Economics Of Organization And Management

Question: ExplainEconomics Of Organization And Management. Answer: 1a. Lincoln electric started awarding bonus since 1934. The board of directors determined the amount to be awarded as bonus to the workers. It was a merit based bonus system. It was done to boost productivity of the workers. It varied between 78% to 128% of wages. But in the past years it dropped to 40% to 50%. The rating was based on a scale of 100. People scoring more than 100 were reviewed by vice president or corporate committee. They used the piece work system. It is decided by the contribution of workers towards the company. 1b. Initially scientists were only appreciated for their new inventions. But after the merger with Smithkline Beecham, a system called Centre of Excellence for Drug Discovery (CEDD) was introduced. It had six categories. Each CEDD would be led by senior vice president. High quality powerful drugs production providing leads through POC by scientist were the yardstick for bonuses. Scientists had to select people who had expertise or other organization which had license. The main aim for awarding bonuses was creating new drugs which were powerful high in quality. 1c. Lincoln electric had a more inspiring bonus scheme for the workers. One who reported theft was awarded $ 1000.GSK on the contrary, only appreciated scientists for their discoveries initially. Their system for bonus is stricter. 2a.) If Abby chooses work, Bill will choose work because 43. Again if Abby chooses shirk, Bill chooses shirk, since, 21. Abbey chooses work shirk since 43. 2b.) Regardless of what Abbey chooses, Billy will choose shirk. This is his dominant strategy. Both will choose shirk. 2c.) The Nash equilibrium is (2, 2) 2d.) The Pareto efficiency is (Shirk, Shirk). No player has higher pay-off. Wal-mart dominates in retailing can be seen from the following perspectives: Mapping the correct geographics- Establishing stores in small cities towns where big retailers did not have their stores. Cost effectiveness-Keeping overhead low. They tracked competitors price. Workforce who is flexible- The Wal-mart employees are called associates. Workers managers are partners. By the method of cross training, employees could work in more than one department. It shared its profits with the employees IT savvy- Mr. Walton nullified the wholesale system introduced JIT (just in time) inventory method.JIT used real time flow of information from the stores to the suppliers location. Bar codes were used. Computers were used to track store inventory. Electronic data interchange was used. Introduced frozen truck concept. Customer satisfaction- They give 5-10% less as compared to competitors. The traffic of customer is more due to low price scheme. Wal-martlaunched their first mail subscription service called Goodies for customers. Wal-mart mainly targets: Wealthy shoppers called price sensitive affluents People paying only low price who cannot afford more are called value price shoppers LIG people but are obsessed with brand are called brand aspirationals Collaboration/partnership with Sellers- Micro merchandizing was used to increase sales. They built extra net for their suppliers. The suppliers have yearly sales target. Global ambition- They were ambitious to achieve the numero uno position in retailing. Social cause- Initially they did not believe in charity but after 2005 they started donating. They donated $20 million cash merchandise for hurricane Katrina. Each year Wal-mart donates $1 billion to people. 4. Melvin Gordon has total income of $2.5 million. Now, let us assume the Px (price) of good x (cash salary) is $100,000 and Py (price) of good y (prerequisites) is $50,000. So, he can spend ($2.5 million/$25) or spend ($2.5 million/$50) for Good x good y respectively. The combination of two goods on the budget constraint is affordable for Melvin. Also any combination of the two goods beneath the budget constraint is also affordable for Melvin. But the combinations that are farther from the origin are unaffordable by Melvin. Thus, Income, M = PXQX+PYQY. Here, PX=price of good x, PY= price of good y, QX=quantity of good x, QY=quantity of good y. The equation of budget constraint is PXQX+PYQY=M (where M= money or income) QX= (M-PYQY)/PX QY= (M-PXQX)/PY From the above figure, AB= budget constraint. Slope of budget constraint is OA/OB (i.e. negative ratio of the prices of the two goods) (M/PY)/ (M/PX) = (M/PY) (PX/M) =PX/PY The price of good x is $ and that of good y is $. With the given budget constraint combination of goods, he can maximize his utility when his budget constraint is tangent to indifference curve (measuring utility). Now, the slope of indifference curve is ratio of marginal utilities (-MUXMUY) =slope of budget constraint (-PX/PY) Utility maximization is (-MUX/MY)= (PX/PY) Or, (MUX/PX) = (MUY/PY) The indifference curve should be tangent to the budget constraint, the slope of the indifference curve which is the ratio of marginal utilities (-MUx / Muy= slope of the budget constraint (- Price x / Price y). The figure below shows that IC is tangent to BL at point E.Thus, E is the equilibrium point where he can get OC of good x and OD of good y. Due to regulatory measures upon ingredients, Independence Burgers should first of all bring about a change in their menu offerings. They should change their ingredients to chicken or mutton. They should target vegetarians by introducing vegetable burgers. Opening outlets in areas where there is no other fast food joints can boost their business. A low price at the initial stage would attract customers. They should advertise with a catchy tagline as beef it up! They should make corrective measures for their package design, price, and offer money back guarantee. They should set up an assembly line so that burgers can be delivered soon. They should introduce home delivery system. They can gradually start restaurant business offering combo packs with free hot/cold beverages. Festive offers discounts should be introduced.