Economy document

Question 1

It is not a sufficient justification for the AstraZeneca to buy out Pfizer. It would be a violation of their contract which had detailed their terms of agreement and engagement. AstraZeneca should abide by their terms of engagement irrespective of the size of profit margin realized from the sale of a drug known as Nexium compared to Pfizer’s offer. AstraZeneca can only franchise Pfizer after the period of their initial contract expires.


Question 2


Grain elevator would help in cutting down the cost of labor needed to move many grain bags into the waiting trains through vertical integration which would greatly benefit the firm. The grain would, therefore, economize the distribution channel as well as the transportation cost.


It would result in the manufacturer saving on the production and distribution costs since he or she will manage to pass on the responsibility to the subsequent party instead of the distributor. It also helps the manufacturer to enhance the competitive advantage because he or she will increase the entire output and decrease product prices at the same time to attract a more significant number of customers.


An example of vertical integration is whereby a pharmaceutical company knows the customer base, the markets, loyal customers and production experience. The biotech firm applies its innovation by vertically integrating the firms in its same line of duty and also engages others which are in areas which it may be unavailable.


Question 3


Rent is the added earning achieved in excess after the opportunity cost is attained. IBM has received costs which are beyond the expected opportunity cost; therefore, this payment can be termed as rent collected from Samsung for the creation of individual ultra-dense chips which will be used in the android system. The assumption which can be made here is that chips demand is purely inelastic. It can also be assumed that the chips are only used for one function and their quality differs.


Yes, IBM was gaining quasi-rent for the provision of the ultra-dense chips which were specific to the android system. The assumption made were; the Samsung android chips’ demand was short-term, the chips were human-made gadgets and the that chips supply was inelastic.


Samsung held up IBM, and the reason is that IBM needed to come up with changes on the chips so that they incorporate all specifications as requested by Samsung. Contractually, IBM held up Samsung because Samsung  required new chips while launching the new Android devices, e.g., table


Question 4


I previously worked in a real estate organization as a sales representative. The organization is composed of the CEO, sales directors, and a team leader. It gave KPI for every month and the specific tasks carried out. My primary duty was presenting houses and selling them to customers at a profit for the organization.


Principal-agent issues come up when the market is in low demand for a given period of time, and the sales have no skills required for a particular job. The job entails understanding design, various district house marketing, banking knowledge, and communication skills. The director adopted performance-based incentives. The sales people could concentrate on the most promising clients.


The primary objective for monitoring daily sales was the sale of the houses to accrue profits for the company.


The critical element here was KPI for the individuals, their attitude towards the company, their performance within the company, how they performed every month and the evaluation of the customers on the sales.


It entails how the members help each other and how they can achieve results through teamwork.


It helps in reduction of the chances of agents acting on their own best interests instead of working on behalf of the organization and that of the principal.


It is useful in mitigation of hidden information and also in the empowerment of the team  performance-based incentives as well as the individual