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you have to write minimum 250 words. then you have to reply for post of student (( 2 students)) Discussion : In Module 1 and Module 2, we learn about possible goals of the firm in some detail. However, you must have realized this issue merits more in-depth analysis. In this discussion you are all encouraged to participate and contribute your thoughts on what should be the goal of a firm. Feel free to describe the aspects you have observed in your work experience.Your discussion participation will be evaluated by the attached rubric. Click here to see how to view the rubric for a graded discussion. (Links to an external site.)Links to an external site. The categories and points are as follows:I. Quality of Posts (50 points)II. Quantity of Posts (20 points)III. Timeliness of Posts (20 points)IV. Professionalism (10 points)I attached below Module 1 and 2. 1st student post : ADP’s GoalThe goal of most publicly traded firms is to maximize shareholder value through profit. My current employer, ADP, is no exception. Each quarter we push our sales teams to hit short-term targets which are set to increase our stock price. In parallel, there are many strategic efforts ongoing to improve product offerings and develop new offerings that will help the firm maximize profits in the longer term.Maximizing profits is an appropriate goal for ADP given the that they are a for-profit company in the software services industry.What is ADP up Against (5 Forces)Entry: ADP has been in the payroll business for 60 years. As the inventor of the category, ADP was ability to build high barriers to entry by capturing large market share, and developing technology that was not easily replicated. Fast forward to present day and ADP has expanded from just payroll to Human Capital Management services. The industry is very profitable and has invited many start ups to encroach in the space, particularly in the areas of talent management. Instead of only the traditional competitors like Paychex, SAP, and Intuit, ADP now has to be cognizant of new players in the category like Namely, Gusto, and tech entrants like LinkedIn and Google. Power of Suppliers: The technologies that are sold are all internally developed or acquired, so supplier power is limited in this industry, which helps to sustain profits.Power of Buyers: Buyers have more power than ever now that the HCM industry has so many players. Business owners are constantly approached by sales representatives from rival companies soliciting their business. This allows buyers to easily compare offerings and prices. There is also more information available online on company websites, HR professional forums and industry publications. This has caused overall margins in the industry to decline.Industry Rivalry: As previously mentioned there are many players in the HCM space and rivalry is intense. This forces ADP and its competitors to invest heavily in R&D and process innovation, thus reducing margins. Customer retention is also a costly endeavor as you must remain vigilant that competitors are not poaching unhappy clients.Substitutes and Complements: In terms of Human Capital Management technology (Payroll, HR, Benefits, Time and Attendance, and Talent Management solutions), the only substitute for purchasing software is to handle the tasks manually in the case of Payroll, and/or not do them at all for things like tracking time and attendance and handling talent management tasks. Handling these tasks manually is simply not feasible for many businesses, especially as company size increases above ~25 employees. Additionally, not doing some of these activities may impact the firm’s efficiency and effectiveness. All that to say that substitution is limited in this category. As far as complements go, there are many other categories of business productivity software that complements Human Capital Management, such as Enterprise Resource Planning, Tax, Retirement, and other systems. For HCM systems to be most effective, they need to integrate well with these complementary systems – this is an area where industry players are able to differentiate themselves.How Effective Has ADP Been?Based on my observations over the past 4 years of working at ADP, I have witnessed consistent year-over-year profitability growth. The company is well-positioned for short-term profit maximization. However, at times it appears that short-term profitability takes precedent over the long-term. If a major tech player like Microsoft or Google truly sets its sights on disrupting the HCM space (which I think is feasible given that they are already investing in the space) I think ADP would struggle to maintain its category leadership position.2nd student post: I will send it later
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ECON 563
Managerial Economics
Module 1: Introduction
Copyright 2017 Montclair State University
Learning Objectives
(1) Summarize how goals, constraints, incentives, and market rivalry affect economic decisions.
(2) Distinguish economic versus accounting profits and costs.
(3) Explain the role of profits in a market economy.
(4) Apply the five forces framework to analyze the sustainability of an industry’s profits.
Learning Objectives
(5) Apply present value analysis to make decisions and value assets.
(6) Apply marginal analysis to determine the optimal level
of a managerial control variable.
(7) Identify and apply six principles of effective managerial
decision making.
.
ECON 563
Managerial Economics
Module 1a: Basic Definitions
The Manager
A person who directs resources to achieve a stated goal.
• Directs the efforts of others.
• Purchases inputs used in the production of the firm’s
output.
• Directs the product price or quality decisions.
Economics
The science of making decisions in the presence of scarce
resources.
• Resources are anything used to produce a good or ser-
vice, or achieve a goal.
• Decisions are important because scarcity implies tradeoffs.
Managerial Economics
The study of how to direct scarce resources in the way that
most efficiently achieves a managerial goal.
• Should a firm purchase components, parts etc. from
other manufacturers or produce them within the firm ?
• Should the firm specialize in making one type of product
or diversify and produce several different types ?
• How many units should the firm produce, and at what
price should you sell them ?
.
ECON 563
Managerial Economics
Module 1b: Effective Management
Economics of effective Management
Basic principles comprising effective management :
• Identify goals and constraints
• Recognize the nature and importance of profits
• Understand incentives
• Understand markets
• Recognize the time value of money
• Use marginal analysis
Identify Goals and Constraints
• Well-defined goals
• Firm’s overall goal is to maximize profits
• Constraints make it difficult to achieve goals
• Available technology
• Prices of inputs used in production
.
ECON 563
Managerial Economics
Module 1c: Profit
Nature and Importance of Profits
• Accounting profit

Total amount of money taken in from sales (total revenue) minus the dollar cost of producing goods or services.
• Economic profit

The difference between total revenue and total opportunity
cost.
• Opportunity cost

The explicit cost of a resource plus the implicit cost of giving
up its best alternative.
Role of Profit
• Profit acts as signal to resource holders to indicate where
resources are most highly valued by society.
• Profit helps the society to channelize scarce resources
to their most efficient uses.
.
ECON 563
Managerial Economics
Module 1d: Five Forces Analysis
Five Forces and Industry Profitability
• Entry
• Power of Input Suppliers
• Power of Buyers
• Industry Rivalry
• Substitutes and Complements
Entry
• Entry Cost- Sunk Cost – Switching Cost
• Network Effects
• Economy of Scale
• Speed of adjustment
• Reputation
• Government restraints
Power of Input Suppliers
• Supplier concentration
• Price – productivity of alternative inputs
• Relationship specific investments
• Reputation
• Government restraints
Power of Buyers
• Buyer concentration
• Price / value of substitute products or services
• Relationship specific investments
• Customer switching cost
• Government restraints
Industry Rivalry
• Industry concentration
• Price, quantity, quality or service competition
• Switching cost, degree of differentiation
• Timing of decisions
• Information
• Government restraints
Substitutes and Complements
• Price / value of surrogate products or services
• Price / value of complementary products or services
• Network effects
• Government restraints
.
ECON 563
Managerial Economics
Module 1e: Incentives and Markets
Understanding Incentives
• Changes in profits provide an incentive to how resource
holders use their resources.
• Within a firm, incentives impact how resources are used
and how hard workers work.
• One role of a manager is to construct incentives to induce maximal effort from employees.
Understanding Markets
• Two sides to every market transaction : buyer and seller
• Bargaining position of consumers and producers is limi-
ted by three rivalries in economic transactions :



Consumer-producer rivalry
Consumer-consumer rivalry
Producer-producer rivalry
• Government and the market
.
ECON 563
Managerial Economics
Module 1f: Time Value of Money
Time Value of Money
• Often there exists a gap between the time when costs
are borne and benefits received.
• Managers can use present value analysis to properly
account for the timing of receipts and expenditures.
Present Value Analysis
• Present value (PV) of a single future value (FV) is the
amount that would have to be invested today at the prevailing interest rate (i) to generate the given future value.
PV =
FV
, n = number of years.
(1 + i)n
• Present value reflects the difference between the future
value and the opportunity cost of waiting (OCW).
P V = F V − OCW.
Present Value Analysis
• Present value of a stream of future values is
PV =
F V1
F V2
F Vn
+
+ ··· +
.
1
2
(1 + i)
(1 + i)n
(1 + i)
• In compact notation, it would be
t=n

F Vt
PV =
.
t
(1
+
i)
t=1
Short-term and Long-term Profits
If the growth rate in profits is less than the interest rate and
both are constant, maximizing current (short-term) profits is
the same as maximizing long-term profits.
.
ECON 563
Managerial Economics
Module 1g: Marginal Analysis
Using Marginal Analysis
• Given a control variable, Q, of a managerial objective,
denote the total benefit as B(Q) and total cost as C(Q).
• Manager’s objective is to maximize net benefits :
N (Q) = B(Q) − C(Q).
• How can the manager maximize net benefits ?
Marginal Analysis
• Marginal benefit M B(Q) :
• The change in total benefits arising from a change in the managerial control variable, Q.
• Marginal cost M C(Q) :
• The change in total costs arising from a change in the managerial control variable, Q.
• Marginal net benefit M N B(Q) :
M N B(Q) = M B(Q) − M C(Q).
Marginal Principle
• To maximize net benefits, the manager should increase
the Q up to the point where marginal benefits equal marginal costs.
• This level of Q corresponds to the level at which marginal net benefits are zero.
• Nothing more can be gained by further changes in Q.
An Example
• It is estimated that the benefit and cost structure of a
firm is :
B(Q) = 250Q − 4Q2 , C(Q) = Q2 .
• Then M B(Q) and M C(Q) are
M B(Q) = 250 − 8Q, M C(Q) = 2Q.
• Q such that M N B(Q) = M B(Q) − M C(Q) = 0 is
250 − 8Q − 2Q = 0 – Q = 25.
Incremental Decisions
• Incremental revenues :
• The additional revenues that stem from a yes-or-no decision.
• Incremental costs :
• The additional costs that stem from a yes-or-no decision.
• Thumbs up decision
M B > M C.
• Thumbs down decision
M B < M C. . ECON 563 Managerial Economics Module 2: Market Equilibrium, Demand and Supply Model Copyright 2017 Montclair State University . ECON 563 Managerial Economics Module 2a: Brief Overview Learning Objectives (1) Explain the laws of demand and supply, and identify factors that cause shift in demand and supply. (2) Define and calculate consumer surplus and producer surplus. (3) Explain price determination in a competitive market, and show how equilibrium changes in response to changes in determinants of demand and supply. Learning Objectives (4) Explain and illustrate how excise taxes, ad valorem taxes, price floors, and price ceilings impact the functioning of a market. (5) Apply supply and demand analysis as a qualitative forecasting tool to see the big picture in competitive markets. . ECON 563 Managerial Economics Module 2b: Demand Demand Market demand curve • Describes the relationship between the total quantity and price per unit of a good all consumers are willing and able to purchase, holding other variables constant. Law of demand • The quantity of a good consumers are willing and able to purchase increases (decreases) as the price falls (rises). • Price and quantity demanded are inversely related. Price $/lb Market demand curve $6 $4 D $2 0 2 4 7 Quantity (lbs) Movement Along Demand Curve Change in quantity demanded • Changing only price leads to changes in quantity de- manded. • Graphically represented by a movement along a given demand curve, holding other factors that impact demand constant. Shift in Demand Curve Shift in demand • Changing factors other than price lead to changes in demand. • Graphically represented by a shift of the entire demand curve. Price Changes in Demand Shift to the right Shift to the left Quantity Demand Shifters Income • Normal good • Inferior good Prices of related goods • Substitute goods • Complement goods Advertising and consumer tastes • Informative advertising • Persuasive advertising Population, Consumer expectations, Other factors Price D′ D 0 Quantity Figure : Advertising and Increase in Market Demand Curve . ECON 563 Managerial Economics Module 2c: Demand Function The Demand Function The demand function for good X (say, apples) is a mathematical representation describing how many units (pounds, lbs) will be purchased at different prices for X ($ per lb), the price of a related good Y (say, orange), income and other factors that affect the demand for good X. The Linear Demand Function One simple, but useful, representation of a demand function is the linear demand function. QdX = �0 + �X PX + �Y PY + �M M + �H H where QdX is the number of units of good X demanded ; PX is the price of good X ; PY is the price of a related good Y ; M is income ; and H is the value of any other variable affecting demand. Understanding the Linear Demand Function The signs and magnitude of the � coefficients determine the impact of each variable on the number of units of X demanded QdX = �0 + �X PX + �Y PY + �M M + �H H. For example �X < 0 by the law of demand ; �Y > 0 if good Y is a substitute for good X ;
�M < 0 if good X is an inferior good. Example Suppose demand function for a firm's product X is : QdX = 12000 − 3PX + 4PY − M + 2AX . Question How many of good X will consumers purchase when PX = $200 per unit, PY = $15 per unit, M = $10, 000 and AX = 2, 000 ? Are goods X and Y substitutes or complements ? Is good X a normal or an inferior good ? Answer QdX = 12000 − 3(200) + 4(15) − 10000 + 2(2000) QdX = 12000 − 600 + 60 − 10000 + 4000 = 5460. X and Y are substitutes. X is an inferior good. Inverse Demand Function In the example, if we set PY = $15 per unit, M = $10, 000 and AX = 2, 000, the demand function is QdX = 12000 − 3PX + 4(15) − 10000 + 2(2000) = 6060 − 3PX . We can solve for PX in terms of QdX to obtain PX = 6060 QdX Qd − = 2020 − X . 3 3 3 It is called inverse demand function and is used to construct market demand curve. Price Graphing Inverse Demand Function $2020 PX = 2020 − 0 QdX 3 6060 Quantity . ECON 563 Managerial Economics Module 2d: Supply Supply Market supply curve • A curve indicating the total quantity of a good that all producers in a competitive market would produce at each price, holding input prices, technology, and other variables affecting supply constant. Law of supply • As the price of a good rises (falls), the quantity supplied of the good rises (falls), holding other factors affecting supply constant. Movement Along Supply Curve Change in quantity supplied • Changing only price leads to changes in quantity sup- plied. • Graphically represented by a movement along a given supply curve, holding other factors that impact supply constant. Shift in Supply Curve Shift in supply • Changing factors other than price lead to changes in supply. • Graphically represented by a shift of the entire supply curve. Price Changes in Supply Decrease in supply Increase in supply Quantity Supply Shifters • Input prices • Technology or government regulation • Number of firms • Entry • Exit • Substitutes in production • Taxes • Excise tax : a tax on each unit of output sold, where tax revenue is collected from the supplier • Ad valorem tax : percentage tax • Producer expectations Price 1.10 A per unit (Excise) Tax t = $0.1 1.00 Excise tax = $0.10 per unit Quantity Price An Ad Valorem Tax 1.10 1.00 Ad Valorem tax = 10% Quantity . ECON 563 Managerial Economics Module 2e: Supply Function The Supply Function The supply function for good X is a mathematical representation describing how many units will be produced at alternative prices for X, alternative input prices W , and alternative values of other variables that affect the supply for good X. The Linear Supply Function A simple representation of a supply function is the linear supply function. QsX = �0 + �X PX + �W W + �r Pr + �H H where QsX is the number of units of good X supplied ; PX is the price of good X ; W is the price of an input ; Pr is price of technologically related goods ; and H is the value of any other variable affecting supply. Understanding the Linear Supply Function The signs and magnitude of the � coefficients determine the impact of each variable on the number of units of X supplied QsX = �0 + �X PX + �W W + �r Pr + �H H For example �X > 0 by the law of supply ;
�W < 0 increasing input prices ; �r > 0 technology lowers the cost of producing good X.
Example
Suppose supply function for a firm’s product X is :
QsX = 2000 + 3PX − 4Pr − PW .
Question
How many units of good X will be produced when
PX = $400 per unit, Pr = $100 per unit and PW = 2, 050 ?
Answer
QsX = 2000 + 3(400) − 4(100) − 1(2050)
QsX = 2000 + 1200 − 400 − 2050 = 750.
Inverse Supply Function
In the example, if we set PW = $2050 per unit and Pr = 100,
the supply function is
QsX = 2000 + 3PX − 4(100) − 1(2050) = 3PX − 450.
We can solve for PX in terms of QsX to obtain
PX =
450 QdX
Qd
+
= 150 + X .
3
3
3
It is called inverse supply function and is used to construct
market supply curve.
Price
Graphing Inverse Supply Function
PX = 150 +
QsX
3
150
0
Quantity
.
ECON 563
Managerial Economics
Module 2f: Consumer and Producer
Surplus
Consumer Surplus
Marketing strategies – like value pricing and price discrimination – rely on the concept of consumer value for the products.
• Total consumer value is the sum of the maximum amount
a consumer is willing to pay at different quantities.
• Total expenditure is the per-unit market price times the
number of units consumed.
• Consumer surplus is the extra value that consumers
derive from a good but do not pay extra for.
Price
per litre
$8
Market Demand and Consumer Surplus
$4
0
4
8 Quantity in litres
Consumer Surplus
1
Total Consumer Value = (8 + 4) · 4 = 24,
2
Total Expenditure = 4 · 4 = 16,
1
Consumer Surplus = (4 · 4) = 8.
2
Producer Surplus
The amount producers receive in excess of the amount necessary to induce them to produce the good.
Price
Producer Surplus
450
150
0
900
Quantity
Producer Surplus
1
Producer Surplus = (450 − 150) · (900) = 135000.
2
.
ECON 563
Managerial Economics
Module 2g: Market Equilibrium
Market Equilibrium
Competitive Market Equilibrium
• Determined by the intersection of the market demand
and market supply curves.
• A price and quantity such that there is no shortage or
surplus in the market.
• Forces that drive market demand and market supply are
balanced, and there is no pressure on prices or quantities to change.
• The equilibrium price is the price that equates quantity
demanded with quantity supplied.
Price
60
Market Equilibrium
P∗
15
0
Q∗
Quantity
Example
Consider a market with demand and supply functions for
good X given as :
s
QdX = 100 − PX , QX
= 20 + PX .
A competitive market equilibrium exists at a price P ∗ such
that
s
(P ∗ ), or .100 − PX = 20 + PX ,
QdX (P ∗ ) = QX
2PX = 80, or PX = 40, , and QX = 100 − 40 = 60.
Equilibrium is PX = 40 and QX = 60.
.
ECON 563
Managerial Economics
Module 2h: Market Interventions
Price Restrictions and Market Equilibrium
• In a competitive market equilibrium, price and quantity
freely adjust to the forces of demand and supply.
• Sometime government restricts how much prices are
permitted to rise or fall,


Price ceiling,
Price floor.
Price
100
A Price Ceiling
P∗
Pc
20
0
Q∗
Price ceiling Quantity
Price Ceiling in Action
Consider the market with demand and supply functions for
good X given as :
s
QdX = 100 − PX , QX
= 20 + PX .
Suppose a price ceiling of $30 is imposed in this market.
QdX = 100−30 = 70, QsX = 20+30 = 50, shortage = 70−50 = 20.
Full economic price of the 50th unit is PX = 100 − 50 = 50
where $30 is the dollar price and $30 is the non-pecuniary
price.
Price
60
Price Floor
P∗
15
0
Q∗
Quantity
Price Floor in Action
Consider the market with demand and supply functions for
good X given as :
QdX = 100 − PX , QsX = 20 + PX . Suppose
a price floor of $50 is imposed in this market.
s
= 20+50 = 70, surplus = 70−50 = 20.
QdX = 100−50 = 50, QX
.
ECON 563
Managerial Economics
Module 2i: Comparative Statics
Comparative Static Analysis
• The study of the movement from one equilibrium to ano-
ther.
• Competitive market equilibrium outcome, operating free
of price restraints, could change when



Demand changes
Supply changes
Demand and supply simultaneously change.
Change in Demand
• Increase in demand only
• Increase equilibrium price
• Increase equilibrium quantity
• Decrease in demand only
• Decrease equilibrium price
• Decrease equilibrium quantity
Example of Change in Demand
• Suppose that consumer incomes are projected to in-
crease 2.5% and
• the number of individuals over 25 years of age will reach
an all time high by the end of next year.
• What is the impact on the rental car market ?
Price
Effect of change in demand
Both price and quantity increase
0
Quantity
Change in Supply
• Increase in supply only
• Decrease equilibrium price
• Increase equilibrium quantity
• Decrease in supply only
• Increase equilibrium price
• Decrease equilibrium quantity
Example of Change in Supply
• Suppose that a bill before Congress would require all
employers to provide health care to their workers.
• What is the impact on retail markets ?
Price
Effect of increase in supply
Price goes down and quantity goes up
0
Quantity

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