MBA 5010 Week 4 Assignment (Rev 2)
The weekly assignments are intended to be completed individually. It is important in an online program that you pay careful attention to when it is and is not appropriate to work with peers. Misunderstandings can have significant consequences. By submitting this assignment, you are attesting that you completed this work without assistance from another current or former student of this class. Exceptions can be made for tutors, but only with prior consent from your instructor.
Your answer will be evaluated based on correctness, completeness, and clarity. Be attentive to your writing. You have until midnight CST Sunday to submit both parts of this assignment.
Part A (25 Points)
For each of the following activities, provide (mostly hypothetical) opportunity costs of that activity. Be as complete as possible. But remember, the opportunity isn’t everything that might have occurred otherwise, but rather the particular thing that might have occurred. Feel free to be creative, so long as you’re correct.
Example – Patrick attends his eight o’clock class.
To attend class, Patrick must forgo some badly needed sleep. He stayed out late with friends last night and so will be groggy the rest of the day. This is particularly unfortunate since he has a literature exam at 11am. And so, his opportunity costs are the foregone sleep and a better grade on the exam.
Question 1 – Pepsi-Cola begins bottling and distributing kombucha.
Question 2 – Rihanna decides to pursue her MBA at Webster.
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Big Joe’s is a regional chain of pizzerias. They are best known for their Jumbo Veggie-Max Pizza.
Question 3 – Create a list of five hypothetical Big Joe’s customers and for each provide a hypothetical reservation price. The reservations prices should range from $5 to $30. Assuming the actual price of the pizza is $15, calculate consumer surplus. What is the level of sales?
Question 4 – Big Joe decides to celebrate his business anniversary by giving these customers a free pizza. What happened to consumer surplus?
Question 5 – Finally, is Big Joe “creating value” at the original price of $15? You’ll have to make some assumptions to answer this. Include these and your reasoning in your response. Limit yourself to 500 words, though fewer will suffice.
Part B (25 points)
This week you are to complete a FINAL response to the following. The class will be divided into groups so you and your peers may collaborate on Part B of this assignment. This final response will be evaluated on content as well as completeness and clarity.
Consider if there should be a market for organs -specifically kidneys. In the United States, it illegal to sell kidneys.
Explain how this is in essence like the government has imposed a price ceiling of zero on the market for kidneys, thus creating a shortage.
Discuss how a free market for organs such as kidneys might result in benefits.
What value might be created from a free market for kidneys. Specifically discuss how sellers might be better off and how buyers might be better off.
Would this lead to an efficient allocation of resources?
Are there any other issues to consider if there was a free market for kidneys such as fairness.(e.g., would only those most willing and able to pay for a kidney be the ones that benefit).
Expert Solution Preview
Introduction: In this assignment, we are required to answer questions related to opportunity costs, consumer surplus, and the hypothetical scenario of a free market for organs, specifically kidneys.
Answer 1: The opportunity cost of Pepsi-Cola beginning to bottle and distribute kombucha is that they will have to allocate resources such as time, money, and manpower towards this new venture. This may mean that they have to forego or delay promoting their other products or investing in research and development for new products in the pipeline.
Answer 2: Rihanna pursuing her MBA at Webster would also have an opportunity cost. She will have to allocate time and resources towards her education, which may mean that she has to forego or reduce her focus on her music career. This may lead to a decrease in her output of music or an increase in the time taken to produce new music.
Assuming the actual price of the pizza is $15, the consumer surplus would be calculated as follows:
– Person 1: Consumer surplus = $25 – $15 = $10
– Person 2: Consumer surplus = $20 – $15 = $5
– Person 3: Consumer surplus = $15 – $15 = $0
– Person 4: Consumer surplus = $10 – $15 = -$5 (no surplus)
– Person 5: Consumer surplus = $5 – $15 = -$10 (no surplus)
The level of sales would depend on the quantity of pizzas sold and the number of customers who are willing to pay the actual price of $15.
Answer 4: If Big Joe decides to give away free pizzas to his customers, consumer surplus will increase as buyers will now receive the pizza for free. However, this may lead to an increase in demand and overload the business, which may lead to a potential decrease in quality.
Answer 5: At the original price of $15, Big Joe may not be creating value as consumer surplus is low for some customers. However, if Big Joe were to offer deals or promotions, it may increase consumer surplus and hence create value for customers. Furthermore, if Big Joe were to invest in research and development, he may be able to diversify his product offerings and create value for himself and his customers. A free market will allow the supply and demand to determine the market price for the pizza, hence creating value in a different way. However, there are concerns about fairness and the potential for only those most willing and able to pay to benefit, leading to an inefficient allocation of resources. Additionally, there may be ethical concerns surrounding a free market for organs, specifically kidneys, and the exploitation of vulnerable individuals who may feel compelled to sell their organs for financial gain.