CASE 1: Amcott Loses $3.

5 Million; Manager Fired

Statement of problem: Ralph, the Amcott manager who projected annual sales of $7 million
per year for three year for the project of purchase three year rights to Magicword. But the
company incurred a loss of $1.7 million, Ralph was fired. Do you know why Ralph was
fired?

Solution: As a manager one should calculate the Net Present Value of the project
before starting it. It gives us the relatively clear scenario of the present value being
compared with the initial outgo(initial investment of the project).
• If NPV>0(i.e. present value>initial outgo)
Then continue with the project.
• If NPV<0(i.e. present value<initial outgo)
Don’t carry out the project.

Here Ralph doesn’t calculated the NPV instead he just forecast his sales
figure.
 Mathematical Solution

In case as given,
Initial Outgo= $20 million, Interest=7%, Time period=3 years

First, calculate present value:

PV= Future Value/ Discount factor
PV= (70,00,000+ 70,00,000+ 70,00,000)/(1.07*1.07*1.07)
PV= 17,142,857

Now, Calculate NPV:

NPV = -(Initial Outgo) + PV
NPV= - 20,00,000 + 17,142,857

Since NPV comes out to be Negative, project should not be carried

forward.
CASE 2: Supply, Demand, and Immigration
Statement of problem: How can we explain the small impact of immigration on wages?

Analysis: The role of immigration in determining wages has two types of impacts.
A) New immigrants cause the supply curve for quantity of labor to shift from ss to s’s’,
lowering the equilibrium wages.
Solution: The number of immigrants are increasing, tend to increase the supply but the
demand is constant. This may cause the equilibrium to shift downwards and rightwards,
reflecting the wage rates to come down.
B) Problem: Immigration to growing cities.
Analysis: The wage changes are small if the supply increase comes in labor
markets with growing demand.
Solution: The number of immigrants are increasing to the city where demand of
labor is also increasing. This cause the shift in supply as well as demand which
will stabilize the equilibrium at the same as relatively similar rate .
CASE 3: VW Invasion of North America
Problem Statement: How Volkswagen entered the US market with basic no-frills
automobile “Beetle” and no dealer network in US market?

Analysis: Volkswagen wanted to enter US market with no-frills automobile

“Beetle” where General Motors and Ford were doing extremely great. So, they
decided to enter market with ridiculously low price range(i.e. $800). Volkswagen
played with the pricing strategy by increasing the price over the years marginally
so it doesn’t affect the consumer severely and Volkswagen revenue increased over
the year.

Solution: When Volkswagen entered the US market, it had no networks to

expand and its major competitors were Toyota, General motors and ford. VW
brought the innovative designs and concept cars to satisfy tomorrow needs.
Initially, they entered the market with low price at $800 which is way less than the
consumer willing to pay(consumer surplus). But later on they marginally increased
price the consumer tend to shift to competitor product. At price $1350 price
elasticity is reached. So they decided to build US dealer network with increase in
market size which shift the demand curve to rightward and hence forces the
equilibrium to shift upward. With new equilibrium price they can increase the
price one more time to increase sales and revenue.