Mgmt 545 Week 4 Assignment

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xxxxxxxxx Business Economics GM545 March 2007 Exercise 1: Microeconomic Issues #2 - Ethical Issues in Business. In the early 1990s, I worked for Johnson Matthey (JM) in the division of the company that produced catalytic converter for automobiles. JM's first and largest business was the mining and refinement of precious metals such as gold, silver, platinum, and almost every other type of metal or mineral that is mined. Production of finished products from the refined metals excellent profits and allowed JM to maintain a sustainable advantage in significantly higher margins in finished products. Although market prices for precious metals fluctuated wildly for JM's competitors, JM's costs were tied mainly to mining and production costs which were stable and significantly lower. The company misrepresented the accuracy their production processes to their largest customer, GM. While the actual accuracy of the process attaching precious metal to the catalytic converter was close to 0.3%, JM said the accuracy was 3%. This allowed JM to safely put 97.5g instead of 100g of platinum on a set volume of catalytic converters and still meets the contract. At that time, platinum was $400 per ounce. JM made an additional $30 million in profit for the 15 million units it supplied. General Motors' Quality Control tested JM's products and soon figured out how JM had manipulated the process accuracy in the contract. GM took the entire 15 million catalyst order to JM competitor Englehardt the next year. This had interesting effect and shows an important weakness in the Demand and Supply curves in this type of situation. The demand was inelastic to the extreme; the consumer bought the product regardless of the fluctuations of the cost of the product due to market conditions. The $100 to $500 cost of the catalytic converter was a

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