Q1.

Recently, European Union (EU) governments approved a five-year EU trade protection against grain-
oriented electrical steel (GOES) from Russia, Japan, China, SouthKorea, and the United States. The
protection would consist of minimum import priceson shipments of GOES from any of the five listed
countries. This measure was enactedas a punishment for exporters in these countries for allegedly
dumping their product(i.e., selling below cost) on the European market. The European Steel
Associationlauded the plan, noting it would help protect an important subdivision of the steelindustry.
However, transformer manufacturers, who use GOES as an input to their production, have protested the
minimum prices. They argue minimum prices will result inprices for GOES that are too high and lead
some of these manufacturers to downsizeor move production facilities outside the EU. Describe the
various rivalries depictedin this scenario, and then use the five forces framework to analyze the industry.
(LO1, LO3, LO4, LO7)

Answer: In the example we can clearly see the government(EU) constraints. Here the
governmentintervene in the price control. We can see the three types of rivalry.

Consumer-producer rivalry: When the protection is enforced, the GOES will be scare in the market,
accordingly the producer will offer a very high price, lowering the negotiating power of consumer. This
situation will result in high price for GOES product and consumer may seek alternative products.

Consumer-consumer Rivalry: After the protection policy was enforced, the GOES will become very scare
in the market,then the price of GOES will increase and there will be severe competition among
consumer to get the rightof buying the GEOS. Here the negotiating power of consumer decrease.

Producer-producer Rivalry: When The protection is Imposed, the internal producer of this products will
use the opportunity and will rise the price, new firm will enter industry as profitability is higher. Many
producers will compete for producing the products in European countries. Finally, the quality will be
enhanced and the price will decrease.

Now we can discuss this scenario using five force framework:

First of all, when the union intervened in the market by price control policy, the price of GOES will
increase, this will result in increasing price in EU market, accordingly the internal producer will be in
profit which will attract other firm to start producing the products as result entry to industry will occur,
which will heighten competition among producers resulting in lowering price and increasing quality. In
conclusion the European union prevented other countries from dumping their products in European
union market, this will increase price and will negatively affect the firms which use GOES as input, but
they can search for a measure like alternative inputs which will result in prevention of dumping by other
countries in EU market.This policy aim is to protect young firms against external giants’ firms.

When the protection is enforced, power of input supplier to negotiate higher term for their input will be
higher in EU market, because import of GOES will reduce, resulting in scarcity of products in the market.
The price of GOES will increase due to its scarcity in the market which will result in lower profitability for
industry using GOES as input. In conclusion this intervention reduces the firm’s profitability because of
increase in input price.

As the EU aim is to prevent dumping practice in its market, this will lower power of buyers to negotiate
favorable term for price as there will be price ceiling and products scarcity in the market. Industry profit
will be higher if they find alternative input for producing goods.

When the protection is there, the internal firms will make profit accordingly there will be rivalry
between different firms which will lower the price and will increase the products quality. There will be
intense competition among firms in industry which will have positive effects on European union market.

When the protection is imposed, the internal firms in the industry will be profitable as they will find
alternative input for their products and they can offer higher price for their products.

Overall the policy was adopted by EU to stop dumping practice by Russia, China, Japan, South Korea and
United State. Its aim was to protect the European firms against the other countries’ firms which is a wise
decision according to me. It will have some negative impact at the beginning, but it will result in stability
and prosperity in Europe.

Q2. Last year, MedSupplies—a national supplier of medical devices—posted its first loss
in six years. The loss was a surprise to investors since the industry as a whole has been
growing. Analysts have reached a consensus that at least part of the blame for the loss
falls on Heidi Stevens, the national sales manager for MedSupplies. Ms. Stevens is
responsible for determining the size of the firm’s sales force, and over the past year,
she engaged in a significant expansion. In this industry, it is well understood that
revenues generally increase as the sales force grows. However, each new hire generally
adds less new revenue than the last, as the best sales opportunities already have been
exhausted. At the same time, the salaries for medical device salespeople essentially
have been constant. Analysts summarize the problem in the accompanying figure. They
notethat Ms. Stevens appears to have expanded her sales force to point A and argue
that her sales force is too big. When approached for comment, Ms. Stevens replied, “Of
course Iwould choose point A in that graph! Anything less means the company
underperforms.” Both the analysts and Ms. Stevens agree that she has chosen point A in
the graph as the size of her sales force but disagree on the wisdom of this decision. Who
is right? (LO6, LO7)
Answer.
In the graph the number of sales person are depicted on horizontal axis, while the price is shown on
vertical axis. The red line is Total sales force salaries while the blue line depicts Total sales revenue .

In the given scenario, analyst is correct. The objective of the firm is to maximize profit which is given by
profit=Total Revenue-Total cost. Here, we are just analyzing the profit maximization problem.

In my view she can fire the inefficient employees, so that total cost will not exceed total revenue,
accordingly the net benefit will be positive.

Cost benefit analysis is to be done to make the frim net profit positive and search for a measure to
increase revenue than increasing sales people.