommends that
the company should not make
the investment at this time.

The Role of Government In The
Market Economy
Situation
Because of growing concern
about the move by NYC to limit
the size of servings
of carbonated soft drinks as
well as the growing trend
among consumers for healthier
foods
and beverages, Bob considers
shifting the company into
healthier foods and beverages
Key Question
How do we respond proactively
to the changing market and
legal environment?
Solution
The senior leadership team
advises Bob not to shift its
focus too quickly or
too intensively on the healthy
food and beverage industry.
This advice is based on the
recent experiences of another
major global food and beverage
company that tried to expand
their healthier products at the
expense of its core carbonated
soft drink products
Analysis
By looking at the summary of the situations and solutions, we could analyze whether the
solutions for each situations and key questions were optimal or not. There were several key
points, which are:

1. Bob’s decision to ask Nicole to do a further quantitative analysis of the supply and demand
for tea before entering the market was good, but the decision to enter the soft drink market
without further quantitative analysis was a little questionable. Even though the market
demand for soft drinks were huge, a lack of research could be fatal for a business in the long
run.
2. The pricing decisions for the monopolistic competition, oligopoly competition, and special
pricing practices were all unique and contextual to the situation and problems. However,
further financial accounting and business plan research must be done before setting the final
price. Pricing required a multi-disciplined approach in order to reach the best result in both
revenue and business sustainability.

3. Doing a research and learning something that was not directly related or applicable to solve
the current problems were completely acceptable and necessary, as long as it didn’t shift the
company from the main issues. In the case of Global Foods, Inc., the research about game
theory and the role of the government in the market economy were all beneficial for the
company’s knowledge, even though it didn’t have any direct impact in the decision-making of
current problems.
Lesson Learned
Often in an actual business problem, there is no unique formula that one can use to compute the
answer. Either the formula does not exist or is not entirely applicable to the problem, or the
problem itself is not amenable to a straightforward quantitative solution technique. For
example, of such decision are the selection of a firm’s products or services, the hiring of
personnel, the assigning of personnel to particular functions or task, the purchase of material and
equipment, and the pricing of products and services.
Global Application :
The Bric Countries
and The Supply
and Demand for Oil
Essence of the Case

● This case is about BRICS and G6. BRIC is the acronym coined for an association
of five major emerging national economies: Brazil, Russia, India, China and South
Africa. The members of G6 are US, Japan, Germany, France, Britain, and Italy.
● The economic of BRICS countries are considered as a growing so the demand for
oil and natural gas are increasing.
● BRIC countries oil production are two times higher than the G6 countries,
meanwhile its oil consumption is half than the G6 Countries.
● The high oil demand in China affected the oil price in the US because china.
● Oil consumption by China and India is expected to quadruple by 2030
 Analysis

● The impact of oil price on demand

These two things are used to determine the price

and quantity sold in the market. Its role is very
important in the economic world, because it can be
used to conduct micro-economic analysis and as a
point of decline for various models and other
theories of economic sciences.
The balance of the prices and the quantity in the
market is the result of the agreement between the
buyer and the seller. In this case, the oil demand
from China is affect to the U.S. oil price.
 ● The Impact of Economic Growth to
Oil Demand
As china considered as a growing
country, the development of its country
really affect the oil price because of the
increasing of oil demand in China. Such
as the OBOR and investment in many
country.
Lesson Learned

● Supply and demand are the base line of the price. In this case, oil that
cannot be substitute by other commodity the price still influenced by the
demand of the consumers.
 iPod and
The World
Essence of the Case

The case is about activities involved in the production of

a good and service that change the supply, distribution
and post sales activities when coordinated across
geographies.

For this case is about barbie doll from Mattel and ipod
from Apple whom spare parts and components that
made and assembly from other countries to minimize
the production cost and made a higher retail price for
the customer

So don’t judge product by its cover or brand maybe its

components are made from other countries and claimed
made from the original countries
Analysis
One issue that can be considered for the iPod case is the economic profits of choice and concentration that Apple can gain from
using the Global Value Chains. Apple as US corporate is an end products selling company that is a global company that needs a
lot of marketing success to exceed its prestige every time a new product is released. Therefore they need to focus the
company's efforts on the sale of new products.

However, the manufacture of all products requires time and cost reductions in factory design, etc., and reinvestment may be
required whenever the product version is changed. This is always a big financial risk for companies to sell new products. Thus, if
it can be distributed globally through global value chains, it can have significant positive effects besides risk hedge.
First is the expansion of marketing costs. This can be a financial force that can have a significant effect on the direction and
speed of management in the selection and concentration of companies.
Second, by distributing low value-added factory assembly lines to countries or regions where parts can be produced, the burden
of supply chains can be eased. If all products are produced locally, this can be difficult to overcome not only at the expense, but
also in the time or climate impacts.
Third, there is an economic effect in the global marketing market. Attracting factories in major marketing areas can increase the
consumption affinity of the people and increase their power through their economic income.
Of course, global value chains can not be fair for every countries. In addition, strengthening the domestic market by expanding
domestic production facilities may also help, but for multinational global companies, this is unlikely to have a big effect.
To summarize the analysis, this case relates to these three points:

• Opportunity Costs
Opportunity cost is the best alternative that we forgo, or give up, when we make a choice or a
decision. Both of the products make their decision to minimize their production cost. To minimize its
production cost, some components of Barbie Doll and ipod are made in Asia because production costs
in there are cheaper rather than US made.

• Marginalism
It is important to weigh only the costs and benefits that arise from decision. Cost production is
cheaper when the product is made in Asia, but it benefits the company because some components are
done with cheaper price. Barbie Doll and ipod are still having the license too even though their
products did not produce in US knowing that those are US brands.

• Efficient Markets
Where any profit opportunities are eliminated almost instantaneously, are said to be efficient
markets. We find that Apple has captured a great deal of value from production of iPod. Though
companies decided to produce their products in other country and they still got the margins through
these system, those made their market efficient.
Lesson Learned
The purpose of the business itself is to generate the profit, in order words, iPod already had the
efficient system which the production gets placed in other countries. They succeed to minimize the
production cost.
Global value chains can reduce risks that occur in a country due to political, economic and social
changes that can result in increased production prices and unsatisfied customer demand

It was understood that the use of global value chains could lead to an increase in the value scale
itself, not just a global distribution of customer values, leading to a good function of the global
economic flow.
Prices and Total Expenditure:
A Lesson From the Lobster Industry in 2008-2009
Essence of the Case

In 2008-2009 lobsters price has been decrease , meanwhile

the Department of Marine Resources announced that
lobstermen caught 75.6 million pounds in 2019, up to 8%
from 2008. But the value of the catch fell $23million, to
$221,7 million.
 Problem Statement
SUPPLY LOBSTER TOTAL EXPENDITURE PRICE PER LOBSTER

75.60 244.7
million millions $3.50
221.7
pounds millions

69.55
million
pounds $2.93

2008 2009 2008 2009 2008 2009

Decrease 23 Decrease $0.57

Increase 8% millions per lobster
Figure 1. The Market for Lobster Industry in 2008-2009
Analysis of the Case
● The demand curve is increasing
● The supply curve is shifting to the right, due to a higher quantity of supply
lobster in 2009.
● If cost fall, more can be produced and the supply curve will shift to the
right
● There is an excess supply where the quantity supplied is greater than the
demand for commodity at the prevailing market price
● To sell more supply, suppliers would start decreasing the prices to sell the
excess stock itself
Lesson Learned

From this case, we can learned that price and total expenditure is important
things to consider. With an increase in volume and a decrease in price, total
expenditure could go down.

About the price of the product, it’s related to willingness to pay from the
consumer, but does not mean that the rich will continues to buy.

Price of the product will increase until quantity supplied equals quantity
demand.
Thankyou J