You are the purchasing manager of a company and are responsible for ensuring that necessary inputs are available to keep your factory operating

Question 1: You are the purchasing manager of a company and are responsible for ensuring that necessary inputs are available to keep your factory operating. For each of the three types of purchases identified below, recommend whether your company should use spot purchases, contract purchase, or internal production. Support your answer using economic concepts from this course. To what extent is your decision and any contract terms affected by the variability in the demand for your product and thus your need for the product purchased?

a. A subsystem that is similar to but not exactly the same as subsystems used by competitors; several large companies offer to make modifications to the subsystem to fit your requirements.

b. A part that is unique to your company and requires significant capital investment in order to produce. Your company is the only one using this part but several vendors have offered to manufacture it for you.

c. Light fixtures and light bulbs used to illuminate the factory floor.

Question 2: Discuss each of the pricing strategies below. What conditions are necessary to make each strategy successful in terms of increasing profits? Explain your answer.

a. A local restaurant/bar offers discounted drinks during “happy hour,” from 5 to 6 PM on weeknights.

b. The price Company X charges for its ink cartridges is nearly as much as it charges for a printer.

c. Packs of 5 T-shirts cost $10 while an individual T-shirt costs $4.

d. Coupons for specials at a local grocery store can be downloaded from an online site.

e. Computer and appliance manufacturers promote service contracts.

f. Microsoft Office includes several programs in one package.

Question 3: You hire a contractor to remodel your house. Identify three potential areas where asymmetric information and the principal-agent problem may be present. What are ways to mitigate the problems? Do you think having local government representatives inspect remodeling and building activities helps to reduce any of the problems? Explain your answers

Question 4: Explain how incomplete information can cause market failure. Give at least one example of this type of market failure and explain how government intervention has been used to correct the problem. How effective has this form of intervention been? Use the material from this course to support your answer

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