Problem 18-4 Auctioning in Sweden
Companies that fail to meet their debts are mostly sold to the managers since they are the highest bidders because they have the best knowledge of the commodities which are the assets, products and services offered by the company. Managers have all the information about the in and out of the enterprise (Froeb et al., 2014). Company managers use a method known as overestimation. This process involves them overestimating the price of the actual sale. To achieve this, you must be having a lot of background information about the company and the potential prospects of the enterprise and how much they are willing to give. Managers use this method to avoid winner’s curse where their bidding price is much more than the actual price. The managers put a bid that is very optimistic which will make other bidders think that is less than the actual cost which will eventually make others offer at a lower price. Managers, therefore, remain to have the highest bid.
Problem 19-1 Leasing residuals.
Car manufacturers lose money other than gaining profit through leasing their cars to clients because of various reasons. First, as soon as the car leaves the showroom, it means that its value begins depreciating as it gets used up making it one of their biggest reason for losing money. As soon as the client returns the vehicle, its value will have depreciated up to 80% of its actual sale. Secondly, after the customer returns the car, it calls for buying of new spares to make the vehicle new again, where it requires more maintenance cost where most of its parts are already worn out and old (Froeb et al., 2014). The company should consider taking some necessary measure to avoid having a lot of loss in this business. First, the company should stipulate clear guidelines as to how the vehicle should be used and maintained to cut off the cost from the manufacturer or the seller of the vehicle. Secondly, the company should ensure the client covers for the depreciation cost according to the lease period of the vehicle. These methods ensure that the company does not go any loss and instead make more profits. This method only aims at reducing the cost and increasing profits.
Problem 20-1 Extended Warranties.
Extended warranties have become one of the products that businesses offer in addition to the actual price of the commodity especially electronic products; that enables the company to compensate or replace the product in case of breakdown (Froeb et al., 2014). One would consider the 2% extended warranty on the price of the product since this will give the customer a peace of mind when purchasing and using it. Secondly, this method of sale ensures customer loyalty. By having an extended warranty, it will attract more customers to your business and retain them for a very long time, since it can also be considered as a marketing approach. This method can also act as a means of making more profit; the reason behind this is most of the products bought don’t breakdown at the stipulated contract period, therefore leaving the additional price to the business as profit.
Problem 21-1 Real Estate agents.
There are various reasons why real estate agents take a longer time to sell their houses and sell them at a better price is due to different reasons. First, real estate agents consider property evaluation (Froeb et al., 2014). A real estate agent believes the resale value of a property before purchasing it to ensure a higher resale value. Secondly, real estate agents take a lot of time setting a price for their property as compared to when they are selling their clients houses since their customers sell their houses based greed to have the money or having individual needs.
Reference
Froeb, L., McCann, B., Shor, M. and Ward, M. (2014). Managerial economics. Australia: South-Western Cengage Learning.
