Question 1.

THE MARKET FOR POMEGRANATES Due to the importance of a healthy diet, the global market of food and drink products that promote health benefits has been expanding. The rising awareness of health food and drinks has driven relevant products with considerable growth. Because consumers are showing more interest in their health in both the short and long term, healthier foods such as exotic fruits are becoming more popular. A healthier diet can reduce the risk of diseases and obesity. Today's global functional food and drinks market is led by the United States and Japan. It is estimated that functional food and beverages make up 5 percent of the overall food market. Emerging markets including China and India are also embracing western lifestyles and attitudes toward health. The aging of the population is also playing its role in encouraging people to pay more attention to their health from a younger age. The rising attention to fruit and vegetable intake has fueled the growth of juice drinks, especially premium fruit juices. The pomegranate has taken off in the American market in recent years, even though it has been used as food, medicine, and a cultural icon for thousands of years in other parts of the world. The popularity of the fruit has exploded in the United States due to its high content of natural polyphenols, noted to be a powerful antioxidant. The medical acclaim it has obtained has been regarded as the biggest drive behind its success. Previous research indicates that polyphenols are powerful antioxidants that are useful in a variety of health problems, including premature aging, cardiovascular conditions, and certain types of cancer.

POM WONDERFUL VERSUS COCA-COLA POM Wonderful has secured a strong share of the market in the pomegranate beverage area. With the success of any product comes rival brands that attempt to steal market share. As a result, market leaders tend to be aggressive in protecting their market share and ensuring that competing brands are not competing unfairly. This resulted in POM Wonderful challenging promotional claims made by Coca-Cola's rival product, Minute Maid Pomegranate Blueberry Flavored Blend

In 2007 Coca-Cola introduced its pomegranate-blueberry juice blend sold through its Minute Maid division. However, despite its promotion of blueberry and pomegranate, 99.4 percent of the beverage consisted of apple and grape juices. POM Wonderful believed this was deceptive advertising and filed a lawsuit against Coca-Cola. The company claimed Coca-Cola's promotional claims violated the Lanham Act as the name, label, marketing, and advertising of Coca-Cola's juice blend misled consumers as to its actual content, thereby causing POM to lose sales. The case was dismissed by the Ninth U.S. Circuit Court of Appeals, claiming that these allegations were the domain of the Food and Drug Admin istration (FDA) and that competing firms are not authorized to sue one another for false labeling or advertising. POM Wonderful appealed, and the case went all the way to the Supreme Court. In 2014 the Supreme Court reversed the decision and decided that competitors can file Lanham Act claims dealing with false promotion on food or beverage labels. Despite this initial victory, a California jury later sided with Coca-Cola. It believed that POM had not proven that Coca-Cola's claims were misleading. In addition to its failed lawsuit against Coca-Cola, POM Wonderful suffered another blow when it was accused of false advertising by the FTC.

POM WONDERFUL VERSUS THE FTC On February 23, 2010, the FDA sent POM Wonderful a warning letter claiming that the firm was promoting its juice products in ways similar to drug promotion. For instance, between 2003 and 2010 POM Wonderful claimed that its pomegranate ingredients could help combat erectile dysfunction, prostate cancer, LDL cholesterol, and length and severity of colds, as well as promote a healthy heart and prostate. The FDA determined that to make such claims, POM Wonderful must prove with the scientific rigor of the drugapproval process that POM Wonderful juice could aid in the curing, mitigation, treatment, or prevention of disease. In addition, the FTC ruled that POM Wonderful used deceptive advertising because these claims were not substantiated. According to the FTC, POM Wonderful based these claims on evidence that the company distorted and which were eventually refuted. Nevertheless, POM Wonderful had maintained that pomegranate juice lowers the risks of heart disease, erectile dysfunction, and prostate cancer. Its advertisements included phrases such as "Amaze Your Cardiologist" and "Drink to Prostate Health" and were placed in Parade, Fitness, and The New York Times. They were also placed on price tags and websites including pomwonderful.com, pompills.com, and pomegranatetruth.com. The FTC found POM Wonderful guilty of violating the Federal Trade Commission Act (FTCA) by making deceptive claims in 36 advertisements and promotions. The FTC also accused the firm of making unsubstantiated efficacy claims-or suggesting that the product works as advertised-as well as establishment claims-claims that a product's benefits and superiority have been scientifically established. The FTC forbade the company from making any claims that its products were "effective in the diagnosis, cure, mitigation, treatment, or prevention of any disease" unless substantiated by two randomized and controlled human clinical trials. The goal of the FTC is to crack down on food and dietary supplement manufacturers that make misleading claims upon which consumers depend. The FTC desires to adopt the more stringent standards of the FDA in approving new drug products to hold food and dietary supplement makers more accountable for the protection of consumers. POM Wonderful appealed the ruling, and the case was taken to the U.S. Court of Appeals for the D.C. Circuit. One of POM Wonderful's claims is that it would be too burdensome to conduct clinical trials. After examining the case, the court upheld most of the FTC's ruling. It claimed that POM Wonderful must have substantiation before making its disease-prevention claims. However, POM Wonderful did achieve one partial victory. The court determined that the FTC's requirement of two randomized and controlled human clinical trials was excessive and that one clinical trial was enough because it could provide valuable health information. The court based its decision on the Central Hudson Scrutiny test, which requires "the government, when attempting to restrict commercial speech, to prove that the interest it asserts in regulating the commercial speech is substantial, that the means the government uses to regulate speech directly advance the governmental interest asserted, and that those means are no more extensive than necessary to serve the interest:' The court also ruled that these trials do not necessarily have to meet the same rigorous standards as randomized and controlled human clinical trials and suggested that these stringent criteria might violate POM Wonderful's First Amendment rights. Although it is important that companies maintain truthful and transparent communication, some believe the lawsuit against POM Wonderful was excessive. Research suggests that pomegranates are healthy, full of antioxidants, vitamin K, and potassium. Unlike drugs, which could have a harmful impact and should be studied with multiple human clinical trials, there is no evidence that pomegranate juice is potentially harmful. Therefore, critics say that the standard of going through human clinical trials should not apply to companies like POM Wonderful. There is also some evidence that pomegranates can help prevent heart disease. Nevertheless, the FTC believes it necessary to ensure that consumers are getting truthful information regarding the health claims of the products they consume. The decision has important implications for consumers and marketers. For marketers the POM Wonderful decision highlights the type of evidence the FTC will accept in order to make health and nutrition claims on its packaging. It might also impact consumer class-action lawsuits, which can allege that a product's health claims are misleading if not supported by substantiated studies.

1. Is there any difference in potential deception between Coca-Cola's advertisers & POM Wonderful's advetising?

2. Why does the FTC want food and supplement makers' claims about the health impact of their prodcuts to be substaintiated w/ clinical trails?

3. Do you feel that POM Wonderful-a product with known health attributes-should be subjected to the same scrutiny as drug companies if it wants to make health claims about its product?

Question 2.

Franklin Equipment, Ltd. (FEL), with headquarters and main fabrication facilities in Saint John, New Brunswick, was founded 75 years ago to fabricate custom-designed large machines for construction businesses in the Maritime Provinces. Over the years its product lines became strategically focused on creating rock-crushing equipment for dam and highway construction and for a few other markets that require the processing of aggregate. FEL now designs, fabricates, and assembles stationary and portable rock-crushing plants and services its own products and those of its competitors.

In the 1970s, FEL began to expand its market from the Maritime Provinces to the rest of Canada. FEL currently has several offices and fabrication facilities throughout the country. More recently, FEL has made a concerted effort to market its products internationally.

Last month, FEL signed a contract to design and fabricate a rock-crushing plant for a Middle East construction project, called Project Abu Dhabi. Charles Gatenby secured this contract and has been assigned as project manager. This project is viewed as a coup because FEL has wanted to open up markets in this area for a long time and has had difficulty getting prospective customers to realize that FEL is a Canadian firm and not from the United States.

Somehow these customers view all North American vendors as the same and are reluctant to employ any of them because of international political considerations. A project of this scope typically starts with the selection of a team of managers responsible for various aspects of the design, fabrication, delivery, and installation of the product.

Manager selection is important because the product design and fabrication vary with the unique needs of each customer. For example, the terrain, rock characteristics, weather conditions, and logistical concerns create special problems for all phases of plant design and operations. In addition, environmental concerns and labor conditions vary from customer to customer and from region to region. In addition to the project manager, all projects include a design engineer; an operations manager, who oversees fabrication and on-site assembly; and a cost accountant, who oversees all project financial and cost reporting matters. Each of these people must work closely together if a well-running plant is to be delivered on time and within cost constraints.

Because international contracts often require FEL to employ host nationals for plant assembly and to train them for operations, a human resource manager is also assigned to the project team. In such cases, the human resource manager needs to understand the particulars of the plant specifications and then use this knowledge to design selection procedures and assess particular training needs. The human resource manager also needs to learn the relevant labor laws of the customer's country.

FEL assigns managers to project teams based on their expertise and their availability to work on a particular project given their other commitments. This typically means that managers without heavy current project commitments will be assigned to new projects. For instance, a manager finishing one project will likely be assigned a management position on a new project team. The project manager typically has little to say about who is assigned to his or her team. Because he secured Project Abu Dhabi and has established positive working relationships with the Abu Dhabi customer, Gatenby was assigned to be project manager. Gatenby has successfully managed similar projects. The other managers assigned to Project Abu Dhabi are Bill Rankins, a brilliant design engineer, Rob Perry, operations manager with responsibility for fabrication and installation, Elaine Bruder, finance and cost accounting manager, and Sam Stonebreaker, human resource manager. Each of these managers has worked together on numerous past projects.

A few years ago, FEL began contracting for team facilitator services from several consulting firms to help new project teams operate effectively. Last month, FEL recruited Carl Jobe from one of these consulting firms to be a full-time internal consultant. A number of managers, including Gatenby, were so impressed with Jobe's skills that they convinced FEL top management of the need to hire a permanent internal facilitator; Jobe was the obvious choice. Because Gatenby was instrumental in hiring Jobe at FEL, he was excited at the prospect of using Jobe to facilitate team building among Project Abu Dhabi team members. Gatenby was very proud of having secured this project and had expected to be appointed project manager. He knew that this project's success would be instrumental in advancing his own career. Gatenby told Jobe, "This project is really important to FEL and to me personally. I really need for you to help us develop into a team that works well together to achieve the project's goals within budget. I've observed your success in developing teams on other projects, and I expect you'll do the same for Project Abu Dhabi. I'll take care of you if you help me make this work." Jobe outlined for Gatenby how he would proceed. Jobe would begin by interviewing team members individually to learn their perceptions of each other and of the promises and pitfalls of being involved in this project. Meetings of the entire team would follow these interviews using the information he collected to help establish a team identity and a shared vision. Jobe interviewed Bruder first. She expressed skepticism about whether the project could succeed. During the interview, Bruder appeared to be distant, and Jobe could not figure out why he had not established good rapport with her. Bruder intimated that she expected a lot of cost overruns and a lot of missed production deadlines. But not knowing Jobe well, Bruder was reluctant to identify any specific barriers to the project's success. While she would not directly say so, it was clear to Jobe that Bruder did not want to be a part of Project Abu Dhabi. Jobe left this interview confused and wondering what was going on.

Jobe's next interview was with Perry, the operations manager. Perry has worked at FEL for 15 years, and he immediately came to the point: "This project is not going to work. I cannot understand why upper management keeps assigning me to work on projects with Rankins. We simply cannot work together, and we don't get along. I've disliked him from day one. He keeps dropping the fact that he has earned all these advanced degrees from Purdue. And he keeps telling us how things are done there. I know he's better educated than I am, and he's really smart. But I'm smart too and am good at what I do. There's no need for Rankins to make me feel like an idiot because I don't have a degree. Jobe, I'll be honest with you. Rankins has only been here for five years, but I hold him personally responsible for my problem with alcohol, and for its resulting effect on my marriage. I got divorced last year, and it's Rankins's fault." Jobe next talked with Rankins, who said, "I don't care what you do. Perry and I simply can't work closely together for the nine months it will take to get it done. One of us will kill the other. Ever since I arrived at FEL, Perry has hated my guts and does everything he can to sabotage my designs. We usually worry about customers creating change orders; here it's the fabrication and operations manager who is responsible for them.

Perry second-guesses everything I does and makes design changes on his own, and these are always bad decisions. He is out of control. I swear he stays awake at nights thinking up ways to ruin my designs. I don't have this problem with any other manager." Jobe left these interviews thoroughly discouraged and could not imagine what would come up in his interview with Stonebreaker. But Stonebreaker was quite positive: "I enjoy these international projects where I get to travel abroad and learn about different cultures. I can't wait to get started on this." Jobe asked Stonebreaker about the ability of various team members to work together. Stonebreaker replied, "No problem! We've all worked together before and have had no problems. Sure, there have been ruffled feathers and hurt feelings between Rankins and Perry. Rankins can be arrogant and Perry stubborn, but it's never been anything that we can't work around. Besides, both of them are good at what they do?both professionals. They'll keep their heads on straight." Jobe was even more bewildered. Gatenby says this project's success rides on Jobe's facilitation skills. The finance manager appears to want off this project team. The design engineer and operations manager admit they detest each other and cannot work together. And the human resources manager, having worked on projects with Perry and Rankins before, expects a rosy working relationship and anticipates no problems. Jobe had a second meeting with Gatenby. Before discussing the design of the team-building sessions, he asked questions to learn what Gatenby thought about the ability of team members to work together. Gatenby admitted that there has been very bad blood between Perry and Rankins, but added, "That's why we hired you. It's your job to make sure that the history between those two doesn't interfere with Project Abu Dhabi's success. It's your job to get them to work well together. Get it done." Their dialogue toward the end of this meeting progressed as follows:

Jobe:?"Why do you expect Rankins and Perry to work well together, given their history? What incentives do they have to do so?"

Gatenby:?"As you should know, FEL requires formal goal setting between project managers and functional managers at the beginning of each project. I've already done this with Bruder, Stonebreaker, Perry, and Rankins. Perry and Rankins have explicit goals stating they must work well together and cooperate with each other."

Jobe:?"What happens if they do not meet these goals?"

Gatenby:?"I've already discussed this with top management. If it appears to me after two months that things are not working out between Perry and Rankins, FEL will fire Rankins."

Jobe:?"Does Perry know this?"

Gatenby:?"Yes."

Questions

1. Evaluate the criteria FEL uses to assign managers to project teams. What efficiencies do these criteria create? What are the resulting problems?

2. Why is it even more important that project team members work well together on international projects such as Project Abu Dhabi?

3. Discuss the dilemma that Jobe now faces. What should Jobe recommend to Gatenby?

Question 3.

The market inverse demand curve is P(y) = 10 - 2y, and a monopolist's cost curve is y' + 2. (a) What output level y maximizes the monopolist's revenue? What output level y maximizes the monopolist's profit? Identify which of the two output levels is lower, and explain why using economic intuition. (b) Suppose a second firm with cost curve y' + 2 is considering entering the market. If after entry, the firms would compete a la Cournot, what would be the Cournot- Nash equilibrium output levels y and y2 of firms 1 and 2? What would be the equilibrium profits for each firm? Will firm 2 choose to enter the market? (c) Suppose that if firm 2 enters, both firms collude, choosing output levels that maxi- mize total profits and then split the profits equally between them. What would be the profits to each firm? Will firm 2 choose to enter the market in this case?2. (50 points) Suppose a monopolist faces the following demand curve: P =314-7Q. If the long run marginal cost of production is constant and equal to $20. A) (10 points) What is the monopolist's profit maximizing level of output? B) (10 points) What price will the profit maximizing monopolist produce? C) (10 points) How much profit will the monopolist make if she maximizes her profit? D) (10 points) What would be the value of consumer surplus if the market were perfectly competitive? E) (10 points) What is the value of the deadweight loss when the market is a monopoly?2. (50 points) Suppose a monopolist faces the following demand curve: P =314-7Q. If the long run marginal cost of production is constant and equal to $20. A) (10 points) What is the monopolist's profit maximizing level of output? B) (10 points) What price will the profit maximizing monopolist produce? C) (10 points) How much profit will the monopolist make if she maximizes her profit? D) (10 points) What would be the value of consumer surplus if the market were perfectly competitive? E) (10 points) What is the value of the deadweight loss when the market is a monopoly?Image Redact 28. If short-run equilibrium output equals 50,000 and potential output (Y") equals 45,000, then this economy has a(n) gap that can be closed by _ A) expansionary; decreasing taxes B) expansionary; increasing transfer payments C) expansionary; decreasing government purchases D) recessionary; increasing government purchases E) recessionary; increasing taxes 29. If planned aggregate expenditure (PAE) in an economy equals 5,000 + .75Y and potential output (Y*) equals 21,000, then this economy has: A) an expansionary gap. B) a recessionary gap. C) no output gap. D) no autonomous expenditure. E) no induced expenditure. 30. Short-run equilibrium output is the level of output at which actual output: A) equals potential output. B) is greater than potential output. C) is less than potential output. D) equals planned aggregate expenditure. E) is greater than planned aggregate expenditure 31. The key assumption of the basic Keynesian model is that: A) planned aggregate expenditure is autonomous. B) actual investment equals planned investment. C) planned aggregate expenditure is constant. D) short-run equilibrium output equals potential output. E) firms meet demand at preset prices. 33. If short-run equilibrium output equals 20,000 and potential output (Y") equals 25,000, then this economy has a(n) gap that can be closed by A) expansionary; increasing taxes B) expansionary; increasing transfer payments C) expansionary; increasing government purchases D) recessionary; increasing government purchases E) recessionary; increasing taxes