Applied Managerial Economics

Applied Managerial Economics

Paper instructions:
The board of directors at AutoEdge is actively discussing several options to address flagging

revenue. One option continues to surface during each board meeting; that is, relocating the

manufacturing operation back to the United States. Longtime Chief Financial Officer, Ingrid Adams, leads

the group that is in favor of this option.

Ingrid Adams approaches you in the company break room.

“Hello,” she says. “I’m glad I saw you.”

“Hi,” you say. “What can I do for you?”

“I have a question about economics,” she says. “I think you can help me explain something to some

shareholders on the board.”

“Economics! My favorite subject,” you say. “What’s your question?”

“If AutoEdge decided to increase its prices and return to the United States,” she says, “how would

this action affect consumer demand? I want to know your opinion about elasticity.”

“Sure,” you say. “So you want to know if the elasticity for auto parts is considered to be relatively

inelastic, relatively elastic, unitary elastic, perfectly elastic, or perfectly inelastic. Right?”

“Exactly,” she says.

“I have an opinion,” you say. “Do you want to talk about it now, or do you want something in

writing?”

“Something in writing would be best,” she says. “Would you explain your opinion so that I can respond

to questions from other members of the board, too?”