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1. The Size of the Closed City

Since each square block contains 15,000 square feet of housing and each apartment has 1500 square feet, each square block of the city has 10 households living on it. As a result, a city with a radius of x* blocks can accommodate 10x*2 households (x*2 is the area of the city in square blocks). Suppose the city has a population of 250,000 households. How big must its radius be in order to fit this population? Use a calculator and round off to the nearest block.

2. Housing Prices at the Periphery of the Closed City

Recall that the zoning law says that each developed block must contain 15,000 square feet of floor space. Suppose that the annualized cost of the building materials needed to construct this much housing is $75,000. [Note: $75,000 = iK, where K is the capital needed to build 15,000 square feet of floor space. If i= 5%, then K = $75,000/.05 = $1,500,000.] The annual profit per square block for the housing developer is equal to 15000p-75000-r, where r is land rent per square block. In equilibrium profit for the developer is just equal to zero everywhere. In the absence of any other activities, land rent at x* (call it r*) is just equal to zero. What is the value of p at x*? Call this p*.

3. The Closed City's Corn Consumption Level

Using your results from above, suppose that income per household equals y=$25,000 per year. Next suppose that the commuting cost parameter t equals $10 per block. This means that a person living ten bocks from the CBD will spend 10*10=$100 per year getting to work. The consumers' utility functions are all U(c, q), where c is the quantity of bread (at $1 per loaf) consumed by the household and q is the quantity of housing per household, i.e. 1500 sq. ft. The consumers' budget constraints are all c+pq=y-tx. Under our special assumptions this reduces to c+1500p=25000-10x. Given that a household at x* faces a budget constraint, c+1500p*=25000-10x*, what is the value of c at x*? Call this c*. Explain why in equilibrium every household, regardless of location, must be consuming c*. Notice that since q is the same throughout the city, to have an equilibrium in which U is the same throughout the city, c must be the same throughout the city and everywhere equal to c*

4. The Closed City's Housing Price Function

Substituting the value of c* in place of c into the budget constraint c+1500p=25000-10x solve for p in terms of x. The solution tells what the price per square foot must be at a given location for the household to be able to afford exactly c* worth of bread. This is the city's housing price curve. How does p vary with location?

5. The Closed City's Land Rent Function

Substitute the function for p you just calculated in (4) into the zero-profit constraint for developers: 0=15000p-75000-r. Now solve for r in terms of x. What is the rent per square block at the CBD (x=0)? Plot the bid rent function for land in the city.

Scenario You own a bakery caf which has been successful ior the last 10 years. You have opened 3 branches in the Sydney metropolitan area. As your business gained a great reputation in the market, there were several approaches for franchise inquiries. However, you are concerned that the quality of products and services may be affected; therefore, you have decided not to consider the franchise option. Considering your business objective (to increase sales) and intense competition in the industry, you are looking for collaborative alliances with potential collaborators. As the current production capacity can meet up to 7 times greater than the current sales volume, you will need to find an appropriate collaborator to boost up your sales. The business has the following objectives for business expansion or sales increase:

The quality of the products must be managed and produced under the main branch supervision.

The products are in very high demand as the customers are satisfied with the quality.

The product know-how must be treated as intellectual property and is not an option to share.

The business considers collaborative alliances to expand its business. The partner business must meet the following selection criteria determined by the business:

- The partner business must have a good market reputation.

- The partner business has an annual turnover of at least $2 million.

- The partner business must be able to accelerate your business sales.

- The partner business must be able to support training for collaborative works.

- The partner business must have appropriate communication channels for collaborative alliances.

Question 1: (PC 1.1, PE 1, 2, KE 5)

a. Identify at least two opportunities for collaborative alliances (strategic alliance) and explain how the business can increase sales according to the organisational objectives.

b. Evaluate each opportunity identified in Question 1 for collaborative alliances.

Question 2: (KE 1)

List methods to identify and evaluate potential collaborators.

Question 3: (PC 1.2, PE 1, 2, 4, KE 5)

a. Based on your evaluation of opportunities for collaborative alliances in Question 1, which collaborator (out of your 2 suggestions) will you recommend? Provide your reasons.

b. Based on your recommendation in Part (a), evaluate the following companies according to the organisational policies and select the most appropriate collaborator with your reason.

Annual turnover A$ 10 million A$ 5 million

Training facilities Available Not Available

Communication channel Headquarters and branches Only headquarters

Question 4: (PC 1.3)

Developing relationships with the identified collaborators is important. Explain how you will initiate and develop a relationship with them.

Question 5: (PC 2.1) The partner business for the collaborative alliance has provided you with the following information:

The partner business requests to share the customer data.

The partner business requests to share the profits and a 50/50 partnership agreement.

The partner business wants to have training for baking products.

The partner business wants to learn how to operate a bakery and caf. Required: Analyse the partner's request for the collaborative alliance. Explain which requests can be accepted and which requests cannot be accepted. Provide your reasons.

Question 6: (PC 2.1, KE 3, 4)

You are required to negotiate with the partner about the requests provided in Question 5 and draw up an agreement.

a. Explain which options must be negotiated.

b. During the negotiation, list appropriate communication skills for effective negotiation.

c. Explain the steps in documenting the agreement for the collaborative alliance.

Question 7: (PC 2.2, PE 3, KE 7)

Once the agreement is finalised and is signed by both parties, explain why you should review the formal agreement once it is operating.

The Hurricane Sandy case focuses on understanding how markets work, supply and demand, market equilibrium and the role of prices as a coordination mechanism. To this end, the authors use the aftermath of the hurricane that hit New York and New Jersey in 2012, and in particular the gas shortages that caused long lines and frayed tempers. Hurricane Sandy interrupted gas supplies, resulting in many stations around the city shutting down when their supply ran out. New Yorkers became increasingly desperate to get hold of gas for a variety of reasons: to commute to work, to visit relatives in other areas of town or to power generators for those who had lost power. New York and New Jersey both have laws prohibiting price gouging, but as the shortage stretched on gas was being sold on Craigslist at many times its pre-hurricane price. Essentially, the government response to the gas shortage created a black market. Once the situation was resolved and prices had returned to normal, the two states began issuing fines to gas stations and hotels that had overcharged customers during the crisis, and Craigslist was subpoenaed for further information. Yet, from an economic point of view, the shortage was a clear- cut case of supply problems. With that in mind, perhaps the government, rather than everyday citizens, should have acted differently. Questions (50 points) 1. Is the gas shortage in the Hurricane Sandy case primarily limited to an issue of supply, or demand, or both? Use the supply or demand or both graphs to justify your answer. 2. Who is affected by the hurricane? Give few examples (not more than 4) and explain how each is affected. 3. What are some ways of dealing with the shortage problem? Did the policies achieve their intended goal? 4. Discuss why the measures used to deal with the shortage problem may exacerbate the crisis rather than solving it. In order words, what are the unintended consequences of remedying the gas shortage. 5. Comment how the market forces of supply and demand can be applied to analyze other similar issues like rice shortage in Malaysia, or rent controls in large cities like NYC or LA and the policy responses to solve them.