What lessons could you draw from the experience of Shell in its Sakhalin Project as it specifically relates to managing government relationships? As an IOC (International Oil Company)? As an NOC (National Oil Company)?

1. Show whether each of the following production functions exhibit increasing, decreasing or constant returns to scale.

1. Q = 0.5KL                                                                                                             [2.5 Marks]
2. Q = 2K + 3L                                                                                                           [2.5 Marks]

2. A firm has the following production function

                                  Q = 2(XY) ^0.5

Where, X is maize and Y is rice. The cost of maize is K10 and the cost of rice Is K40. The firm has a budget of K80 to spend on the two goods.

1. Formulate the firms’ optimization problem.                                                             [5 Marks]
2. Compute the optimal input combination of good X and Y.                                    [5 Marks]
3. What level of output is associated with the optimal input combination?                  [3 Marks]

What is the impact of a K1 increase in the budget?                                               

The market for wheat is supplied by a large number of small price taking firms. a) Suppose there is only one large buyer (a Monopsony). How will the price, quantity, PS, and CS differ from the case of a perfectly competitive market? b) Suppose that the majority of wheat is used by firms that produce bread. How will the wheat market be affected if the local bread market is supplied by a Monopoly. c) How would the market for wheat be affected if the government placed a price ceiling in the market for bread.

1) Consider the following, all of which will affect the demand for pounds on foreign exchange markets or the supply of pounds on foreign exchange markets (either one or the other – never both)

State what the effect of each of them will be (will it increase it or reduce it?)

Say whether the transaction will be recorded on the Current Account or the Capital Account of the Balance of Payments.

a) There is an increase in demand in Britain for Renault motor cars
b) French consumers start to buy British beef again.
c) LEB (the London Electricity Board) is purchased by EDF (Electricité de France)
d) Large numbers of Russian students come to Britain to study.
e) EDF pays a large dividend to shareholders. Some shares in EDF are owned by a British pension fund.

2) Explain the effect on the business sector of the economy of a rise in the exchange rate for the country’s currency.

3) A substantial fall in the price of the pound in foreign currencies (e.g., the price of the pound in euros) could be expected to affect physical quantities of exports from the UK and imports into the UK as follows:

(a)    Increase both export and imports.
(b)   Increase exports, decrease imports.
(c)    Decrease both exports and exports
(d)   Decrease exports, increase imports.
(e)   Have no perceptible effect on either imports or exports.

Describe Cartier current Organization structure ?

Firm X operates in a perfectly competitive market. It is making a supernormal profit in the short-run. Explain clearly and logically what will happen to this firm in the long run. You will need to use a diagram.

Picture yourself as a corporate president who is about to decide on making a foreign direct investment. What questions should you ask yourself?

3. (a) Draw the market for SUVs in equilibrium. Label your graph neatly and correctly.

(b) Now show what happens in the market when the price of gas falls dramatically and the technology used to manufacture SUVs improves, if the drop in gas has a much bigger impact on the market than the technology improvement.

( c) What will happen to the new equilibrium price and quantity of SUVs?

4. Draw three different supply curves on a graph:

1. Make S1 highly elastic
2. Make S2 highly inelastic
3. Make S3 perfectly inelastic
4. Which supply curve is the supply curve for Vincent van Gogh’s masterpiece, “A Starry Night”?
5. Which supply curve is for an ice cream manufacturer?
6. Which supply Curve if for an airplane manufacturer?

1. Which type of firm would you rather work for? One who lays people off, or one that cuts everyone’s hours? Why? Think about the tradeoffs involved. Please use marginal analysis in your reasoning, and back up any claims you make with some documentation.

2. If a law was passed that required all firms to cut hours instead of lay people off, so that everybody was guaranteed a job and only hours worked fluctuated (instead of experiencing joblessness), what do you think the economic consequences would be? Specifically;

* Do you have any thoughts on how (and why) this might affect the duration and severity of recessions?

* What do you think the long-term implications on the health of the economy would be? Think about what effect this policy would have on workers’ effort level, and therefore productivity over time.

* Finally, would this sort of policy cause any other social problems or issues?

what share of M1 money is actual currency?

5. When priced at $425, 10,000 robot vacuums are demanded, and at $475, 8750 are demanded.

1. What is the price elasticity of demand for robot vacuums?
2. Assuming manufacturing costs are about the same per vacuum from 5,000 to 10,000 units sold, should the firm sell the product at the lower or the higher price to maximize revenues?

1. When Susan makes $45,000 a year, she is ready to purchase 200 hotdogs a year. When her income climbs to $60,000 a year, she would purchase 180 hotdogs a year.

1. Which elasticity would you use to measure the change in Susan’s consumption behavior?
2. Calculate the appropriate elasticity that you identified in part (a)?
3. Based on your answer in Part (b), what can you say about the type of good that hotdogs are for Susan?

1. In a 2006 blog entry titled The Secret Tesla Motors Master Plan, Elon Musk outlined his company’s vision and strategy for the electric vehicle industry. His vision was stated as “to help expedite the move from a mine-and-burn hydrocarbon economy towards a solar electric economy” in order to create a sustainable future. His Secret Master Plan to reach this overarching goal had four steps:

Build a sports car

Use that money to build an affordable car

Use that money to build an even more affordable car

While doing above, also provide zero emission electric power generation options

Do you think Tesla has a winning strategy? Discuss, using the 3 tests provided for a winning strategy (you can use the tests I provided, or the tests given by the textbook). Clearly state your reasoning. What information would you need to have in order to answer that question?

Inditex's Business Model

Most fashion companies have their clothes manufactured in China. This provides low cost manufacturing but at the expense of flexibility. Managing a distant supply chain creates an inherent problem. By the time finished clothes are on route from your supplier, the prevailing fashion may have changed. The clothes you place in your retail store can end up looking decidedly out of fashion. Most clothing retailers are forced to continue with plans they developed more than six months in advance. Their clothes are usually made and sent out to stores via a centrally controlled system. This permits only slight local changes and most stores receive similar stock.

At Inditex, every store receives a tailored assortment, right down to the number of T-shirts, delivered twice a week. Just over half the stock will be designed and manufactured less than a month before it hits the store. Prices can vary considerably between countries. Shoppers in Spain, Portugal, and Greece can buy the clothes much as thirty per cent cheaper than elsewhere in Europe or overseas markets such as China or the US. As one director at Inditex put it, “company is global, but we shape everything in a very exclusive way to individualise it and shape the store to the customer's needs.”

Part of Inditex's business model is a reliance on communication and collaboration. The store's stock is developed in partnership between designers, country managers based at the brands' HQs, and the local store. This level of collaboration allows everyone to feedback ideas about what customers want and don’t want. The business is configured in a way that allows decisions to be made from the bottom to the top, not just in the stores, but throughout the supply chain. Just over half of Inditex's product is only ever produced in relatively small amounts; even if something is incredibly successful, it will never be reproduced exactly again. Designers find versatile fabrics that can easily work as well in a skirt as a jacket to help facilitate Inditex's flexible approach.

Unlike other clothing manufacturers, Inditex does not advertise. Its avoidance of advertising is party driven by its manufacturing model, which relies on constantly changing its garments. This precludes placing advertisements in magazines or billboards which require a lead time of weeks or month. However, website can be updated every day, reflecting real-time changes. Instead, it relies upon smart locations and regularly updating the look of its stores. It is one of the main areas of capital expenditure for Inditex, with 300 to 400 stores a year to renovate. While competing clothing retailers struggled, Inditex reported a ten per cent rise in sales in 2016, after it had invested €1.4 billion in its warehouses, technology, new stores, and online expansion.

As part of the decision-making process for the Zara brand managers, for each country monitor computer screens at headquarters filled with sales data and talk to store managers or regional directors by phone. Managers are helped by computer algorithms, developed in partnership with Massachusetts Institute of Technology. The use of computer technology helps Zara to get the right mix of sizes for stores. Although managers are guided by these automatic suggestions, they have autonomy to adjust everything manually, according to local feedback and market knowledge.

Over ninety-five per cent of Zara's collections are sold internationally. That said, there are still regional differences. For example, Zara's clothes in Germany tend to be a bit sporty; in Russia, they might wear a pencil skirt with high heels, but in the UK it would be worn with a brogue. At the same time, as different stores around the world are selling similar fashions, Zara stores around the corner from each other might be selling different items of clothing. It's all dictated by their shoppers. Staff at head office can make adjustments for products in as little as three weeks in advance, using production in or close to Europe; primarily Turkey, Spain, and Portugal.

At headquarters in Arteixo, there are eleven factories owned by Inditex producing goods for the Zara brand. Inditex's capability lies in skilled jobs, such as cutting out garment pieces, clothing design, and logistics; all of which it keeps in-house. It owns just two or three per cent of its manufacturing capacity. The sewing of fabric pieces is undertaken by more than 100 nearby partner factories that make pieces sent from the Inditex-owned factories into finished clothes.

Many have referred to this as 'fast fashion'. Executives at Inditex insists: 'It's not fast, it's more accurate. What's fast is the logistics, and the moment of creation must be close to what customers are saying. To be quick is easy. But that is not our model. Everything we do is trying to think inside the skin of the customer. It's more expensive, but you get more loyalty from the customers and more flexibility, more accuracy.

Another of Inditex's capabilities is its distribution system. In Arteixo, all Inditex's factories are linked to its distribution centre by tunnels and a 200-km network of ceiling rails on which 50,000 garments a week from each factory flow around on hangers. Basic items of clothing made in Asia are gathered in Spain, before being sorted for individual stores. The model may be under some pressure since Asia overtook Spain as the biggest source of sales. Routing all its products to a small town in Spain to be sorted, may require changing this to a small town in China. Inditex's Business model appears quite straightforward; which begs the question—why has it not been successfully copied?

The Questions

1. What type of international strategy would you say Inditex is following? Justify your answer.
2. What is Zara’s business strategy? Explain.
3. How is the international strategy of Inditex related to the business strategy of Zara? Explain.
4. Why is it that no other fashion retailer can match Zara's performance?

Explain why aggregate supply is a central feature of macro economics.