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BUS 640 Week 5 Assignment

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Week 5 Assignment
BUS 640 Managerial Economics
Ashford University
January 2014

Week 5 Assignment
Problem 1:
Jessica Alba, a famous actress, starts the baby and family products business, The Honest Company, with Christopher Gavigan. Alba and Gavigan set up their site so families can choose what kinds of non-toxic, all-natural products they would like to use and get them in a bundle. Families can choose all kinds of products from food to hygiene necessities and cleaning supplies. They are thinking of expanding their business into five domestic markets: Phoenix, Dallas, Chicago, New York, and Atlanta. Their primary goal of business is to maximize economic profits, although they want to do business honestly.
a.) The …show more content…

You expect three other firms to also bid on this contract, and you have assembled the following competitor intelligence about those companies.
Issue
Rival A
Rival B
Rival C
Capacity Utilization
At full capacity
Moderate
Very low
Goodwill considerations
Very concerned
Moderately concerned
Not concerned
Production facilities
Small & inefficient plant
Medium & efficient plant
Large & very efficient plant
Previous bidding history
Incremental cost plus 35-50%
Full cost plus 8-12 %
Full cost plus 10-15%
Cost structure
Incremental cost exceeds yours by about 10 %
Similar cost structure as yours
Incremental cost 20% lower but full costs are similar to yours
Aesthetic factors
Does not like winter jobs or dirty jobs
Does not like messy or inconvenient jobs
Likes projects where it can shows its creativity
Political factors
Decision maker is a relative of the buyer
Decision maker is seeking a new job
Decision maker is looking for a promotion

a). “The incremental costs of the contract are all those costs, expressed in present value terms, that are incurred as a result of winning and completing the contract.” (Douglas, 2012). The price that I would bid if I must have the project is 428,800.
Incremental cost 268,000.00 * (1+.60) = 428,800.00
b). “If the firm's objective is to maximize its net present worth, the optimal bid price will be the price that maximizes the expected present value of contribution

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