Project 1: Applied Economics for Managers

Step 1: Complete Skills Gap Analysis

As you're about to get started on your assignment, the Human Resources department at MCS sends you an email with an attachment requesting that you complete a self-evaluation of your skills.

INBOX (1 NEW EMAIL)

From: Jennifer Craylin, Human Resources Generalist

To: You

I hope this email finds you well, and that you are settled in at Maryland Creative Solutions. It is Human Resource policy to request your completion of a performance self-evaluation. Please use the attached skills gap analysis file to self-evaluate your work-related knowledge and skills before beginning work on your assigned projects.

The skills gap analysis will help you identify the skill areas you want to enhance. You will be completing another self-evaluation in Project 5 to measure the gains in competencies you have developed through working with MCS.

Complete your preliminary skills gap analysis by the end of Week 1. Carefully follow the instructions below:

Use the attached skills gap analysis file to self-evaluate your course-related knowledge and skills before beginning your work with MCS. Use the Week 1 worksheet to complete this step.

From each major category, select a gap you would like to work on reducing during the next 10 weeks to help you achieve your long-term career goals.

Decide what activities you will engage in to acquire the knowledge and hone the skills you have identified. Think creatively, and consider all appropriate resources, such as conferences, books, free online classes, mentorship, coaching, observation, professional associations and groups, networking, volunteering, and journaling.

In the text box provided in the skills gap analysis file, include a summary of no more than 200 words describing the gaps you will work to reduce and the activities you will pursue to do so.

Submit your updated skills gap analysis to the submission folder located in the final step of this project.

Thank you,

Jennifer

Step 2: Analyze a Supply and Demand Graph

For the first assignment, Frank has given you data to analyze anillustrative supply and demand graph for the production of crude oil in the world.In order to analyze the graph, you will need to understand demand, supply, and the demand curve and utility. You should also be able to identify the point of equilibrium. The graph isuseful to understand how prices are set for crude oil on a minute-by-minute basis in world commodity markets.

Frank has passed along some data he has gathered to help you analyze a supply and demand graph for the oil and gas industry.View Frank's data and read the instructions on the Supply and Demand Graph worksheet of the Project 1 Excel Workbook, which you will access below. You will use different sheets from this workbook in the subsequent steps of this project.

To helpyou build a basic understanding, you must determine what economic model best describes the oil and gas industry. There are three basic economic models, and none fits the oil and gas industry perfectly. Is this industry in perfect competition? Is it an oligopoly? Or a monopoly? In order to make this determination, read about perfect competition, oligopoly, and monopoly. You should also read competition production and pricing decisions, monopoly production and pricing decisions, and price discrimination.

The key point in deciding on the economic model is the number of sellers.If there is only one seller, the industry is likely a monopoly.On the other hand, if there are five or less sellers, the industry is likely an oligopoly.Finally, if there are a dozen or more sellers, the industry is closer to perfect competition.

Here is an illustrated example of a supply and demand graph with the point of equilibrium:

Equilibrium Price of Coffee

When we combine the demand and supply curves for a good in a single graph, the point at which they intersect identifies the equilibrium price and equilibrium quantity. Here, the equilibrium price is $6 per pound. Consumers demand, and suppliers supply, 25 million pounds of coffee per month at this price.

Source:Demand, Supply, and Equilibriumis licensed underCC BY-NC-SA 4.0.

When you have finished this step during Week 1 of the course, post the Project 1 Excel Workbookto the submission folder located in the final step of this project.

When you have completed Step 2, proceed to Step 3, where you will examine costs, pricing, elasticity, and the production function.

Step 3: Analyze Cost, Pricing, Elasticity, and the Production Function

In your second week on the job, you're beginning to realize the responsibilities and complexities of your job, and you're glad to have analyzed the supply and demand graph you created. As you come into work, you see a voicemail from flashing on your office phoneit's Frank:

Voicemail from Frank

"Good morning. I just wanted to say you really did a great job developing that supply and demand data.Now that you have some understanding of the industry, I would like you to apply the concepts ofelasticity of demandto help one of Exxon's franchisee gas station owners. Eventhough each gas station owner has unlimited supply, please also review theelasticity of supply.

"Exxon is concerned about a franchisee store in Fitzhugh, Maryland. The owner is having trouble maintaining profits while managing price changes. They'd like MCS to offer advice on price adjustments for that franchise to acheive maximum profit.

"I'll provide with data that describes the gas station franchise operations and competition. You can find this data in the Profit Maximization worksheet of the Project 1 Excel Workbook you used in the last assignment (Step 2). Complete the tables in the worksheet and answer the client's questions.

"The tables in the worksheet show the quantity and price of oil sold by the franchisee.First you will need to calculate the elasticity of supply; the total revenue, total cost and profits at several levels of price and gallons sold (demand). Economists point out that maximum profit is achieved when Marginal Cost equals Marginal Revenue. Hence, you will need to solve for:

marginal cost (MC)

total revenue (TR) and marginal revenue (MR)

profit

To complete your calculations, it is important for you to understandaverage total cost,opportunity costand theprofit maximization formula.

Step 4: Discuss World Oil Price Movements

The days are passing quickly now. Week 2 starts slow, but an email from Maryland Creative Solutions' Managing Director, Elisa Izuki, changes the pace.

INBOX (1 NEW EMAIL)

From: Elisa Izuki, Managing Director

To: You and Frank Marinara, MCS Senior Partner Finance

Good afternoon,

I am requesting your attendance at the upcoming junior partner meeting. The primary objective of this meeting is to discuss the concerns held by ExxonMobil about world oil prices. Based on your analysis last week of the oil and gas industry's economic model, I'd like you to contribute your insights to the project meeting. Looking forward to having a productive and informative working session.

Sincerely,

Elisa

This is a good moment for you, as you are the only employee in the meeting that is not at the executive level. This is your time to shine!

As the meeting approaches, Frank briefs you on the key points of discussion:

Exxon has been concerned about developments in the world supply of crude oil. Both Venezuela and Iran have very significant proven oil reserves. Both countries are under sanctions from the US to restrict or prevent them from selling oil.

To put things into perspective, the world production of crude oil is just over 100 million barrels per day. The U.S. produces about 12 million barrels and all of OPEC about 30 million barrels. As of early 2019, Venezuela produces just over 1 million barrels down from a peak of 6 million barrels. Iran also produces over 1 million barrels.

Both Venezuela and Iran need the "hard currency" that comes from the sale of crude oil and refined products.

Russia and China have the technology and expertise to help these countries expand their production and sale of oil.However, Russia relies on the sale of its own oil and gas as a main source of income and has an incentive to avoid the decline of oil prices when Venezuela increases production.

MCS has been tasked by ExxonMobil with looking at new research into the world price of oil. Find one current article about the price of crude oil and post it in the discussion.Discuss the likely price movements of oil over the next few weeks. What are the analyst's main concerns? Please provide a link to any sources that you use.

Before you participate in the discussion activity, seeMBA discussion guidelines.

Step 5: Prepare Executive Summary

Your busy second week on the job isn't over yet. After a busy morning of ad hoc team meetings, you're greeted in your office with a phone call from Frank.

Phone Call from Frank

"Hi again. I've got news about our client.

"ExxonMobil is looking to send a report to all company franchised gasoline stations.I'm going to need an executive summary based on the analysis you've done for this client so far on Cal's Exxon.Also, thisexecutive summary, along with citations for any sources you use, should be about one page long.

"Thanks again!"

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