Case study

1. Requirements
(1) Each group can select a case as follows, and apply the managerial economics
to make decision in these cases.
(2) Each group can prepare a PPT and give a representation in 20 minutes, and it’s
better to show the details of task for each member.
(3) After each representation, the class can have a discussion in 5 minutes.
(4) After case study, each group evaluates each group and gives a score from 1 to
5 (the Best).

2. Five cases:
Case 1: A debate on the wheat selling in a farm（农场小麦）

In 2002, a meeting is hold in a state-owned farm with one million mu of arable land—
B farm after the harvest:
Production department section Li said:
This year we planted 0.6 million Mu (a unit of area, 1 Mu=0.0667 hectares) wheat,
and got 280 kilograms’ wheat per Mu. But after this year's harvest, a new difficulty
arises that price of wheat is decreasing now. Usually, the farm will keep 10 million
kilograms as seeds and 18 million kilograms for living, and sell the rest to the market.
If the firm doesn't sell and keeps the wheat in a long term, the weight of the wheat
will decline for the moisture loss from 14% to 13%, which means the farm will loss
1.4 million kilograms.

The manager of the supply and marketing, Mr. Liu said:

Last year, the price of wheat is 0.96 yuan per kilogram, but now is only 0.80 yuan per
kilogram. This cause a big loss to our farm this year. Therefore, we can't sell now!
The manager of grain, Mr. Lin said:
We have to sell. We predict that the low wheat price will last for a long period, even
decreases less than 0.80 yuan per kilogram. At present, all the warehouses are full,
and also we lack of cash for purchases new grain. So, I think we should grasp every
opportunity to sell it as soon as possible, otherwise the consequence is unimaginable.
Deputy director Wang of policy research immediately said:
Perhaps Mr. Lin is too pessimistic. The low price of wheat is not due to too much
wheat now, but due to the insufficient storage capacity in China, and the wheat import
agreement signed a few years ago is still valid. This situation will be better next year.
According to forecast of related personnel, after next march, wheat prices are
expected to pick up. If sell at that time, we can get 20 million yuan more.
Mr. Huang said:
If we sell wheat at that time, it is uncertain that the price will increase or decrease.
What’s more, keeping the wheat in warehouse means that 100 million cash is in no
use. Not to mention how much profit such the cash can bring if we invest it. If we
deposit it in the bank, the interest can bring us at least 5.6 million yuan. At last,
according to the data provided by the bank, loans of our farm has been increased to 32
million yuan, if not timely sell wheat to pay the loan, we should pay additional
interest about 1.6 million yuan after 6 months, this is quite expensive.
The manager of grain, Mr. Lin said:
The problem is difficult, because it is unwilling to sell the wheat in cheap price, but
the wheat occupied the field if we don't sell, while next autumn crops have come
down. Besides, according to our experience, keeping the wheat for 1 year more,
materials, mechanical and workers cost an average of not less than 0.01 yuan per
kilogram. If we sell the wheat after half year, only storage cost will increase more
than 0.7 million yuan.
The manager of the supply and marketing, Mr. Liu said:
According to our calculations, the capital utilization rate of our farm cash has reached
20%. But we don't have money now, so that the necessary technical renovation cannot
be conducted. If we sell half of wheat at the end of September, and use 5% of its sales
in the next three months, we can get a profit of 0.56 million yuan.

The debate lasts for a long time and finally all look at the head of a farm and say: it is
your turn!

Considering such a moment, Zhang stood up, marched to the farm. When he is back
from grain production and dry section after a short walk, an idea gradually comes out.
Last year the price of wheat is RMB 0.96 per kg, but the farm only sells 84.5 million
kg. This year the price is low, but all wheat can be sold.

Questions:
1 What is the focus of the debate in this case?
2 Can we use demand price elasticity theory and the knowledge of economy profit to
help managers to make the right decisions?

Case 2: China: a big manufacturing country

China is regarded as a super manufacturing country since 1990. How about the
situation of the manufacturing now? Since the reform and opening, what is the trend
of the manufacturing? Which data can explain it? What is the cause of such the
change? Also, which data can explain it? Can you use the principle of marginal rate of
technology substitution to explain this phenomenon?

Case 3: Could you use your company as an example, to show us how to estimate
the demand, production and cost functions of the product? What's the decision
to maximize the profit of your company?

Case 4：Cost function of ShunDa company

Shunda is a calculator assembly company, purchase a full set of the calculator parts,
assembled into a calculator to sell in the market. In recent years, the price of the
calculator has remained steady at 60 yuan/units, the basic data of the input and output
of shunda in 2013are listed in the table below:

production labour Parts of Electricity Usage of the

（Q） （L：hour） calculator （Y） equipment
month
（X） （K：
hour）
1 450 749 530 750 550
2 325 505 412 543 410
513 831 607 851 720
4 642 953 711 1177 830
5 765 1078 855 1458 910
6 812 1119 915 1559 950
7 974 1398 1203 1837 1210
8 1117 1710 1602 2253 1600
9 1237 2012 1897 2578 1980
10 1054 1552 1490 2003 1510
11 877 1189 1004 1687 1080
12 913 1254 1087 1785 1150
Hourly wage is 6 yuan per hour, price of parts is 25 yuan per set, power
consumption is paid by 0.6 yuan per watt, the extract depreciation of equipment is 3
yuan per hour, and Shunda spends fixed costs 10000 yuan per month to pay all of the
regular fee.
 According to the above data, is it possible to estimate the production function
and cost function (TC, TVC, AC and AVC)? If you are the manager of Shunda
company, could you give some suggestions to maximize the firm’s profit?

Case 5: The project of highway road construction

Now the county government give the project to the company by way of bidding,
considering the status quo of management, the county government gives the company
some subsidies and pricing power, construction costs and benefits of all belong to the
company.
(1) Far away from the county to a town around the mountain road, the county
government considers to make a tunnel, and the passing vehicles should pay fees,
estimated the demand function of through the tunnel:
P=25—0.5Q
P：fees per car
Q：the number of cars through the tunnel
(2) Qday=36-1.5Pday+20r
Qnight=10-0.5Pnight+30r
r：The rates of economic growth
In each situation, what's the maximal price of bidding for the company?