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Work #1:

Describe in 500 words the disaster recovery plan and who is responsible at your place of employment. Consider the critical business functions and your recovery point objectives and recovery time objectives.

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Use at least three sources. Use the Research Databases available from the Danforth Library, not Google.   Include at least 3 quotes from your sources enclosed in quotation marks and cited in-line by reference to your reference list.  Example: “words you copied” (citation) These quotes should be one full sentence not altered or paraphrased. Cite your sources using APA format. Use the quotes in your paragaphs.

Write in essay format not in bulleted, numbered or other list format. 

It is important that you use your own words, that you cite your sources, that you comply with the instructions regarding length of your post and that you reply to two classmates in a substantive way (not ‘nice post’ or the like).  Your goal is to help your colleagues write better. Do not use spinbot or other word replacement software. Proof read your work or have it edited. Find something interesting and/or relevant to your work to write about.  

Work #2:

Managerial Challenge

After reading the section titled “Dominant Microprocessor Company Intel Adapts to Next Trend” (Chapter 11 pg. 384-385) and the article titled “2018-2019 Intel Corporate Responsibility Report: Creating Value through Transparency,” complete a list of (4-5) reasons how Intel comes to dominate some markets. List (3) reasons why Apple would depart from a dominant corporation like Intel. Although this assignment allows you to create a list, you must follow the APA style of writing and include research to support your list, and place this information in your reference section.

Submission Details:

  • Response should be no less than 250 words
  • Follow the APA style of writing with in-text citations and a reference list.

Article Link: https://newsroom.intel.com/editorials/2018-19-intel-corporate-responsibility-report/#gs.gn9ttl

Chapter 11 file attached.

Managerial Economics Applications, Strategies and

Tactics, 14e

James R. McGuigan

R. Charles Moyer

Frederick H. deB. Harris

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PART IV – PRICING & OUTPUT DECISIONS: STRATEGY AND TACTICS

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Chapter 11 –

Price and Output Determination:

Monopoly and Dominant Firms

Chapter 11 – Price & Output Determination: Monopoly and Dominant Firms Overview (1 of 1) • MONOPOLY DEFINED • SOURCES OF MARKET POWER FOR A MONOPOLIST • PRICE AND OUTPUT DETERMINATION FOR A MONOPOLIST • THE OPTIMAL MARKUP, CONTRIBUTION MARGIN, AND

CONTRIBUTION MARGIN PERCENTAGE

• REGULATED MONOPOLIES • THE ECONOMIC RATIONALE FOR REGULATION

© 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

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Ch 11 – Monopoly Defined (1 of 1)

• Monopoly is defined as a market structure with significant barriers to entry in which a single firm produces a highly differentiated product

• Without any close substitutes for the product, the demand curve for a monopolist is often an entire relevant market demand

• Just as purely competitive market structures are rare, so too pure monopoly markets are rare

© 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

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Ch 11 – Sources of Market Power for a Monopolist

(1 of 1) • Monopolist or near-monopoly dominant firms enjoy several sources

of market power • A firm may possess a patent or copyright that prevents others from

producing the same product • A firm may control critical resources • A third source may be a government-authorized franchise • Monopoly power also happens in natural monopolies because of

significant economies of scale over a wide range of output

© 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

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Ch 11 – Sources of Market Power for a Monopolist

Increasing Returns from Network Effects (1 of 2) • These can also be a source of monopoly market power • Marketing and promotions are generally subject to diminishing returns; See

Figure 11.1; example: Microsoft and Apple • Sales penetration curve – An S-shaped curve relating current market share to

the probability of adoption by the next garget customer, reflecting the presence of increasing returns • By achieving more than 30% acceptance in the marketplace, the technology

becomes the industry standard • Achieving greater than 30% share, leads to increasing returns in marketing

caused by a network effect that displaces other competitors

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Figure 11.1 How the Adoption of a Technology Leads to Increasing Returns

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Ch 11 – Sources of Market Power for a Monopolist

Increasing Returns from Network Effects (2 of 2) • But monopoly is seldom assured for 3 reasons: • First, a higher price point for innovative new products can offset cost savings from

increasing returns of a competitor (Example: Apple) • Second network effects tend to occur in technology-based industries that have

experienced falling input prices; Figure 11.2 • Third, technology products whose primary value lies in their intellectual property

have revenue sources dependent on renewals of governmental licensures and product standards

• Firms try to get around the inflection point of Figure 11.1 and achieve increasing returns by free trials for a limited time, or giving the technology away if it can be bundled with other revenue-generating product offerings

© 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

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Figure 11.2 How Declining Component Costs Led to Falling Product Prices in the Computer and Telecom Industries

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What Went Right? ● What Went Wrong?

What Went Right at Microsoft but Wrong at Apple Computer • Historically, Apple Computer hovered at 7-10% market share in the U.S.

personal computer industry, never coming close to the 30% inflection point for declining selling costs (See Fig 11.1).

• Apple attempted to become an industry standard in several PC submarkets, like desktop publishing, journalism, advertising & entertainment.

• Also, after defending its GUI code for 2 decades, Apple reversed course, and began licensing agreements with MS & IBM, to achieve the widespread adoption of Mac programming; this strategy led to success in smart phones

• Although Apple’s GUI code was superior to the original MS code, the superior product lost to the product that first reached increasing returns – MS

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© 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

What Went Right? ● What Went Wrong?

Pilot Error at Palm • Despite having 80% of the handheld operating system market and despite producing

60% of the handheld hardware at its peak in 2000, Palm has now lost most of its market share to its rivals. • Palm grew so fast (165% year-over-year sales increases) that it gave little attention to

operational issues such as managing the supply of inputs and forecasting demand. • It mistimed the announcement of its m500 product upgrades, which were delayed by supply

chain bottlenecks, and Palm’s customers stopped buying older models. • Handspring, Sony, HP, MS’s Pocket PC and Blackberry drove prices lower and offered newer

product features

• Almost overnight, excess Palm IV and V inventories piled up on shelves; Palm took a $300 million write-down on its inventory losses and its stock price fell from $25 to $2 per share.

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© 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Ch 11 – Price and Output Determination for a Monopolist

Spreadsheet Approach: Profit v. Revenue Maximization… (1 of 1)

• Table 11.1 shows the demand projections for daily sales of Polo golf shirts at an outlet store

• Sales floor personnel are paid a salary plus commission based on their sales • Such an employee wants the price to continue dropping as long as total sales revenue

rises (MR remains positive up to and including 14 shirts/day at $25.79; any fewer shirts, and total revenue would be smaller, reducing commissions

• The store manager & parent company are concerned that the 14th shirt imposes a unit operating loss of -$24; (MR in column 4 falls below the variable cost in column 5) • Not until the price is raised and MR is increased back to $28 will operating losses be

eliminated © 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license

distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 12

Table 11.1 – Ralph Lauren Polo Golf Shirts (Per Color, Per Store, Per Day)

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Ch 11 – Price and Output Determination for a Monopolist

Graphical Approach (1 of 1) • Figure 11.3 shows the price-output decision for a profit-maximizing

monopolist • Just as in pure competition, profit is maximized at the price and output combination

where MC = MR • If the demand curve were of the form

© 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

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Figure 11.3 – The Price and Output Determination of a Pure Monopoly

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Ch 11 – Price and Output Determination for a Monopolist

Algebraic Approach (1 of 3) • Profit Maximization for a Theme Park Restaurant

© 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

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Ch 11 – Price and Output Determination for a Monopolist

Algebraic Approach (2 of 3) • Profit Maximization for a Theme Park Restaurant (cont.)

© 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

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Ch 11 – Price and Output Determination for a Monopolist

Algebraic Approach (3 of 3) • Profit Maximization for a Theme Park Restaurant (cont.)

© 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

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Ch 11 – Price and Output Determination for a Monopolist

The Importance of the Price Elasticity of Demand (1 of 2)

© 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

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Ch 11 – Price and Output Determination for a Monopolist

The Importance of the Price Elasticity of Demand (1 of 2)

© 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

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Ch 11 – The Optimal Markup, Contribution Margin, & Contribution Margin Percentage

(1 of 1)

• Value proposition – A statement of the specific source(s) of perceived value, the value driver(s), for customers in a target market

© 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

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Table 11.2 – Optimal Prices, Markups, and Margins

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Figure 11.4 – Value Creation in the Strategy Map for Natureview Farms Yogurt

© 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

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Ch 11 – The Optimal Markup, Contribution Margin, & Contribution Margin Percentage

(1 of 1) • Gross Profit Margins • Gross profit margin – Revenue minus the sum of variable cost plus direct fixed cost,

also known as direct costs of goods sold in manufacturing

• Components of the Margin • Contribution margins and gross profit margins differ across industries and across

firms within the same industry for many reasons • Some industries are more capital intensive than others • Differences in margins reflect differences in advertising, promotion & selling costs • Differences in gross margins arise because of differential overhead in some businesses • Finally, after accounting for any differences in the indirect fixed costs of capital equipment,

advertising, selling expenses and overhead, the remaining differences in profit margins reflect differential profitability

© 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

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Ch 11 – The Optimal Markup, Contribution Margin, & Contribution Margin Percentage

(1 of 1) • Monopolists and Capacity Investments • Because monopolists do not face the discipline of strong competition, they

tend to install excess capacity or fail to install enough capacity • Even regulated monopolies over or underinvest generating capacity

• Limit Pricing • Maximizing short-run profits may not necessarily maximize the long-run profits

of the firm • The monopolist firm may decide instead to engage in limit pricing where it

charges a lower price to discourage entry into the industry by potential rivals • The firm foregoes some of its short-run monopoly profits in order to sustain its

monopoly position © 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license

distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 25

Figure 11.5 – Limit-Pricing Strategy

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Figure 11.6 – The Effect of Pricing Strategies on Profit Streams as a Patent Expires

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Ch 11 – The Optimal Markup, Contribution Margin, & Contribution Margin Percentage

(1 of 1) • Using Limit Pricing to Hamper the Sales of Generic Drugs • Patent protection is the key to financial success in the pharmaceutical

industry • Rather than limit pricing of BMS’s Capoten, a hypertension drug, BMX

maintained the price per pill to the end of the 20 year patent protection • Competition from generics was swift and disastrously effective • In contrast, Eli Lilly chose limit pricing & advertising for Prozac and Claritin • Smaller margins and a slower decline of market share could achieve higher

profitability over a longer period

© 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

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Ch 11 – Regulated Monopolies (1 of 1)

• Several important industries in the U.S. operate as regulated monopolies, including electric power companies, natural gas companies and communications companies

• Public utilities – A group of firms, mostly in the electric power, natural gas, and communications industries, that are closely regulated by one or more government agencies. The agencies control entry into the business, set prices, establish product quality standards, and influence these total profits that may be earned by the firms subject to scale economies

© 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

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Ch 11 – Regulated Monopolies Electric Power Companies (1 of 1)

• Electric power is made available to the consumer through a production process characterized by 3 stages • Power is generated in generating plants • Power is transmitted from the generating site to the locality where it is used • The power is distributed to individual users

• Integrated firms that carry out all 3 stages of production are usually regulated by state public utility commissions • These commissions set the rates to be charged to consumers • The firms normally receive exclusive rights to serve localities through franchisees granted by local

governing bodies • As a result, electric power firms have well-defined markets within which they are the sole provider of

output • Finally, the FERC has the authority to set rates on power that crosses state lines, and on wholesale power

sales © 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license

distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 30

What Went Right? ● What Went Wrong?

The Public Service Company of New Mexico • This firm provides electric power service and natural gas distribution services to

most of New Mexico’s population • Although PNM was authorized to earn a return of 12.5% on common equity, it was

unable to do so • Faced with high growth in demand, PNM joined other regional utilities in the

construction of several large coal-fired plants and a nuclear power plant, but load growth did not materialize as expected • The projects were plagued by cost overruns, delays and costly safety

modifications • At completion, PNM found itself with a capacity in excess of 80% of peak demand

for which it could not recover • The regulatory process does not ensure that a firm will earn its authorized return

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© 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

Ch 11 – Regulated Monopolies Natural Gas Companies (1 of 1)

• This highly regulated industry is also a 3-stage process • Production of the gas in the field • Transportation to the consuming locality through pipelines • Distribution to the final user

• FERC historically set the field price of natural gas, but regulation at the wellhead has been effectively phased out

• Today, FERC overseas the interstate transportation of gas by approving pipeline routes and by controlling the wholesale rates charged by pipeline firms to distribution firms

• The distribution function may be carried out by a private firm or a municipal government agency

• In either event, the rates charged to final users are also subject to regulatory control © 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license

distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use. 32

Ch 11 – The Economic Rationale for Regulation

Natural Monopoly Argument (1 of 1) • Firms operating in the regulated sector are often natural monopolies

in which a single supplier emerges because of a production process characterized by massive economies of scale

• Natural monopoly – An industry in which maximum economic efficiency is obtained when the firm produces, distributes, and transmits all of the commodity or service produced in that industry. The production of natural monopolists is typically characterized by increasing returns to scale throughout the relevant range of output

© 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

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Figure 11.7 – The Price-Output Determination of a Natural Monopoly

© 2017 Cengage Learning® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.

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  • Slide 1
  • PART IV – PRICING & OUTPUT DECISIONS: STRATEGY AND TACTICS
  • Slide 3
  • Ch 11 – Monopoly Defined (1 of 1)
  • Ch 11 – Sources of Market Power for a Monopolist (1 of 1)
  • Slide 6
  • Slide 7
  • Slide 8
  • Slide 9
  • What Went Right? ● What Went Wrong?
  • What Went Right? ● What Went Wrong?
  • Slide 12
  • Slide 13
  • Slide 14
  • Slide 15
  • Slide 16
  • Slide 17
  • Slide 18
  • Slide 19
  • Slide 20
  • Slide 21
  • Table 11.2 – Optimal Prices, Markups, and Margins
  • Slide 23
  • Slide 24
  • Slide 25
  • Figure 11.5 – Limit-Pricing Strategy
  • Slide 27
  • Slide 28
  • Ch 11 – Regulated Monopolies (1 of 1)
  • Slide 30
  • What Went Right? ● What Went Wrong?
  • Ch 11 – Regulated Monopolies Natural Gas Companies (1 of 1)
  • Slide 33
  • Slide 34

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