TENTATIVE SCHEDULE FOR A MANAGERIAL ECONOMICS COURSE
The simulated company manufactures three products each with its own variables of demand and its own cost structure. The variables of demand impacting sales at the market level (all companies in the simulation) are average market price, income (GDP), population, and an index reflecting tastes and preferences. At the firm level the variables impacting demand are price, promotional expenditures and customer service expenditures. The last two can be replaced for promotional expenditures at the national level and promotional expenditures at the local level. The impact of each variable of demand at the market and firm levels is controlled by elasticities that can be changed to generate diverse simulation scenarios. By default, in one of the products there is no competition, the firm is a monopolist. The remaining two products simulate oligopolistic markets.
Each product also has its own cost structure. The latter is relevant in pricing since the contribution margin and profit margin depend not only on variables of demand (price, promotion, income, tastes and preference, etc.), but also on the cost-profit structure of each product. The latter allows for the application of operating leverage analysis. The cost-profit structure of each product can also be changed before the simulation begins. By default, one product has relatively high fixed cost, another has relatively low fixed cost, and the third one is in between. In one of the products, the combination of high price elasticity and high fixed cost induces competition that can end up in a price war. The reports that students receive after each simulation round have information that allows in depth analysis of the impact of their decisions. The information contained in their reports allows for regression analysis.
Financial statements (income statement, balance sheet, and cash flow statement) are part of the report.
RECOMMENDED DECISION SCHEDULE
The simulation can be run in a way in which a new decision is introduced every two rounds allowing students to identify the impact of their decisions without new variables playing any role in their firm demands. The following paragraphs describes how each round can be implemented.
Round One – Pricing decisions. Students make decisions on pricing for three products. They also forecast sales at the market and firm level. The impact of other variables of demand is kept constant, allowing the students to concentrate on pricing. Production is automatically adjusted to meet sales. There is no need to hold inventory. Prior to this round students receive a file with information on prices, volumes, and other economic data for 20 quarters.
Round Two – No new decision is made. This is an opportunity for students to improve their pricing decisions. As in the previous decision, the impact of other variables of demand is kept constant allowing the students to concentrate on pricing.
Round Three – The new decision is deciding on promotional expenditures. Production is still automatic.
Round Four – No new decision
Round Five – The new decision is deciding on expenditures for customer service. As with promotional expenditures, each product has its own customer service elasticities. This variable can be substituted with a variable for national advertising. If this is the case, the decision on promotional expenditures in Round Three becomes a decision on local advertising.
Round Six – No new decision.
Round Seven – The new decision is ordering production for each product. This decision will impact inventory and, consequently profits, due to storage costs if they order too much. If production orders do not satisfy demand they will lose sales, causing an opportunity cost. The volume lost is reported to the team so they can see the impact of their decision.
Round Eight – No new decision.
Up to twelve decisions can be scheduled.
Forecasting sales at the market and firm level may be required in each round. If that is the case, forecast errors are reported on each team report. Financial decisions are not required. The simulation system provides funds as needed.
The simulation is entirely web based. Students have access to instructions in the website before each round of the simulation. They enter their decisions in the website and have access to reports in Excel format. The ASDSIM team processes each round and uploads reports with the results.
The reports include a team report and a class report. The team report is comprised of a sales report, forecasts errors, financial statements including income statement,. balance sheet, cash flow statement, and footnotes. Class report allows each team to see their performance relative to the other teams in the class. This characteristic motivates students and is an important factor in generating engagement.
The instructor has access to all decisions and reports. However, instructors don't need to be involved in the administration of the simulation. Instructors may derive any question from students to the ASDSIM team.
At the end of the simulation the instructor has access to a summary report with points assigned to each team.