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.

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,

1

4

e

James R. McGuigan

R. Charles Moyer

Frederick H. deB. Harris

©

20

1

7

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

1

PART IV – PRICING & OUTPUT DECISIONS:
STRATEGY AND TACTICS

© 20

17

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

2

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

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

3

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

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

4

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

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

5

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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6

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

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distributed with a certain product or service or otherwise on a password-protected website or school-approved learning management system for classroom use.
7

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

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8

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

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

9

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

10

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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 (

16

5% 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.

11

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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
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12

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

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13

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

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14

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

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15

Ch 11 – Price and Output Determination
for a Monopolist

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

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16

Ch 11 – Price and Output Determination
for a Monopolist

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

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17

Ch 11 – Price and Output Determination
for a Monopolist

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

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18

Ch 11 – Price and Output Determination for
a Monopolist

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

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19

Ch 11 – Price and Output Determination for
a Monopolist
The Importance of the Price Elasticity of Demand (1 of 2)
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20

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

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21

Table 11.2 – Optimal Prices, Markups,
and Margins

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22

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

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

23

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

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24

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
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25

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26

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

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27

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

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28

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

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29

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
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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

31

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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
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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

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33

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

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34

• 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