MANAGERIAL ECONOMICS
COURSE ASSESSMENT 1
Required Reading: Unit 1 of the colour-coded Storybook & Chapter 3 in Besanko?s text. Diary Note: Also there will be an E-tutorial on the Assignment.
The Assignment Question
Explain the strategic and economic aspects of managing the vertical chain of a company or an organisation. In your answer examine the make-buy dilemma, agency costs and the relevance of incomplete contracts.
Approach: Brief essay narrative style, arguing the main salient points. You may use your own company, or a company that you are familiar with or a hypothetical case.
Hint: Read the Chapter Summary at page 127 in Besanko?s textbook. Understand the transaction cost economics [TCE] concepts in Unit 1 – hold-up, opportunism, bounded rationality.
Objective of the Assignment
1. The objective is to understand the vertical boundaries a company or firm or organisation from the perspective of the vertical chain and the production process.
2. The focus of the Assignment is the vertical chain in the supply of products and services. The discussion on the vertical boundaries in Besanko?s Chapter 3 links into our discussion in Unit 1 of the colour-coded storybook and prepares us for the discussion of the game dimension at the Workshops (Units 3 and 4).
3. Firms can be described as a ?nexus of contracts? wherein management take the view that vertical integration is efficient for assuring input supply in an uncertain world. However coordination can be a problem in vertical chains so management need to obtain economies of scale and scope in production in order to be profitable and also need to understand the game dimension. Who are my competitors? Where is the competitive threat?
4. A critical task for management is to define the boundaries of the firm by determining what to make and what to buy, the make-buy dilemma. But management are also players in a game ? should they compete or should they co-operate with competitors? These points will be examined further at the Workshops in preparation for your group Workshop Assignment.
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