ConsulPlus hires out consultants in three distinct areas: Economics, Law, and Marketing. Although all three areas benefit from the ConsulPlus brand name, there is little interaction between them on a day-by-day basis. The three divisions rent out separate floors of a building and all their costs and revenues are independent of each other. Currently, economics has yearly revenues of 150 and yearly costs of 145, law has yearly revenues of 180 and yearly costs of 170 and marketing has yearly revenues of 100 and yearly costs of 90. This is the best that each division can do. On top of this, ConsulPlus incurs a yearly "coordination" cost of 20 from running its operations in a centralized manner.

1) What are ConsulPlus' yearly profits?

ConsulPlus has determined that there is actually no good reason for its centralized structure; it can do away with the coordinating cost by letting each division operate independently. The CEO believes that if each manager is evaluated based on the profitability of their own division, they will be properly incentivized and each division will continue to operate in the current optimal manner. Accordingly, ConsulPlus decentralizes. It turns out that the CEO's beliefs are correct; ConsulPlus now acts in a completely decentralized manner and its revenues and costs remain the same, except that it no longer incurs the coordinating cost.

2. What are ConsulPlus' yearly profits now?

The Economics division has proposed that ConsulPlus subscribe to a software system that all three divisions can use. The system has a fixed cost of 150/year and will enable each division to reduce its operating costs: Economics will save 70/year, Law will save 70/year, and Marketing will save 20/year. While each independent division knows how much the system will reduce its costs, the CEO will only be able to tell after the system is adopted - if it is adopted.

3. Is it in ConsulPlus' interest that the system be acquired?

a. Yes, the system will save ConsulPlus more money than it costs to acquire.

b. No, the system will cost ConsulPlus more money than it saves.

The software system can be acquired for all divisions to use or only for a subset. ConsulPlus has several proposals in mind. Given the decentralized nature of the company, the divisions involved will have to agree to any proposal. Each division seeks to maximize its own profits, independently of what happens to the other divisions.

4.Proposal A. All three divisions use the system. The cost of 150 is split equally among the three of them. Which of the three divisions will agree to this proposal?

a. Economics

b. Law

c. Marketing

d. None of them

5. ConsulPlus needs all three of them to agree for the proposal to pass. Does Proposal A pass?

Yes

No

6.Proposal B. Only Economics and Law use the system. The cost of 150 is split equally among the two of them. Which of the two divisions will agree to this proposal?

a. Economics

b. Law

c. Neither of them

7. ConsulPlus needs both Economics and Law to agree for the proposal to pass and the system to be acquired. Does Proposal B pass?

a. Yes

b. No

8.Proposal C. All three divisions use the system. The cost is split among the three divisions in proportion to each division's cost savings. Thus Economics and Law each pay, while Marketing pays. Which of the threedivisions will agree to this proposal?

Group of answer choices

a. Economics

b. Law

c. Marketing

d. None of them

9. ConsulPlus needs all three of them to agree for the proposal to pass and the system to be acquired. Does Proposal C pass?

a. Yes

b. No

Let us add a wrinkle. If the software system is not acquired, Marketing will change its internal procedures. This change in procedure will cost Marketing 7 while saving Marketing 10, for a net gain of 3. (If the system is acquired, Marketing's savings are 20, as before).

10. Is it better for ConsulPlus that the software system be acquired or, instead, that the system not be acquired and Marketing make the change to its internal procedures?

a. ConsulPlus' profits will increase more if the system is acquired (and marketing does not make the change).

b. ConsulPlus' profits will increase more if the system is not acquired and, instead, marketing makes the change.

11.Proposal C'. The same as Proposal C: All three divisions use the new software system and the cost is split among the three divisions in proportion to each division's (direct) cost savings. Bearing in mind the new wrinkle, which of the following divisions will agree to this proposal?

a. Economics

b. Law

c. Marketing

d. None of them

12. ConsulPlus needs all three of them to agree for the proposal to pass and the system to be acquired. Does Proposal C' pass?

Group of answer choices

a. Yes

b. No