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Many schemes for price discriminating involve some cost.

Principles of Microeconomics | 7th Edition | ISBN: 9781285165905 | Authors: N Gregory Mankiw ISBN: 9781285165905 94

Solution for problem 11 Chapter 15

Principles of Microeconomics | 7th Edition

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Principles of Microeconomics | 7th Edition | ISBN: 9781285165905 | Authors: N Gregory Mankiw

Principles of Microeconomics | 7th Edition

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Problem 11

Many schemes for price discriminating involve some cost. For example, discount coupons take up the time and resources of both the buyer and the seller. This question considers the implications of costly price discrimination. To keep things simple, lets assume that our monopolists production costs are simply proportional to output so that average total cost and marginal cost are constant and equal to each other.a.Draw the cost, demand, and marginal-revenue curves for the monopolist. Show the price the monopolist would charge without price discrimination.b.In your diagram, mark the area equal to the monopolists profit and call it X. Mark the area equal to consumer surplus and call it Y. Mark the area equal to the deadweight loss and call it Z CHaPtEr 15 monopoLy327c.Now suppose that the monopolist can perfectly price discriminate. What is the monopolists profit? (Give your answer in terms of X,Y, and Z.)d.What is the change in the monopolists profit from price discrimination? What is the change in total surplus from price discrimination? Which change is larger? Explain. (Give your answer in terms of X, Y, and Z.)e.Now suppose that there is some cost of price discrimination. To model this cost, lets assume that the monopolist has to pay a fixed cost C to price discriminate. How would a monopolist make the decision whether to pay this fixed cost? (Give your answer in terms of X, Y, Z, and C.) f .How would a benevolent social planner, who cares about total surplus, decide whether the monopolist should price discriminate? (Give your answer in terms of X, Y, Z, and C.)g.Compare your answers to parts (e) and (f). How does the monopolists incentive to price discrimi-nate differ from the social planners? Is it possible that the monopolist will price discriminate even though doing so is not socially desirable?

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NORTHCENTRAL UNIVERSITY ASSIGNMENT COVER SHEET Student: THIS FORM MUST BE COMPLETELY FILLED IN Follow these procedures: If requested by your instructor, please include an assignment cover sheet. This will become the first page of your assignment. In addition, your assignment header should include your last name, first initial, course code, dash, and assignment number. This should be left justified, with the page number right justified. For example: Save a copy of your assignments: You may need to re­submit an assignment at your instructor’s request. Make sure you save your files in accessible location. Academic integrity: All work submitted in each course must be your own original work. This includes all assignments, exams, term papers, and other projects required by your instructor. Knowingly submitting another person’s work as your own, without properly citing the source of the work, is considered plagiarism. This will result in an unsatisfactory grade for the work submitted or for the entire course. It may also result in academic dismissal from the University. IB7002­4 Isabel Wan, PhD International Business Assignment 4 Faculty Use Only 2 Introduction Multinational companies (MNCs) are under scrutiny due to the increasing number of companies choosing to avoid social responsibility in the international environment. A number of MNCs began to find ways to work around host country laws to increase profitability. The companies believe that if the rules were followed, a reduction in profits would take place. The purpose of this week’s assignment is to identify possible ways for MNCs to follow local regulations and still remain profitable. To complete this task, an in­depth analysis of global corporate social responsibility, ethics, and profitability is conducted. To understand the behavior of multinational corporations, this paper will take a look at the following areas: 1) compare and contrast international business environments and recommend developing, formulating and implementing a global strategy, strategic alliances, and competitive intelligence, 2) analyze and assess global corporate social responsibility, profits, the environment and ethical challenges of conducting business overseas, and 3) analyze the economic growth and governmental policy trends of emerging countries in the last decade and critically discuss the influence of this on international trade interactions. International Business Environments International business environments are complicated to operate within. The challenge of working within numerous cultures, differing business practices, and various levels of corporate responsibility makes the international environment extremely complex. The issues include such concepts as global warming, emission of CO2 gases, and corporate social responsibility. Media and interest groups are showing increased attention to those companies that have had significant issues such as oil spills, explosions, and pollution. The companies that stray from 3 governmental and environmental policies are then made as examples for the rest of the world to learn from. A specific example of cutting corners and straying from policy is BP’s oil rig explosion. BP was reported as repeated utilizing risky procedures in order to gain in profits. The explosion led to the death of 11 workers and a 5­mile oil slick polluting the ocean, killing aquatic life, and destabilizing an ecosystem. Upon review of the environmental activities’ section in the 10­K public annual reports, the percentage of companies with an environmental policy was 100%. The purpose of the 10­K report is a required submission for public companies to provide a comprehensive overview of the business’s financial condition (U.S. Securities and Exchange Commission, 2009). One of the surprises found was that each company had a very thorough plan to manage each potential issue. A second surprise was the amount of information placed on the web for the public’s perusal. While extraordinarily complex, it is still surprising that fraud is so rampant with the amount of information that is available for viewing. In addition, some companies choose to become involved in industrial ecology because it simply is the right thing to do. Those that do not participate tend to do so because of the additional costs involved. Global Corporate Responsibility Global corporate responsibility is a concept that is increasing in popularity amongst multinational corporations. Corporate social responsibility (CSR) allows a company to implement its social and environmental concern as the company operates in a given location. Shareholder engagement is one of the most effective ways to not only bring awareness to social issues, but also to establish CSR. This process requires shareholders to present proposals which are evaluated to ensure specifications are met and once approved implemented by the company 4 (Glac, 2014). In addition, one way companies could choose to become profitable as well as socially responsible is to implement a strategy to source locally for each market transaction. If the company is located in multiple locations, the company could source supplies and building materials in that area. By acquiring the best prices in each area, the company may be able to benefit from economies of scale (Buckley, 2009). There are several companies that are well know for being profitable global company but also socially responsible. The first company to discuss is General Electric (GE). GE incorporates social responsibility right from the start of any contract. GE will involve its stakeholders up front by developing environmental challenges to develop the best possible design and way forward. The competitions involve people from the area to be developed that also care about the local area. Another company with solid CSR and a high level of profitability is Levi Strauss. The discussion of Levi Strauss is a bit different than the one with GE due to the complication of incorporating children into the business plan. In some countries all members of the family must work to ensure the family survives. In this instance, Levi Strauss was faced with a decision of employing the younger individuals and being seen as utilizing child labor, or turning away from local norms and potentially hurting an entire family. The company made the decision to pay the children a wage and secure a position for them after the age of 14. While citizens of a developed nation may not understand the use of child workers, families in third world countries will understand. The goal in this instance is to find the balance between corporate responsibility and cultural roots (Luthans & Doh, 2012). 5 While the above companies are profitable as well as socially responsible there are many other companies that are not. Greed is a concept that business owners must face on a daily basis. On occasion MNCs will overlook social responsibilities because they believe it may reduce the bottom line. The business owner must take a step back and analyze what a decision to conduct unethical business practices may cost. Some of these companies and the host countries, choose to violate human rights. Violations of human rights is an issue that continues to exist. From basic human rights such as the right to live, no matter the race or religion, enslavement and abuse to race and gender equality. When the United States formed a democracy, other countries and people in those countries became aware that governments did not have the right to hurt its people. While the U.S. helped other countries realize the value of humane treatment and freedom, human rights were actually discussed and implemented long before by Greek Stoic’s and England’s kings and barons (Payne, 2013). Not all countries abide by a human rights philosophy, and multicultural businesses are pressed with abiding by each governments’ laws whether they are ethical or not. A global business owner must evaluate the facts and determine if this country identifies with the company’s goals and values. This is especially true when a company’s host nation is the U.S. and a secondary country is in a nation that does not abide by basic human right’s laws. An example of this could be standing up a manufacturing plant in a country that utilizes sweat shop or child labor. If U.S. citizens were informed about the ways products were being manufactured, there would be serious impacts. The impacts could include a potential boycott or a shut down of the company. Economic Growth and Governmental Policy 6 Economic growth and government policy trends in emerging countries within the last decade are significant. The BRICS countries are prime examples of positive growth based on governmental policy implementation. These countries focused on placing an emphasis on building up savings, which in turn, influenced international trade interactions. An example of this can be seen in the how the U.S. interacts with Cuba. One of the ways that the U.S. has put into place when dealing with countries that have differing viewpoints on human rights is to place sanctions on that country. The Cuban government was an authoritarian dictatorship and utilized many unethical methods to control its people. One of the predominant methods was to use starvation as a political weapon. The U.S. did not believe in this type of treatment towards its people and in order to put pressure on the Cuban government to do the right thing, the U.S. placed sanctions on Cuba in 1960. The sanctions began with canceling orders of 700,000 pounds of sugar imports and placing embargos on all goods with the exception of food and medicine. This not only negatively Cuba as a whole, but also created significant hardship for the individuals with the loss of income. Only recently President Obama began to lift some of the sanctions. The reasons behind this began with Fidel Castro stepping down due to health reasons and his son, Raul Castro releasing political prisoners. After 50 years and steps forward, the political war with Cuba is slowly coming to an end. Governments as well as the country’s residents tend to want and expect transparency within the markets they are planning to conduct business with. The U.S. government is expected to do what is right not only for the people residing its walls but help other countries move to become more ethical and away from violating human rights (Shaomin & Samsell, 2009). Conclusion 7 Social responsibility is the responsibility of everyone. Recently there has been an increasing number of multinational companies that have chosen to discard their responsibility in order to increase profitability bringing them under scrunity. An MNC must also take the time to evaluate if the company’s values are reflected in the potential host country. Certain countries still violate basic human rights and as a business owner, accepting that is a significant part of the decision making process. The business owner must understand how the decisions made will affect business in the originating country. General Electric and Levi Strauss are two multinational corporations that are successful in the international environment that have found the balance between host country culture and laws and home country acceptance. To understand the behavior of multinational corporations, this paper took a look at the following areas: 1) compare and contrast international business environments and recommend developing, formulating and implementing a global strategy, strategic alliances, and competitive intelligence, 2) analyze and assess global corporate social responsibility, profits, the environment and ethical challenges of conducting business overseas, and 3) analyze the economic growth and governmental policy trends of emerging countries in the last decade and critically discuss the influence of this on international trade interactions. 8 References Buckley, P. J. (2009). Business history and international business. Business History 51(3), 307­ 333. doi:10.1080/00076790902871560 Glac, K. (2014). The influence of shareholders on corporate social responsibility. Economics, Management & Financial Markets, 9(3), 34­72. Retrieved from http://www.addleton academicpublishers.com Luthans, F., & Doh, J. (2012). International Management: Culture, Strategy, and Behavior 8th New York, NY McGraw­Hill Irwin Payne, R. J. (2013). Global issues. New Jersey: Pearson Education, Inc. Shaomin, L., & Samsell, D. P. (2009). Why some countries trade more than others: The effect of the governance environment on trade flows. Corporate Governance: An International Review, 17(1), 47­61. doi:10.1111/j.1467­8683.2008.00715.x U.S. Securities and Exchange Commission. Form 10­K. (2009). Retrieved from http://www.sec.gov/answers/form10k.htm

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Textbook: Principles of Microeconomics
Edition: 7
Author: N Gregory Mankiw
ISBN: 9781285165905

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Many schemes for price discriminating involve some cost.