June 2015 Jru Obe Economics 25 Microeconomic Theory Cba Syllabus

JOS RIZAL UNIVERSITY
COLLEGE OF BUSINESS ADMINISTRATION

JRU Institutional Outcome: A JRU graduate has the competencies and values in the disciplinal area completed such that he/she is a
useful and responsible citizen of the country.
Program Outcome: The graduates of the CBA Program are able to :
1. Exhibit specialized knowledge in the major functional areas of business consisting of marketing, operations,
human resources and finance;
2. Show mastery of computational and communications skills for use in a business setting;
3. Apply the appropriate framework in the analysis of business situations, considering the roles of the
government; and
4. Apply Rizalian values and professional ethics in making business decisions.
Course Title: MICROECONOMIC THEORY
Course Code: Economics 25
Credit Units:
3 Units
Course Description: This course provides an intermediate level discussion of the fundamental concepts and
theories of microeconomics. It covers theories of consumer behavior, demand, production, costs, the firm
in various market contexts, factor employment, factor incomes, elementary general equilibrium, and
welfare.
Pre-Requisite: Eco 11 Principles of Economics, Part I (with Tax and Land Reform)
Placement: 2nd Year 1st Semester
Course Learning Outcomes: At the end of the course, the student should be able to:
FINANCIAL MANAGEMENT SYLLABUS
PREPARED BY
Dr. ROBERTO F. VILLARROEL
APPROVED BY
DEAN RAFAEL RAUL RAMOS
1. Gain a conceptual and practical understanding of MICROECONOMICS following

model specifications and data formatting;
2. Analyze data, using statistical analysis whenever warranted, and interpret the results of
the analysis;
3. Understand professional papers employing empirical analysis;
4. Provide students with a good understanding of microeconomic models for discrete
dependent variables and their relationship to explanatory independent variables;
5. Develop practical skills, which are necessary to perform independent research using
PROQUEST data, SPSS software and MINITAB. III.
Course Outline:
Time
Frame
Topic/Content
Objectives:
a) Enabling
Objective:
Acquisition of
analytical-andsynthesis tools in
Microeconomics.
b) Terminal
Objective:
Demonstrable
ability on the
part of the
student
concerning the
PREPARED BY
Teaching/Learnin
g Activities For
ALL MEETINGS:
a) Lecture,
demonstration,
diagnostic non-graded
exercise, and later
followed by a graded
exercise;
b) Student-centered
discovery learning by
solving an Illustrative
case
Assessment/Evaluation
for
ALL
MEETINGS:
a) Graded exercise FOR
Teacher-led Learning
Session;
b) Solution by the stud
of the Illustrative case.
APPROVED BY
analytical-and
synthesis tools of
Microeconomics.
Weeks
1 to 3
General equilibrium
analysis (to be used
for
distinguishing
between
microeconomic and
macroeconomic
aggregates)
a) Enabling
Objective:
Acquisition of
analytical-andsynthesis tools
for Input-output
inter-industry
analysis in order
to demonstrate
the distinctions
on the ff.:
i)
Macroeconomic
and Microeconomic
Aggregates
ii)
Value of all
transactions
and Gross
Domestic
Product
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iii)
iv)
Gross Domestic
Product and
Gross National
Product
Labor and
Service
b) Terminal
Objective:
Demonstrable
ability on the
part of the student
concerning
the distinctions
on the ff.:
i)
Macroeconomic
and
Microeco-nomic
Aggregates
ii)
Value of all
transactions
and Gross
Domestic
Product
iii)
Gross Domestic
Product and
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Gross National
Product
Labor and
Service
iv)
Week 4
to 5
Theory of
consumer
behavior:
-Law
of
diminishing
marginal utility
-the
operational
meaning
of
purchasing
power,
a) Enabling
Objective:
Acquisition of
for the Theory of
consumer behavior analysis

in order to
demonstrate
the distinctions
on the ff.:
-Law of
diminishing
marginal utility
-the operational
meaning of
purchasing power
b) Terminal
PREPARED BY
APPROVED BY
Objective:
Demonstrable
ability on the
part of the student
concerning
the distinctions
on the ff.:
-Law of
diminishing
marginal utility
-the operational
meaning of
purchasing
power
Week 6
to 7
Demand:
-distinction
between the
operational
definition
of
quantity
demanded
function and
volume-ofdemand
Enabling
Objective:
Acquisition of
for the Theory of
consumer behavior analysis

in order to
demonstrate
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the distinctions
on the ff.:
-the operational
definition
of
quantity
demanded
function
and
volume-ofdemand
b) Terminal
Objective:
Demonstrable
ability on the
part of the student
concerning
the distinctions
on the ff.:
-the operational
definition
of
quantity
demanded
function
and
volume-ofdemand
PREPARED BY
APPROVED BY
Week 8
MIDTERM
EXAM
Week 9
Production:
-Law
of
diminishing
marginal
returns
Enabling
Objective:
Acquisition of
for the Theory-
of-Firm-behavior
analysis in
order to
demonstrate
the Production
notion on the ff.:
-Law of diminishing marginal returns

b) Terminal
Objective:
Demonstrable
ability on the
part of the student
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concerning ff.:
--Law of diminishing marginal returns

Week
10 to
11
Costs:
-operational
definition of
incremental
and
marginal
Enabling
Objective:
Acquisition of
i)
for the Theory-
of-Firm-behavior
analysis in
order to
demonstrate
the distinction
between the ff.
under the notion on
Production:
incremental
and marginal
analysis
b) Terminal
PREPARED BY
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Objective:
Demonstrable
ability on the
part of the student
concerning the
distinction between the
ff.:
incremental
and marginal
analysis
Week
12 to
13
The theory of
the firm in
various
market
contexts:
-Perfect competition,
-Monopoly,
-Monopolistic
completion,
-Oligopoly
Enabling
Objective:
Acquisition of
for the Theory-
of-Firm-behavior
analysis in
order to
demonstrate
the distinction on
firm-behavior in
various market
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contexts as
follows:
-Perfect
petition,
com-
-Monopoly,
-Monopolistic
completion,
-Oligopoly
b) Terminal
Objective:
Demonstrable
ability on the
part of the student
concerning the
distinction on
firm-behavior in
various market
contexts as
follows:
-Perfect
petition,
com-
-Monopoly,
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-Monopolistic
completion,
-Oligopoly
Week
14 and
15
Notions
behind factor
employment
and
factor
incomes
in
various
market
structure:
Enabling
Objective:
Acquisition of
-Perfect competition,
analysis in
-Monopoly,
demonstrate
-Monopolistic
completion,
notions behind
-Oligopoly
for the Theory-
of-Firm-behavior
order to
factor employment and factor

incomes in
various market
structures, as
follows:
-Perfect
com-
PREPARED BY
APPROVED BY
petition,
-Monopoly,
-Monopolistic
completion,
-Oligopoly
b) Terminal
Objective:
Demonstrable
ability on the
part of the student
concerning
notions behind
factor employment and factor
incomes in
various market
structures, as
follows:
-Perfect
petition,
com-
-Monopoly,
-Monopolistic
PREPARED BY
APPROVED BY
completion,
-Oligopoly
Week
16 and
17
Elementary
general
welfare
equilibrium
Enabling
Objective:
Acquisition of
to be able to
demonstrate the
notion of
elementary
general welfare
equilibrium
b) Terminal
Objective:
Demonstrable
ability on the
part of the student
concerning
the
notion of
PREPARED BY
APPROVED BY
elementary
general welfare
equilibrium
Week
18
FINAL EXAM
Course Requirements:
a. Graded exercises
b. Business games
c. Case analysis
d. Midterm exam
e. Final exam
SUGGESTED READINGS:
Alan, Eric, 2010, Handbook of Macroeconomics, Amsterdam: Elsevier Science Ltd.
Case, Karl E., et.al, 2012, Principles of Macroeconmomics, vol. 1 & 2, Manila, Pearson Education South Asia: Pearson Custom
Publishing
Checchi, Daniele, 2010, Macroeconomics. Cambridge : Cambridge University Press
Dustman, Christian, 2010, Macroeconomics and Training In Empirical Studies. New York: Physica-Verlag Heidelberg
Harvard Business Review, circa 70s. HBR On macroeconomics.
Johnes, Geraint, 2010, International Handbook on Macroeconomics [S.I.] : Edward Elgar Publishing
Low, Linda, Toh Mun Heng, Soon Teck Wong, 2010. Macroeconomics and Manpower Development. New York:
PREPARED BY
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McGraw-Hi11 Book Co.
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APPROVED BY
ANNEX A
CASES TO CHOOSE FROM:

13 SHORT CASES AND 5 LONG CASES
(The class will be divided into as many groups as possible where each
group shall have at least three members. Each group shall have a similar case to solve.)
SHORT CASE l
Since we as a nation, are not yet self-sufficient in food and the people are poorly nourished, should not priority be given to
food production, water resources, and , organic fertilizer rather than large-scale industrialization? Is it not incongruous that we
should be importing wheat, sardines, fresh fruits, fruit juices and concentrate, meat products, dairy products, etc. instead of
producing more food for ourselves?
Since power is consumed by industry, should we not first develop our hydro-electric output rather than depend on imported petrol
for power generation?
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SHORT CASE 2
Writers in the magazine sections of week-end newspapers often advocate "Industrialization" as the solution to our country's
economic problems, on the premise that large-scale industrial operations provide numerous work and job opportunities not only in
the industrial concern itself but also in all the requisite support activity. Ascertain whether our country can, and whether it should,
give national priority to industrialization in the light of other economic imperatives.
The fixed capital requirements for plant site and buildings; the foreign exchange requirements for equipment, fuel, and raw
materials; and the working capital requirement for operations, wages, and inventories for a large industrial venture (such as a
wheat flour mill or a synthetic fiber plant which largely utilize imported raw materials) are very heavy compared with the number
of new jobs created by such an industrial enterprise.
If, say, an average of P50,000 in fixed capital investment is needed to create one new job opportunity, can we generate from local
sources the very large amounts of fixed capital needed to create enough new jobs for the hundreds of thousands of new entrants
into our labor force every year? Based on the foregoing average investment requirement, a new industrial venture which will
employ 500 men will need a fixed capital investment of P25,000,000. Some businessmen are of the be-f that even the
aforementioned average of P50,000 fixed capital investment per new job opportunity is substantially understated.
It can also be argued that many industrial products are not essential and could be dispensed with. Or they could be replaced by cal
substitutes which have a much higher percentage of local content or components, any plastic toys and novelties, most fashion
items, numerous processed food products, liquor, cigarettes, decorative items, toiletries, fancy electronic gadgets or sports gear,
concrete-mixing and road building machines, id mechanized processes are unnecessary in developing country. This is so because it
has an unfavorable balance of international payments, a large unemployed work force, and a low rate of domestic capital
accumulation. Discuss.
SHORT CASE 3
To observers who say that many Filipino workers are less active and less productive ban other workers in Southeast Asia,
several reasons in defence of the Filipino workers lave been given, among them:
1. The hot, humid tropical climate in Philippines is not conducive to prolonged physical effort.
2. The average Filipino worker is undernourished.
3. There is a prevalence here of various ailments such as intestinal parasites, tuberculosis, and malaria.
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4. The Filipino worker is grossly underpaid.

5. It is easy to borrow spending money from relatives and usurers.
6. One does not rise on merit but on "pull" or influence.
7. Lack of training in technical skills and inadequate standards of education.
8. Moving in on relatives and living indefinitely with them as a parasitic dependent is an accepted imposition and does not bring
social disapproval on the unemployed as in other countries.
9. Gambling at all hours is rampant.
10. We have adopted almost in toto American labor laws (such as legislation on working hours, overtime pay, minimum wage,
workmen's compensation, industrial peace, social security, women and child labor, medicare, apprenticeship, etc.). These labor
laws give the Filipino workman substantial benefits similar to, although he is not as productive as, the American worker.
Comment on each of the foregoing reasons, add other reasons which are not on the list, and rearrange all valid reasons in the order of
their importance.
SHORT CASE 4
The issue of free enterprise as against government-administered economic controls is of great interest since it affects all citizens in
their daily lives. More importantly, it helps us determine whether the future is worth working for or whether we should consider
migrating elsewhere.
Do import and foreign exchange controls foster sound economic development in an underdeveloped country, or is such industrial
growth artificial and beneficial only to a limited few (the rich who grow richer) but onerous to the general public? Does free enterprise
induce the growth of a strong middle class? Does it bridge the income gap between the very rich and the very poor? Does it through
savings in banks and investments in the stock market, spur further economic development? Is the revolution of rising expectations in
the middle class a desirable phenomenon? Would it find earlier fulfillment in a free or a controlled economy?
Discuss fully.
Does not a government policy of low (subsidized) prices for essential items such as rice and cocoanut oil encourage consumption
and discourage production? Would it not be better to have prices seek their free market level, so that the high prices for an essential
commodity will stimulate production and dampen consumption? Who bears the cost burden of a "socialized pricing" policy?
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SHORT CASE 5
Filipinos expect the government to provide them with numerous goods and services for free. Are we willing to pay the much
heavier direct personal taxes, as paid by the Scandinavians to finance such a "welfare state"?
Filipinos want to be as prosperous as the Japanese. Are we as hard-working, as thrifty, and as disciplined as the Japanese?
Filipinos want to remove income inequalities as has been done in mainland China. Are we willing to give up individual liberties
and submit our lives to party control as the mainland Chinese have done? For instance, there are no idlers in mainland China because
no one is allowed to remain idle.
How can Filipinos progress if we are not willing to pay the price of progress? Will progress occur though speeches at Plaza Miranda
or EDSA Shrine? Demonstrations? Passing new laws? Sporting long hair? Taking drugs? Or through hard work and thrift? Discuss.
SHORT CASE 6
It has been often said that Filipinos can accelerate their progress if we were to:
a. be more efficient
b. be more hard-working
c. be more frugal
d. be less wasteful
e. encourage savings and investment
f. be more self-reliant
g. be more enterprising
h. be more impatient, and
i. pay all our taxes
The implication is that many Filipinos are inefficient, unproductive, slow workers, ostentatious, luxury loving, conspicuous
spenders, improvident, easy-going, unashamed of being dependents or parasitic, resistant-to-change, afraid to venture, securityconscious, overly patient, easily satisfied, and remiss in paying their full tax obligations.
SHORT CASE 7
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Discuss the credit situation in rural agricultural areas, the nature of barrio credit problems, the traditional practices thereat, the attempts at
their solution , the results thereof, and the outlook for the future.
SHORT CASE 8
Give your personal critique on education for business in your school, judging by you, and your classmates' educational develop ment, the
performance of graduates, and their contribution to society.
SHORT CASE 9
Is usury prevalent in some areas of Philippines? How widespread is it? Where is it most common? Why are usurers able to continue their
malpractices in spite of our anti-usury laws? What measures are being taken now to combat usury, apart from laws already promulgated? How
important is savings by the people and capital formation in the struggle for a better standard of living?
SHORT CASE 10
If the rate of inflation is reported to have dropped from 20% p.a. (per annum) to 16% p.a., this means that :
a. prices remained the same.
b. there was a drop in prices.
c. prices rose more rapidly.
d. prices rose less rapidly.
Please explain your answer.
SHORT CASE 11
"Government attempts to intervene directly in wage decisions in order to capture a greater share of profits for the benefit of workers will, as a
general proposition, not only be ineffective but also have positively adverse effects on resource location, growth, and employment and, therefore,
on the real incomes of the workers themselves."Ranis Report. Do you agree or disagree, and why?
SHORT CASE 12
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"Every new source from which man has increased his power on earth has been used to diminish the prospects of his successors. All his progress
has been made at the expense of damage to the environment which he cannot repair and could not foresee."B. F. Skinner. As our forests, waters,
air, and land are being exploited and thereby polluted, how are business and society affected by the problems of ecological imbalance and
ecological destruction?
LONG CASE 1:
MACALELON CEMENT CORPORATION
When the first four or five cement manufacturers in the Philippines reported very good operating results in the late 1950's and
early 1960's, several groups organized new cement companies. As often happens in this country when reports of good profits begin to
circulate about the pioneers in a business, the new-comers come in excess of market capacity. In a few years' time, the over-supply of
cement brought losses to almost all the cement manufacturers.
It came to the point where one newly-organized firm ordered a complete new cement plant from Japan. The equipment arrived but
remained truncated for years (storage fees alone ran to over a million pesos). It was usual for promoters to finance the acquisition of
machinery and equipment through heavy long-term borrowing from a government institution, plus an extended payment period from
the equipment suppliers. The debt-equity ratio often showed a narrow capital structure.
By 31st December, 1972, Macalelon Cement Corporation had been operating at a loss for three consecutive years. A particularly
significant cost factor was the abandonment of the former exchange rate of P3.90 = US$1 in February, 1970 and the adoption of the
floating exchange rate which by 1974 was about -19,6.80 = US$1. This caused a substantial increase in peso requirements to cover US
dollar commitments, and the repayment of loans in US dollars called for much bigger peso sums than originally projected under the
P3.90
US$1 exchange rate. By early 1976, the exchange rate had deteriorated further to t~7.50
US$1.
Problems that hounded the cement industry in 1970 and 1971 (reduced demand, oversupply, and spiraling costs) continued to do
so throughout 1972. The disastrous Central Luzon flood of July, 1972 caused widespread destruction of roads and a further increase in
distribution costs. A number of cement companies reported even greater losses in 1972 than in the previous year.
The cement industry opted for concerted rationalization measures in the local market and searched for an export market. But
Taiwan and Korean cement were exported at very low prices (a resort to dumping in order to earn badly-needed foreign exchange) and
Philippine cement was often undercut in price. The cost of the multi-wall paper bags and export expenses increased, while export
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prices dropped to the point where returns became less than out-of-pocket cash outgo. Cement exports had to be abandoned temporarily
and unutilized plant capacity reverted to pre-export levels.
The financial statement of Macalelon Cement Corp. for 1972 showed that, although they were able to reduce their net loss for the
year by 20% as compared to the loss for 1971, the 1972 net loss figure of P4,800,000 exceeded the depreciation and other non-cash
costs, hence their cash flow problem remained critical.
During 1972, Macalelon succeeded in restructuring their past due payables with the Development Bank of Philippines. The new
arrangement provided for a ten-year repayment period and gave Macalelon the opportunity, through exports, to restructure further their
DBP obligations so as to obtain a five-year grace period before amortizing loan principal, and to reduce the interest rate from 12 to
6%. The restructuring improved greatly Macalelon's ability to continue operations until the problems arising from oversupply and depressed
selling prices are corrected.
Sales in 1972 were over 5,000,000 bags, representing 58% of plant capacity. This was 18% less than the number of bags sold in 1971, when
sales were at 72% of plant capacity. The drop in sales was entirely due to the reduction in exports.
Early in 1973, there was a world shortage of cement and prices reversed into an upward trend. From a low of US $11.50 to US $12 per metric
ton of bagged cement, FOB Philippine port, the price rose to US $19 per metric ton or better. However, this level of export prices still did not
cover the total cost of production, but it helped to reduce losses by contributing to the company's fixed charges. Total sales for 1973 were
P24,000,000 and the net loss was P9,000,000. The capital account, at the end of 1973, had a deficiency of P7,290,000.
Since 1970, the cement industry has contended that it cannot operate profitably until a reasonable domestic ceiling price is set by the Price
Control Administration and until the domestic market expands sufficiently. Price increases were approved by the government early in 1974 and,
with an uptrend in construction activity in both the public and the private (commercial) sectors, sales figures improved substantially for a few
months. However, with the worldwide business recession arising from the OPEC petrol price/supply squeeze, there occurred a slump in construction in the second half of 1974.
In May 1974, Macalelon suffered a breakdown (complete crack) of a 56-ton piece of equipment. This had to be dismantled and shipped to Japan
for repairs (costing over P1,000,000), causing a stoppage in production lasting six months at the time when retail prices were high. This was
booked as rehabilitation of machineries, and the cost was capitalized.
After the equipment breakdown, there were two options considered temporary repair and operation at reduced capacity while waiting for the
arrival of new replacement which would require twelve to fourteen months, or dismantle the damaged equipment and ship the parts to Japan,
where fortunately a new shaft was available and the un damage d gears could still be utilized. The first option was exposed to a sudden break in
the equipment which could lead to serious damage elsewhere in the raw mill. The second option would reduce repair time to about two months and
total plant down-time to about six months. The second alternative was taken and the equipment was shipped to Japan in June, 1974. It was
returned in November and reinstalled and tested in December. The grinding mill resumed normal operation in January, 1975.
Since profits from cement operations are not likely for the next few years, the Macalelon management has been investigating the possibility of
manufacturing other products with the cement factory equipment. Arrangements were made for the manufacture and sale of calcium silicate, plant
nutrient and soil conditioner. Tests by the Philippine Sugar Institute reported up to 40% increase in sugar production from the use of the soil
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conditioner in certain silicon deficient areas. Production of this fertiliser started in 1974 to the value of P480,000. However, no sale was made and
the whole amount stood as finished product inventory in the end of the 1974 balance sheet.
Macalelon's gross profit on sales was P784,000 in 1970, P2,908,000 in 1971, and P4,850,000 in 1972. Financing expenses, however, amounted to
about P8.5 million annually, hence the final results were net losses of P5,720,000 in 1971 and P4,800,000 in 1972. Other cement companies were
likewise reporting heavy losses, usually with the same financial pattern as Macalelon's. For 1974, Macalelon incurred a net loss of P6,280,000 on
sales of P30,070,000.
In the external auditor's notes to financial statements, it is mentioned that Macalelons cement plant machinery and equipment were acquired in
1966 from Mitsubishi Heavy Industries, Ltd. for a total purchase cost of US $7,889,000 payable in semi-annual installments up to 1976. The
obligation is guaranteed by the DBP, in whose favor have been mortgaged all of Macaleton's assets, present and to be acquired. As of 31st
December, 1972, Macalelon's total arrearages with the DBP was P40,000,000 per Macalelon's books (this amount was not yet reconciled with
DBP).
In 1968, the DBP negotiated a loan of US $1,300,000 from a foreign bank to pay the first installment on the Mitsubishi equipment loan. In 1970,
when the DBP made its final settlement with the foreign bank, an additional peso outlay of P3,000,000 was incurred representing the exchange
differential arising from the adoption of a floating exchange rate. This exchange differential was debited to MacaleIon's account by DBP but was
not set up in Macalelon's books pending negotiations with the DBP as to the propriety of the charge.
The overdue account payable to Macalelon's petrol supplier, Mobil, in the amount of P3,000,000 was translated into a promissory note in 1970,
payable in 18 monthly installments, at 12% per annum.
The DBP acquired all of Macalelon's 2,500,000 shares of preferred stock, par value at P2 each. The company is obligated to redeem 10% of the
total issue of preferred shares every year beginning 1972, but no redemption had yet been made by 1974.
On the suggestion of management, the stockholders approved in 1971 the reduction in par value of its common voting shares, from P1 to P0.50.
This move was made to reduce. Macalelon's accumulated deficit by P6,200,000 through the 50% write-down of the capital account accepted by
the stockholders as a loss.
Macalelon's marketing arm, Mac-Mart Corporation, was run by marketing executives who were new in the cement trade. They did not know
that a swindle syndicate had victimized several cement producers by posing as big dealers or suppliers to contractors. Early purchases of cement
on credit were paid for before due date and swindlers thus succeeded in building credibility as good credit customers. Then they would order
cement in very large quantities which remained largely unpaid for. There was no point in prosecuting them because the "fronts" were men of limited means, while the masterminds who kept the larger part of the loot could not be linked to the swindle by judicially acceptable evidence. By
1974, the syndicate's unpaid accounts with Mac-Mart Corporation had risen to P5,000,000.
By mid-1975, the stockholders of Macalelon Cement were requested, through a circulating letter to agree to the assignment of voting rights in
favor of DBP as a condition for restructuring Macalelon's obligations to DBP. The letter said that the Company's arrearages had grown so large that
payment was impossible unless the obligations were restructured. If the obligations were not restructured, DBP could at any time foreclose on the
properties of the corporation.
Macalelon shall make a partial payment of P350,000 before the restructuring of the obligations. Maturing installments on foreign obligations shall
be advanced by DBP and converted to loans with the same terms as the restructured loan, which shall bear simple interest at 12% per annum and
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shall be paid at at the rate of P 2.00 per bag sold domestically and P0.75 per bag sold to exporters. The assignment of voting rights shall be on
67% of the outstanding shares of stock. The restructuring would include all outstanding balances of loan principal, accrued interests, dividends,
guarantee fees, service fees, and other charges, and the principal of preferred shares held by DBP. Security would be a first mortgage on all assets
of Macalelon Cement plus continuation of the obligation of all existing co-guarantors.
Assuming that the preceding scenario is typical of firms in the cement industry today, how can such an economic and financial problem
beleaguering cement firms be solved by addressing the challenge of making the country economically one; that is, achieving a balanced agroindustrial development where farm modernization can be achieved by linking them to processing sites and markets as well as small and medium
industries. What is the crucial role of the cement industry in linking agriculture and industry?
LONG CASE 2
ILIGAN INTEGRATED STEEL MILL, INC.
By the end of 1970, the Jacinto family had invested about PhP40 million in the Iligan Integrated Steel Mill(IISMI). Other private
investors had placed a similar amount, while the Government Service Insurance System and the Social Security System had each
contributed PhP15 million equity capital.
The aim of the IISMI project, which was a capital intensive venture
was the creation of an integrated steel mill which upon completion would process ore, billets, and scrap iron into various steel
products. It took over the loss-ridden merchant mill set up by the governments National Steel and Shipyards Corporation (NASSCO)
and which produced concrete reinforcing bars and rods at Iligan, Mindanao. The IISMI project greatly expanded this into a large,
modern, and integrated steel mill. The integration was backward as the cold roll mill was finished first, followed by the hot-rolled
mill, then the foundry. Iligan was chosen because it is a deep-water port in the vicinity of the hydro-electric plant of the National
Power Corporation at the Maria Cristina Falls. Adequate and cheap hydro-electric power as well as sufficient land area on the deep-
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water shoreline of Iligan Bay was therefore assured. Steel and steel products are basic in any industrialization program, for which
reason IISMI had full support of the government and was heavily assisted by financial institutions.
The IISMI project was planned in 1955 but there was considerable delay in completing the finance requirements. Firm orders for
plant anti equipment were not placed until 1963-1964 and construction was commenced at the end of 1965 (site was prepared in
1962). Koppers Company, Inc. of Pittsburgh were appointed consultants to supervise the whole project.
Contractors were:
1. Excavation, foundations, and general civil works --IISMI
2. Pier dredging and structural steel -- Atlantic Gulf and Pacific Company
3. Plant and machinery
a. Heavy machinery Blaw-Knox
b. Electrical
General Electric
c. Controls
Westinghouse
d. Cranes
Hitachi
4. Supervision and operation --The Colleti Group of America was to provide plant foremen and supervisors for a period of
two years after each section of the plant is commissioned. The loan from the Export-Import Bank is subject to
continued management and technical assistance for the whole period of the loan.
The IISMI project was planned in three stages to give opportunity for training the Filipino supervisors and managers and to
generate a cash flow from the early sale of products. Market surveys had disclosed an adequate and increasing demand for the
products.
The set-up phases were:
Phase A.
Deep water pier, water pumping stations, reservoir and mains.
Electricity sub-station, cold mill.
(Prior to operation of the hot mill, hot rolled coils are to be purchased from Japan or Australia; rolled, cleaned, annealed, and
tinned in the cold mill; however, the mill is to be commissioned by 31st December, 1968).
Phase B.
Offices, maintenance buildings, and hot rolling mill.
(On commissioning, steel ingots will be purchased, heated, and rolled into coils. Commissioning date, 30th September, 1969).
Phase C.
PREPARED BY
APPROVED BY
Production of pig iron and conversion to steel ingots. Commissioning date, middle 1972. Steel to be manufactured in basic
oxygen furnaces, iron in one large blast furnace.
Financing for the IISMI project was originally provided through:
Common Stock
Local interests, private and public P55 million
Preferred "A" stock
Government Service Insurance
System
15 million
Social Security System
15 million
Public
5 million
Preferred "B" stock
Subscribed by Koppers, General Electric, Westinghouse,
and Blaw-Knox (the principal suppliers)
20 million
TOTAL CAPITAL P110 million
Loans
Export & Import Bank,
Washington
P250 million
Development Bank of
Philippines
40 million
National Shipyards and Steel
Corp.
10 million
TOTAL LOANS
P300 million
Careful study was made of all operational aspects. Electricity is generated in a hydroelectric power station located on the Agus River
, about four kilometers from Iligan. No outage period had been sustained previously due to failure of the generating equipment,
which consists of three generating sets with a fourth under installation. Steam is obtained from two-package 30,000 lbs. per hour
maximum boilers made by Ishikawajima Heavy Industries. The chief steam requirement is in the pickling line in the cold mill and in
lubrication oil temperature control, plus other uses.
PREPARED BY
APPROVED BY
Water is obtained from the swift-flowing Agus river, intake being about 14 feet above sea level so that no salt water comes in with
the tide (high tide is plus 6 feet on sea level). The river is well-supplied from its source at Lake Lanao, at 2,300 feet above sea level,
even during a dry spell. There is a pump-house and a 12 million gallon reservoir 200 feet above plant level, which feeds water to the
installation through gravity.
Compressed air is supplied by three Worthington compressors. Waste disposal will require passing the acid from the pickle line to a
neutralization bed chamber where limestone is added before it is discharged to the sea. Small quantities of slag from the electric
furnace will be used to fill in the shore area for land reclamation purposes. No cranage problem is anticipated because trucks or mobile
cranes can be availed of, if the overhead crane fails. The pier is about 750 feet long and about 80 feet wide, with a 160 ton derrick, and
deep water is 32 feet. The inventory of spares and replacements for all small moving parts is sufficient but the replacement period for
major equipment and mill driving motors could run up to twelve months or more. A well-equipped machine shop is maintained.
The set-up regarding engineer staff and technical supervision included several months of specialized training for 42 Filipino
technicians and mechanical and electrical engineers in Japan who were distributed among the four leading steel mills (Mitsubishi,
Kawatetsu, Fuji, and Kawasaki). Start-up of the plant after completion will be under the Colletti group, which will provide thirty
supervisors.
Koppers Company, Inc. of Pittsburgh has a ten-year management supervision contract, running from 1965 to 1975. The technical
considerations in the design, the high quality of workmanship in the buildings and plant installation, and the ability of Filipino engineers and technicians to operate the integrated steel project have impressed all experts who came to survey the work done.
Financial developments
The Development Bank of Philippines eventually came to have the following financial exposure in IISMI:
a. P56 million in loans
b. US$8.3 million in long term guarantee, and
c. US$72.5 million in short-term guarantee.
The Reparations Commission was involved to the extent of P16 million for the use of Japanese reparation goods and P20.5 million
for IISMI's takeover of NASSCO assets.
The Government was guarantor for IISMI loans from Export-Import Bank in the amount of US$62.3 million, of which the unpaid
balance was US$60.2 million. The foregoing figures do not include interest charges on the loans and guarantees that have matured.
As of 31st December, 1971, IISMI was in arrears with the DBP in the sum of P337.6 million.
In the same year, IISMI failed to meet the mid-year and end-year installments on the US$60.2 obligation to the Ex-Im Bank. The
government, as guarantor, had to advance a total of P43.9 million to cover the two installments.
PREPARED BY
APPROVED BY
The DBP decided to foreclose on IISMI's mortgages but the latter filed a petition for injunction to restrain the DBP from
foreclosing.
According to the DBP's brief, IISMI began defaulting on its obligations as early as March, 1970. Interest payable by IISMI on the
P48 million original DBP loan was in arrears. So was the interest on DBP's long term guarantee on the US$8.3 million borrowed by
IISMI. Short term loans guaranteed by DBP for raw material requirements had also started to mature.
Investigation by the DBP revealed that while IISMI was not meeting its obligations with the DBP, IISMI's receivables from the
Jacinto-controlled firms had steadily piled up to a total of about P80 million. These other companies were Ferro Products, Inc.; Jacinto
Steel, Inc.; and Jacinto Iron and Steel Sheets Corp. (JISSCOR).
The DBP also alleged that fabulous salaries were being paid to officials of IISMI even before the mill was completed and in
operation. The DBP added that IISMI continued with this practice even as it received income insufficient to cover operational costs
and financial charges. The highest paid member of the Jacinto family was said to have received about P450,000 a year in salaries and
allowances, while P168,000 went to his two sons. There were, in addition, other relatives on the payroll.
The DBP particularly drew attention to what they referred to as the diversion of IISMI's "corporate profits and opportunities" to
other Jacinto-owned or controlled firms. This was said to be "a violation of fiduciary responsibility" resulting in "waste and mismanagement." This diversion was done through the participation of other Jacinto-controlled firms in the business operations of Iligan
Integrated Steel Mill, Inc. The raw material importations from Japan were shipped though Jacinto and Pereyra Shipping. In turn,
IISMI products were sold to Jacinto Steel, Inc. and JISSCOR.
The marketing arm of IISMI was Ferro Products, Inc., which was Jacinto-controlled according to the DBP; and the marketing arm
of Jacinto Steel, Inc. and JISSCOR was Beatriz Marketing Corporation, another Jacinto controlled firm. Thus, five Jacinto-controlled
firms enjoyed business opportunities through IISMI, which was also controlled by the Jacintos, although largely financed by the
government and government financing institutions.
The DBP wanted IISMI to put an end to the "marketing arrangements" and collect IISMI's receivables from the Jacinto firms, so
as to enable ISSMI to honor its obligations. As the arrearages keep mounting, the DBP asked the Central Bank to "watchlist" IISMI
and this prevented the continued importation of its raw material requirements.
In its petition, IISMI contended that the DBP could not foreclose on IISMI because the government was contractually committed
to give full support and assistance to the integrated steel mill project. The loans, advances, guarantees given by the DBP were in pursuance of
FINANCIAL DATA OF ALL JACINTO-CONTROLLED FIRMS
(1974)
PREPARED BY
APPROVED BY
Sales / Income
1. JISSCOR
2. MINSTEEL
3. Camara Steel
4. Beatriz Marketing
5. Jade Purchasing
6. Alpha Insurance
7. Trans-World
Insurance
8. J & T Realty
9. Rajah Broadcasting
10. Economic
Publications
11. Zita Publishing
12. Cinema Center
13. J & P Shipping
14. Jade Transport
TOTAL
Increase/decrease
of stockholders'
equity & retained
earnings
P54,555,416.20
16,521,333.73
6,955,175.34
47,368,608.86
1,599,068.78
850,999.86
184,442.87
P4,730,996.70
1,759,545.18
551,218.58
570,842.89
79.94
1,072,947.11
76,852.80
648,376.46
609,732.00
52,088.73
11,633.63
22,318.55
(65,679.66)
394,818.19
200.00
2,461,121.39
236,182.31
P132,437,564.72
1,398.30
(474.25)
320,254.54
3,039.30
P9,054,973.61
the government's commitments to IISMI. If the government itself could not foreclose on IISMI, argued the petition, neither could the
DBP since the latter is merely an agency of the government.
It was alleged by IISMI that the government and its agencies had failed to comply with their commitments to IISMI, resulting in
IISMI not being able to complete the integration before the adoption of the floating exchange rate by the Marcos administration in
February, 1970. The DBP, SSS, and GSIS did not release on time the funds committed to IISMI. Had these government agencies
released the funds for IISMI on schedule, IISMI could have integrated its mills before the devaluation of the Philippine peso in 1970.
If that were the case, it would have been possible for IISMI to discontinue importation of raw materials to feed the rolling mills.
According to IISMI, the government not only delayed the release of funds but also obstructed the operations of IISMI. The
waitlisting of IISMI by the Central Bank prevented the importation of raw materials and caused the layoff of 2,000 of IISMI's
PREPARED BY
APPROVED BY
workers. This virtually was a closure. resulting in a loss of US$3.6 million in closed contracts abroad and of millions of pesos yearly
in domestic sales.
It was also claimed by IISMI that the alleged amounts in arrears with the DBP were not due and demandable, because the contract
with the Ex-Im Bank provided for the subordination of the DBP loan to that of the Ex-Im Bank. This meant, according to IISMI, that
the DBP would not collect from IISMI unless IISMI had first met its obligations to the Ex-Im Bank. Since IISMI had not paid the ExIm Bank, the DBP could not collect from IISMI.
Even the Board of Investments, according to IISMI, had refused to act on Iligan's revised plan for its hot metal plant, while it gave
preference to the application of Elizalde Steel Mills, Inc. (ELIROL). IISMI also claimed that the DBP restructured ELIROL's
obligations without doing the same for IISMI. In addition, the Central Bank permitted ELIROL to import raw materials while it cut-off
IISMI's importations.
The amount claimed by the DBP as being in arrears was not correct, according to IISMI, because it included P81.3 million of
sinking fund contributions, the payment of which was not included in the financial program submitted by ISSMI and the government
to the Ex-Im Bank. The remainder was not demandable because, as previously mentioned, the DBP loan was subordinated to that of
the Ex-Im Bank.
The Court of First Instance of Lanao del Norte decided the petition for injunction in favor of IISMI, ruling that the "watchlisting"
of IISMI by the Central Bank was "oppressive and drastic and unreasonable curtailment of the constitutional right of the petitioner to
free manufacture and trade without due process of law." The Court also ruled that the "watch-listing" was contrary to the purpose of
RA 3519, the law promoting the establishment of an integrated steel industry in Iligan City.
Eventually the case was brought to the Supreme Court.
In September, 1972 martial law was proclaimed by President Ferdinand Marcos. By Department Order 736, the Secretary of
National Defense on 10th January, 1973 named nine military men to compose the new Board of Directors for the Jacinto Group of
companies. Seven other military officers were appointed management officials of the said companies. These companies included the
various Jacinto enterprises in addition to the five firms previously mentioned in this case. The operations at Iligan were resumed under
the management of the military.
In October, 1974, a press release, carrying the by-line of a retired colonel, was issued by the National Media Production Center to
report "how each of the Jacinto companies performed under the management of AFP officers." The results of one year of operations
under military management were tabulated as follows for fourteen companies o the Jacinto group:
While the press release drew emphasis on the foregoing figures which have been "checked by five independent certified public
accountants," the financial results given do not include all the Jacinto-controlled companies. Subsequently, data released by the
Securities and Exchange Commission listed Iligan Integrated Steel Mill as 27th ranking corporation in sales revenue (P367,545,600)
PREPARED BY
APPROVED BY
for the year 1974, but its net result for that year was a loss of P287,991,710 (making IISMI the biggest corporate loser in the country
for 1974). The second biggest corporate loser was Meralco Securities (P45.19 M) and the third was Air Manila (P33 M).
Assuming that the situation facing Iligan Integrated Steel Mill applies equally today, how can its problem be solved considering
that the current thrust of government is to reach inaccessible areas. Apart from cement, is steel an important component in roadand-bridge building for reaching the so-called inaccessible areas?
LONG CASE 3
AYALA CORPORATION
In 1834, Domingo Roxas, a Philippine born Spaniard, founded Casa Roxas with Antonio de Ayala (a young Spanish Basque who
had married his daughter, Margarita Roxas) as partner. Domingo Roxas had sugar-cane haciendas in Calauang, Laguna and Calatagan,
Batangas. The new firm set up a distillery for the extraction of alcohol from sugarcane and molasses, the Destileria y Licoreria de
Ayala y Cia. The distillery's best known product was "Ginebra San Miguel," which is still being marketed today, although the distillery
was sold to the Palancas in 1924.
PREPARED BY
APPROVED BY
When the founding Roxas died, his daughter and two sons inherited Casa Roxas and renamed it Roxas Hijos, later Roxas
Hermanos. After one of the brothers left the firm and the other died, Margarita Roxas de Ayala and her husband took active charge of
what was eventually known as Casa Ayala. They came to have as sons-in-law Pedro Pablo Roxas (a nephew whose inheritance
included the Hacienda de San Pedro Makati) and Jacobo Zobel Zangroniz. By the 1880's the firm managed Central Azucarera Don
Pedro in Nasugbu in addition to their earlier enterprises, haciendas, and urban rental properties. Substantial investments were also
made in shares of La Cerveceria de San Miguel, Compania Maritima, an ice plant, and La Compania de Tranvias de Filipinas. The
firm came to be known as Ayala y Compania by the time of the Philippine Revolution in 1896, and control passed to the Zobel-Roxas
de Ayala generation who became managing partners.
During the early decades of the American regime, Ayala y Compania was involved in urban rental properties and later started the
sale of small, low-priced subdivision lots (in Erinita near Ayala Boulevard, San Andres Bukid, Zobel-Roxas subdivision along Vito
Cruz street, etc.). The Zobels (and a brother-in-law, Joseph R. McMicking) also became active in the insurance business by organising
Insular Life Assurance Company, Ltd. and Filipinas Cia. de Seguros. Later, the family acquired substantial shares in People's Bank
and Trust Company and the Bank of the Philippine Islands (which at that time was controlled by the Roman Catholic Archbishop of
Manila) and this in 1974 led to a merger, with BPI as the surviving bank.
Progress was satisfactory in many respects, but growth came by leaps and bounds after World War II, when the name Ayala
became identified with sophisticated real estate development and thereafter with other varied lines in pursuit of diversification and
national economic uplift. Manila in 1945 was a devastated city. It would, of course, be rebuilt. But the Zobel-Ayalas and Joseph R.
McMicking looked at their vast hacienda of 900 hectares in Makati (more than half the area of the municipality) and envisioned it as a
new city which would be spurred by the growth which Manila cannot contain, a new city which would develop according to plan
instead of haphazardly, a new city which would have all the benefits and amenities of modern technology and total urban planning, a
new city which would call for the placing of substantial capital on calculated risk but which could well bring in substantial calculated
profit.
The time was opportune for attracting people to build their new homes in a new place, away from the shanties and the honkytonks
which clustered as squatter areas all over post-war Manila. The hacienda was divided into five zones, with separate sectors for
housing, commerce, offices, and light industry. There would be churches, schools, recreational facilities, parks, paved streets, treelined
sidewalks, underground drainage, waterworks, and all other public utilities.
The over-all strategy called for first attracting the very well-to-do to reside there; hence, Forbes Park was opened in 1948. The
rich families would create a high-brow image for Ayala's Makati and would thus render easier the subsequent sale of smaller lots in the
later residential sectors. Also, the rich families, being the influential businessmen and rank-executives, would like to avoid the congested traffic of Manila. In view of this, they could decide to have their offices in the nearby planned business sector of Makati (the
Ayala Avenue-Buendia district). For a start, the Zobels built ten homes in Forbes Park for themselves and their top executives. They
PREPARED BY
APPROVED BY
persuaded the Manila Polo Club to sell their Pasay property to the U.S. State Department and transfer to Forbes Park, the Manila Golf
Club to sell their Caloocan golf course to a subdivision developer and move to Forbes Park, and the Franciscan Fathers to erect their
Santuario de San Antonio in Forbes Park after selling their Intramuros land to the Mapua Institute of Technology. Sales of Forbes Park
land became faster thereafter.
Purchasers had to agree to certain conditions, one being that the building plans must first be approved by the company. Among
the conditions were: Only single-family houses of not more than two storeys in height could be built, the built-up areas must not cover
more than a certain percentage of the land area, construction should be started within a certain period after purchase of the lot, the
buyers should join the homeowners association, no noisy or noxious animals could be raised or kept as pets, and the houses are to be
used only as residences. Since the streets were private property, access could be restricted and security guards manned barriers at the
entrances. The success of Forbes Park, with its lot sizes in excess of 3,000 square meters each, led to the opening of the villages
intended for the less affluent. Forbes Park was planned for the highest high-income group while Forbes Park North was for the middle
high-income group.
San Lorenzo Village, which was for the lower middle-income group, was opened in 1952; Bel Air Village for the middle middleincome group in 1957; San Miguel Village for the lower middle-income group in 1960; Magallanes Village for the middle middle-income group in 1962; and Dasmarias Village for the lower high-income group in 1962.
The plush Ayala villages are not without their critics who call them the rich men's ghettoes, where the affluent live insulated and
isolated from the stark realities of life elsewhere. They are enclaves of affluence where rich men's children grow up with other rich
men's children, and poverty or struggle for survival is something one reads about in the newspapers but is otherwise remote. The
villagers live in comfort and elegance so far removed from the wretched existence of the masses. Also, the Ayala capital resources
were thus devoted to the rich who could well provide for themselves, instead of the low income group which needs financial
assistance most.
In defence, it is contended that the Ayala villages contribute heavily in taxes to the municipality (P35 million in 1970), of which
about 90% go to benefit the low income families of Makati. Also, the construction of the villages has provided jobs for thousands of
people. The Ayala villages are models of what a community can desirably grow into, and thus inspire the development of other villages along planned lines although on reduced scale.
If Ayala's Makati has become both a showplace and a showcase, is this not eloquent proof of Filipino talent and capacity to think big
and to achieve big? Is not Ayala's new city evidence of a way of life that is never hopelessly beyond the reach of anyone who is
talented and persevering in a free enterprise society? If the enjoyment of luxury motivates some people to try harder and to do better,
is this not sufficient justification? Yes, it is a country-club set but it is not a closed society. It is an example of private citizens
providing for their own community needs without calling on government to provide these for them, yet paying their full burden of
taxes. For instance, the 34 deep wells in the area were financed by the Ayalas, and the dues paid to the villages' home-owners
PREPARED BY
APPROVED BY
association cover the cost of street maintenance, security service, sanitation, garbage collection, and other services which elsewhere
are provided by the municipality at municipal expense.
Big business began moving to Makati after the Ayalas constructed three trend-setting tall buildings. By 1960 there were still many
vacant lots along Ayala Avenue and Buendia but development became fairly rapid in the late 1960's. Construction of business premises
proceeded apace in the mid-1970's, particularly in Legaspi Village, along Pasco de Roxas, and in the Greenbelt Park. Most of the big
business firms moved away from Manila and now have their head offices in Makati. Since all buildings are of recent construction,
theycould all be required to conform with rigid specifications. Business edifices on Ayala Avenue had to be at least of six storeys, of
reinforced concrete, well-lighted, completely air-conditioned centrally, and equipped with several lifts. Retail stores and restaurants
were not allowed on the ground floor of Ayala Avenue office buildings while 40% of the lot area should be available for car parking.
In addition, Ayala constructed multi-level reinforced concrete carparks for public use. Buildings on street corners must have a curved
facade to render the intersections more spacious.
Integrated planning is also evidenced by the Makati Commercial Centre twenty-six hectares designed for specialty shops,
department stores, supermarkets, theatres, restaurants, and recreation centres. Promenades and malls have also been provided, plus a
post office. All single and two storey buildings at the Makati Commercial Centre are considered temporary since their demolition by
1990 is planned, with high-rise buildings to replace them. Carpark areas designated on the drawing boards are, however, proving to be
insufficient and this problem has to be tackled. The number of cars in relation to the population is on the uptrend and traffic congestion
is surfacing in Makati in spite of all plans to prevent it. Likewise, there is a growing strain on the water supply.
To prevent the place from becoming a glass-and-concrete jungle, the Greenbelt Park and the Makati (Sports) Club have been envisioned to include a lagoon, an aviary, a museum, promenades, swimming pools, other sports facilities, restaurants, and function
rooms. Land values in the area have skyrocketed, yet the Ayalas have not gone the way of other developers who sell what were earlier
designated in the plans as parks and recreation areas. But management has had to contend with pressures to alter some of the plans,
such as the conversion of the San Lorenzo Village side of Pasay Road from residential to commercial. There is also pressure to change
the residential properties fronting Epifanio de los Santos Avenue into commercial buildings.
Makati's spectacular progress has become Manilas spectacular problem. Makati drained away from Manila the latter's biggest taxpayers. Yet Manila's population of low-income and of no-income people, students, and children keep growing, and they increase the
demand for public schools, public health and welfare services, public transport, fire and police protection, sanitation services, parks
and playgrounds, and urban renewal. The mayor of Manila then, Antonio J. Villegas, realized this and, significantly, chose to live in
Forbes Park during his term of office.
Ayala became a corporation in 1968 and by 1976 it had spread out from real estate development, banking and finance, and
insurance to marketing and distribution, trading, tourism, agriculture, construction, communication, and wood and coconut processing. Shareholdings in Ayala Corporation were not limited to the Zobel-Ayala family but included four Mitsubishi companies (20%
PREPARED BY
APPROVED BY
share), the employees of the Ayala subsidiaries and the Ayala and Insular Life-FGU Retirement Funds (5.6% share). Over 90% of the
investments of Ayala Corporation were in the subsidiaries and affiliates listed hereunder:
Subsidiaries/affiliates
Banking and Finance
Bank of the Philippine
Islands
Ayala Investment & Development
Corporation (an investment house)
Ayala Investment Management, Inc.
Makati Leasing & Finance Corporation
Philsec Investment Corporation
(Member: Makati
Stock Exchange)
Ayala Finance (Hong Kong) Ltd.
A F Money Brokers, Inc.
Foreign partner/s
J. P. Morgan Overseas Capital Corp.
Wells Fargo Bank International
U.S. Leasing International Inc.
Orient Leasing Co., Ltd.
Insurance
The Insular Life Assurance Company, Ltd.
Filipinas Life Assurance Company
FGU Insurance Corporation
The Philippine Guaranty Co., Inc.
Universal Reinsurance Corp. (Phil.)
China Underwriters Life & General Insurance Co. Ltd. (Hong Kong)
Universal Life & General Insurance
Manufacturing, trading/ services &
commerce
PREPARED BY
APPROVED BY
Legaspi Oil Co., Inc.
Mitsubishi Corporation
Cagayan de Oro Oil Co., Inc.

Connell Bros. Co.
Makati Machinery & Equipment Co., Inc.
Beta Electrical Co., Inc.
Philippine Overseas Trading
Globe-Mackay C &
Corporation
Pan Pacific Commodities Corporation
Palawan Apitong Corporation
Acme Engineering & Management
Association Inc.
Luzon Inter-Coast Co., Inc.
Diamond Cement &
Industrial Corp.
Agusan Wood Industries (D.O. Plaza)
Wilbur-Ellis Company
National Lead Co.

(Phil.) Inc.
Philippine Psychological Corporation
Purefoods Corporation
Tourism
Philippine Hotelier, Inc.
(Manila Garden Hotel)
American Cable & Radio Corporation

NL Industries
Hormel International Corporation
Japan Air Lines Development
Co., Ltd.
The Mitsui Group
The Bank of Tokyo, Ltd.
Taisho Marine & Fire Insurance Co., Ltd.
PREPARED BY
APPROVED BY
Manila Peninsula
Hotel, Inc.
Hongkong & Shanghai

Hotels Limited
Hongkong & Kowloon Wharf &
Godown Company Limited
Swire Pacific Limited
Davao Insular Hotel Co., Inc.

Calatagan Resort, Inc. (Punta Baluarte)
Agricultural
Lapanday Agricultural & Development
Corporation
Davao Grains, Inc.
San Antonio Meat Indutries, Inc.
Real Estate/construction
Ayala Realty Development Corp.
Makati Development Corp.
Darong Development Corp.
Ayala Corporation's principal sources of revenue were:
a. LAND SALES
1971
P29 62%
REVENUE MIX
(In Millions)
1972
1973
P23 55%
P24 38%
1974
1975
P55 52% P48 34%
PREPARED BY
APPROVED BY
Realised profit
on cash & instalment sale of
subdivision land
b. RENTALS
Rentals of land,
buildings &
improvements
7 15%
11 25%
14
22%
21
19%
28
20%
c. INVESTMENTS
Dividends
Interest
Gain on Sale
of Investments
d. MISCELLANEOUS
Miscellaneous
Income from Road
Construction
Projects
TOTAL
2 5%
3 6%
2
3
6%
7%
16
3
27%
4%
16
5
---
---
----
---
----
7%
7%
6%
6%
5%
8%
15% 30 22%
5% 4
3%
P47* 100*% P43* 100*% P61* 100*% P106* 100*% P139 100%
*Difference is due to rounding-off.
The
most
recent
land
development
was
Salcedo
Village,
where
the
Makati
(Sports)
Club,
a
P25
million
sports
and
recreation
complex,
and
the
Ateneo
de
Manila
Graduate
School
are located. As at 31st March, 1976 the Ayala Corporation's inventory of disposable lots in
Makati was approximately 38 hectares. It had an option to purchase a 362 hectare property, it Alabang. In 1977, it had already planned
to this into an integrated residential community, commercial center, and light-industry area. Land sales would, therefore, continue to
be its principal revenue source.
PREPARED BY
APPROVED BY
FIVE-YEAR FINANCIAL HIGHLIGHTS

(PhP Millions)
1971
1972
1973
1974
1975
Total revenue
P 46.9
P 42. 8
P 61.4
P106.0
P139.3
Compounded growth
rate per annum
31%
Net Income
Stockholder's equity
Earnings per share
25.1
155.4
0.17
20.6
174.1
0.14
34.4
205.3
0.23
59.7
264.7
0.41
66.5
327.6
0.45
28%
26%
20%
Return on revenue
53.5 %
48.1%
56%
56.3%
47.7%
Return on ave. equity
17.0%
12.5%
18.1%
25.4%
22.5%
Return on ave. total assets
14.1%
15.4%
20.0%
15.8 %
10.63%
Ayala Corporation has been evolving from a close family-owned and family-run organization into a publicly-held, professionallymanaged corporation. Of the nine directors in 1976, only two were Zobels while the rest were not family relations. Retirement age of
60 applies also to the family. Executive development is given careful attention and several persons, instead of only one, are being
developed as possible successors for every for position. Ayala Corporation is now run by a team, and major plans and decisions are
products of group effort and participation. Ayala is growth-oriented and intends to come as a dynamic contributor to national progress.
Ayala's operational policy became bi-focal, as gleaned from, the following:
a. The consolidation of its position in the traditional lines of real estate development, banking and finance, and insurance; and
b. The involvement with promising commercial and industrial ventures, largely export oriented, in line with the government's
investment priorities policy.
For both investment thrusts, substantial long-term equity capital would have to be committed, particularly for the development of the
362 hectares of Alabang. The financial position of Ayala Corporation as of 31st March, 1976 is shown by the following statement:
Ayala Corporation Balance Sheet

March 31, 1976
CURRENT ASSETS
Cash
113,426
PREPARED BY
APPROVED BY
Temporary cash investments

Marketable securities (aggregate market
value exceeds cost)
20,788,842
Accounts and notes receivable net of

allowance for doubtful accounts of P350,000
55,334,499
Road contracts receivable and unbilled cost

Subdivision land saleable within one
year at cost
Materials and supplies
Prepaid Items
Total current assets
LONG-TERM ACCOUNTS AND NOTES
RECEIVABLENet of current portion
LAND AND IMPROVEMENTSAt cost
Subdivision land net of current portion
Unsubdivided land
Total land and improvements
INVESTMENTSAt cost
Stocks and bonds
Land, buildings and improvements (net of
accumulated depreciation of P12,507,615)
Total investments
PROPERTY AND EQUIPMENT At cost,
Less accumulated depreciation of P4,087,888
OTHER ASSETS
Miscellaneous advances and deposits
16,430,799
10,166,077
9,275,250
5,059,398
457,326
P117,625,617
21,160,760
23,277,898
2,715,115
25,993,013
287,130,117
86,850,410
373,980,527
14,565,412
3,707,849
PREPARED BY
APPROVED BY
Deferred debt charges

Unamortized prior service contribution to
retirement plan
Total other assets
919,728
716,411
5,343,988
TOTAL ASSETS
P558,669,317
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable and accrued expenses
P19,381,736
Notes payable due within one year
13,549,589
Advances received on road construction projects
8,653,667
Income tax
6,069,747
Subscriptions payable
3,033,097
Administration accounts
647,553
Deposits and registration fees received in
advance
10,277,380
Total current liabilities
LONG-TERM LIABILITIES Net of current
portion
Accounts payable
Notes payable
Land preference bonds (Note 9)
Subscriptions payable
Total long-term liabilities
P61,612,769
3,829,493
22,477,132
45,000,000
1,789,560
73,096,185
PREPARED BY
APPROVED BY
UNREALISED PROFIT ON INSTALLMENT SALES

RESERVE FOR LIABILITY ON CONTRACT
CANCELLATION
STOCKHOLDERS' EQUITY
Capital stock --P10 par value
Authorized 20,000,000 shares
Issued
15,280,093 shares
Additional paid-in capital
Retained earnings:
Appropriated
Unappropriated
Total
Total capital and retained earnings
Less cost of 596,876 shares held in treasury
Total stockholder's equity
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
13,417,441
1,404,281
152,800,930
1,048,104
143,577,238
122,612,508
266,189,746
420,038,780
10,900,139
409,138,641
P558,669,317
Several weeks later, the stockholders approved the reclassification of the 20,000,000 shares of P10 par value each into 200,000,000
shares of P l par value per share, of which 70% would be class A shares (which may be owned or transferred to Philippine citizens
only) and 30% would be class B (which may be owned by any person or corporation regardless of nationality). A property dividend
was also distributed.
Ayala Corporation decided to offer10,696,000 "A" shares of common stock (to Philippine citizens and qualified Philippine
corporations) as secondary issue from holdings in Treasury. Ayala shares were not listed in the stock exchanges. Offering price was
P4.20 per share, if paid in cash, or P4.80 per share if paid in four installments at intervals of six months. The issue was underwritten,
hence proceeds of over P43 million could be counted on. The offer was to expire on 31st August, 1976.
PREPARED BY
APPROVED BY
Purchase
Price
Per share
Minimum
Maximum
Total
Minimum
Maximum
1
P4.20 (cash)
P4.80 (terms)
Underwriting fees
and selling
commissions
P0.126
P0.144
Proceeds
to the
Company1
P4.074
P4.656
P44,923,200.00 P1,347,696.00
P51,340,800.00 P1,540,224.00
P43,575,504.00
P49,800,576.00
Before deducting out-of-pocket expenses estimated at a maximum of P100,000 which are to be borne by the Company.
In the same way that Makati drew business away from Manila as it developed in the early sixties, will it not suffer the same fate
as Manila, as Pasig, Taguig and the other adjoining cities grow today?
PREPARED BY
APPROVED BY
LONG CASE 4
BOOM, BREAK-EVEN, OR BUST
During the troubled years which led to the promulgation of Proclamation No. 1081, few tourists came to Philippines and the few first-class hotels
in Manila had many unbooked rooms. The martial law administration subsequently set up a Department of Tourism, and a well-financed
promotional campaign was launched to bring in tourists. Between 1973 and 1975 the influx of foreign tourists and Balikbayans became heavy and
most hotels were fully booked. Since getting hotel accommodations became a problem not only for tour groups but also for traveling businessmen,
the construction of new hotels was frantically undertaken, and by the end of 1976 the total number of hotel and pension rooms in Metro Manila was
placed at 13,000 (up by about 4000 over the 1975 level of over 3,000 rooms).
PREPARED BY
APPROVED BY
Hotel construction was very actively supported by the government, and substantial financing was provided by government financing institutions
such as the GSIS, DBP, SSS, and PNB. Target date for completion of all these feverish constructions of hotel buildings, furnishing of interiors, and
recruitment (with much pirating) and training of personnel was October, 1976 when the International Monetary Fund was to meet in Manila. It did
not take long for hotel managers to realize that they were racing each other to build a bloated superfluity of hotel rooms after the IMF Conference.
Tourist arrivals in 1975 were just over 500,000 and average stay was three days. To become profitably viable, a first-class hotel generally aims at
75% occupancy and this would mean about 10,000 rooms being booked each night out of Metro Manila's 13,000 rooms. Of the rooms
booked, it is usual that 75% are double occupancy and 25% single occupancy; therefore about 17,500 persons would be normally accommodated in the
10,000 rooms mentioned.
If the average stay in Manila of a tourist is two days, there should arrive in one year about 3,190,000 tourists for the hotels to be in a profit
situation with 75% occupancy. The
number of tourists can be lower provided they stay more days.
Number of
Required Number of
Days in Manila Tourist Arrivals Annually
3
4
6
3,190,000
2,120,000
1,590,000
1,060,000
Tourist arrivals in 1976 were estimated at 600,000. Since arrivals in 1975 were 500,000 and average stay was three days (when room availability was
only over 3,000), the number of arrivals and their length of stay would both have to be doubled by 1977 for the hotels to be profitable. The tourist would
have to allot six days for Metro Manila alone, and any evening in some provincial tourist resort would be additional. To induce tourists to stay longer,
Manila should develop distinctive tourist attractions, such as well-kept beaches, exotic sights for local color, cultural events, lively evening
entertainment, pageants, extensive shopping opportunities, and varied theatre performances.
If 17,500 tourists are in Manila per evening for the present average stay of three days, this represents about 5,800 air travelers arriving and 5,800
departing daily at the Manila International Airport (or about 1,000 persons to be processed per peak airport activity hour). There would be two jumbo
jets arriving and taking off every hour or about twenty-four jumbo jet arrivals and departures per day. Anyone who has been to the old Manila International Airport knows that its facilities were grossly inadequate for such crowds and the processing involved (which would have to be at the rate of
about eighteen persons cleared per minute). But if the average stay of a tourist can be lengthened to six days, the facilities at MIA need be for only half
the passenger traffic mentioned in this paragraph.
PREPARED BY
APPROVED BY
All the foregoing discussion is based on 75% occupancy for the hotels to uield satisfactory financial return. Previously, the Department of
tourism forecast 1,000,000 arrivals by 1977, but some would project this arrival figure for three or four years later, provided tourist promotion is
actively sustained by the government. The hotel managers therefore largely anticipate that for 1977 and 1978 their room occupancy will be between
45% and 60%, or below break-even point for most of them. The break-even point for the established hotels range from below 50% occupancy for
Hotel Inter-Continental to 86% occupancy for Hyatt Regency Hotel.
Japanese tourists form about 38% of total arrivals, but the increase in number of Japanese visitors is no, longer as steep as in 1974-1975.
There were thousands of Filipino balikbayans but this market has its limits, and the balikbayan campaign can be an effective contributor for about three
or four years only. The new terminal of the Manila International Airport became operational in 1982. The building was new but the bureaucratic
procedures for processing arriving and departing passengers remained largely the same. Tourist arrivals dropped to around 800,000 after
reaching 1,000,000 in 1980. By 1982, the Regent Hotel had to be taken over by the Philippine National Bank, and the Tradewinds and Mirador Hotels
by the Development Bank of Philippines. Earlier, the Manila Hotel and Hyatt Hotel were taken over by the Government Service Insurance System.
1977 OPERATING TARGETS FOR MANILA'S LUXURY HOTELS
Hotels
No. of
Rooms
Hilton
Holiday Inn
425
370
Hyatt
Projected
Occupancy
65%
Average
room rate
75%
US$25
23.50
265
70%
28
Inter-Continental
465
70%
28.75
Mandarin
504
45%
35
Manila Hotel
570
57%
28.50
Manila Garden
525
55- 60%
23.25
Peninsula
544
50- 55%
30-35
Philippine Plaza
676
40- 45%
PREPARED BY
US$30-35
APPROVED BY
Phil. Village
515
40%
19-20
Ramada
600
50-55%
21
Regent
470
50%
22
Sheraton
510
50%
22
Silahis
602
60%
20
Tradewinds
340
N/A
N/A
FOR THE MONTH OF JANUARY, 1983

No. of
Rooms
HOTELS
Holiday Inn
Century Park Sheraton
Hyatt Regency
Hotel Intercontinental
Manila Garden
Manila Hotel
Silahis International
Manila Mandarin
Regent of Manila
Manila Hilton
Manila Peninsula
322
500
265
400
525
546
505
473
450
416
514
Ave. Occupancy
87.2%
73.3
71.5
69.5
67.2
62.5
61.0
58.2
52.4
51.8
51.5
Ave. Room
Rate
P344.92
395.04
361.58
464.45
363.96
575.99
390.88
576.86
360.09
370.82
605.01
PREPARED BY
Room Revenue
P 2, 614,837
3,909,315
1,849,843
3,484,768
3,467,082
5,307,171
3,250,948
4,287,800
2,292,693
2,157,430
4,324,006
APPROVED BY
An egg-hen-egg vicious cycle in economic development is what we see in the preceding.

The government wanted to
create hotel-room capacity to accommodate tourists which bring-in much needed dollars to finance imports of inputs which the
Philippines cannot as yet produce domestically.
But in the process of building hotel-room capacity --and any hard (say roadsandbridges) or soft infrastructure(such as education-and-skills upgrading)-- savings in pesos and dollars are currently used-up which
are replenished through the infrastructure, say hotel-room capacity", with a time-lag due to gestation (time that lapses before the
investment yields output that replenishes the used-up funds). In the meantime, how can further investment be done? Under what
circumstances can deficit financing be useful?
LONG CASE 5
Government attempts to intervene directly in wage decisions in order to capture a greater share of profits for the benefit of
workers . As a general proposition, the quotation will not only be ineffective but also have adverse effects on resource allocation,
growth, and employment; and therefore, on the real incomes of the workers themselves --Ranis Report. Do you agree or disagree,
and why?
LONG CASE 6
Benevolent Capitalism ---An endangered philiosophy?
PREPARED BY
APPROVED BY
LONG CASE 7
Gift versus Bribe --when a friendly exchange turns into risky business.
PREPARED BY
APPROVED BY
ANNEX B
Case Analysis Format
1. VIEWPOINT OF EITHER THE FINAL DECISION-MAKER OR OWNER OR DULY AUTHORIZED AGENT:
________________
2. STATEMENT OF THE PROBLEM:
A.) TECHNICAL PROBLEM OR AN EVENT THAT DEVIATES FROM WHAT IS USUAL TO THE CASE ENTITY
UNDER STUDY:
____________________________________________________________________________________________________
____________________________________________________________________________________________________
___________________________________________________________________________________________________.
B.) DECISION-PROBLEM OR MAKING A CHOICE FROM AT LEAST TWO ALTERNATIVE WAYS IN SOLVING THE
TECHNICAL PROBLEM WHICH SATISFIES MOST, IF NOT ALL, OF THE CRITERIA FOR MAKING A CHOICE.
( THIS PART OF THE CASE ANALYSIS OUTLINE CANNOT BE ADDRESSED UNLESS STEP# 3 ON THE AREAS
OF CONSIDERATION YIELDS THE APPROPRIATE STRATEGIC QUADRANT.)
PREPARED BY
APPROVED BY
THIS PORTION OF THE CASE ANALYSIS IN DETERMINING HOW TO IDENTIFY A STRATEGY IN STEP # 3
LEADS TO THE STEP OF FILLING UP THE ALTERNATIVE SOLUTIONS COLUMNS OF THE DECISION-MATRIX
FORMAT IN STEP #4 .)
3. CONSIDER THE OPPORTUNITIES AND THREATS IN THE EXTERNAL ENVIRONMENT AND THE INTERNAL
STRENGTHS AND WEAKNESSES OF THE ORGANIZATION
4. BASED ON THE QUADRANT IDENTIFIED IN STEP # 3, DEVELOP ALTERNATIVE COURSES OF ACTION;
5. LET THE FINAL DECISION-MAKER PRIORITIZE THE FOLLOWING OBJECTIVES BASED ON THE THEORY OF THE
FIRM:
----TO MAXIMIZE THE BENEFIT : COST RATIO OBJECTIVE
----TO MAXIMIZE THE SERVICE-REACH (IF A GOVERNMENT AGENCY) OR MARKET SHARE (IF A
BUSINESS ENTITY)
----TO MAXIMIZE THE RATIO OF OUTPUT TO INPUT PER UNIT OF TIME (EFFICIENCY)
----TO ACHIEVE FULL EMPLOYMENT OF THE EXISTING HUMAN RESOURCE IN THE ORGANIZATION
6. FILL-UP THE FOLLOWING DECISION-MATRIX FORMAT FROM INFORMATION IN STEPS # 4 AND #5:
PREPARED BY
APPROVED BY
Decision-matrix format:
Objectives
Alternative-courses-of-action
(ACA)
(PI)Prioritization of
Objectives (the
higher the absolute
value of the number,
the more important
is the objective)
ACA I
Ordinal
Ranking
Weighted
Ranking of
ACA
Using
PI
ACA II
Ordinal
Ranking
Weighted
Ranking of
ACA
Using
PI
--to maximize the

benefit : cost ratio
--to maximize
the service
reach
--to maximize
output : input ratio
per unit of
time(efficiency)
--to achieve full employment

of the existing human
Resource
TOTAL
PREPARED BY
APPROVED BY
VI. Assumptions:
In ranking the ACAs, certain models, principles, or concepts may have
been used but not all data needed to use a model, principle, or concept may have
manifested itself in the case; in such a situation, assumptions on the datas
existence had to be made in order to use the model, principle, or concept.
There is risk the assumed data may not exist, but that is in the nature of taking risks in management no matter how educated the risk is.
VII. Recommended Course-of-Action

The ACA with the highest vertical sum of weighted ranking is the recommended course-of-action.
VIII. Action Plan for the Recommended Course-of-Action
PREPARED BY
APPROVED BY
ACTIVITIES PER
MANAGERIAL
FUNCTION OF
FINANCE,
MARKETING,
PRODUCTION, AND
HUMAN
RESOURCE
MANAGEMENT
___________
____________
____________
____________
MANPOWER
REQUIREMENT
FUNDING
REQUIREMENT
___________
____________
____________
____________
___________
____________
____________
____________
RESPONSIBLE
UNIT/POSITION
___________
____________
____________
____________
PREPARED BY
APPROVED BY
ECONOMIC CONCEPTS AND MANAGEMENT DECISION-MAKING

TIME VALUE OF MONEY
CONCEPT: PRESENT VALUE INCORPORATING INFLATION AS A DISCOUNTING FACTOR IN THE TIME VALUE OF
MONEY
PREPARED BY
APPROVED BY
Your businessman friend was asking you why you had to take economics as a subject. You explained to him that financial returns must
consider factors not within the resource of the firm to control in weighing alternative investment projects. One such factor not within the
resource of the firm to control is the macroeconomic fundamental called inflation rate. You demonstrated to him that a financial return
can be influenced by the inflation rate, hoping that he would be motivated to study macroeconomics to know the whys-andwherefores of the inflation rate. But first you have to make a convincing presentation. And you used the concept of Present Value
to make a convincing presentation. You started the demonstration by presenting to him the following Diagram A containing a
Ph P1 you are borrowing from him in January which you will pay in December of the same year. Since you have learned your
macroeconomics well, you are able to read the developments in the economy in such a way that you can predict prices doubling by
the end of the year. Your friend is amenable to your borrowing money from him but he demands that you double his money to Ph P2
by the end of the year. In your mind, you readily accepted the terms of your lender-friend knowing that prices anyway will double
by the end of the year. But you are kind to your friend and you want to explain to him that doubling his money at the end of the year
is not enough for him to benefit financially.
a) Where will you input the inflation rate in the following PV formula to demonstrate to him he will not financially benefit by
just doubling the gross return on his lent money by December? Compute for the PV as soon as you have inputted the
inflation rate in the PV formula.
b) But your lender-friend stands to gain if as soon as he lends you his Ph P 1.00, you will immediately give him Ph P 2.00.
How will you demonstrate to your lender-friend said gain by using the PV formula? Compute for the PV as soon as you
have inputted the necessary information in the PV formula.
JANUARY
Ph P 1
DECEMBER
Ph P 2
Diagram A
The present value (PV) concept in its simplest formulation looks as follows:
PV = Gross Return-on-borrowed-money (1 + discounting factor) n ,
where:
n -the number of years that will transpire --during which inflation will take its toll-- until the borrowed amount is paid.
CASH MANAGEMENT
PREPARED BY
APPROVED BY
MODULE on HOW MUCH CASH TO HOLD AS A MANAGEMENT ACTIVITY

CONCEPT: There are two costs involved in holding cash; namely: cost of insuring the cash held and the opportunity cost of holding
on to cash, as shown in the three diagrams below: :
HC
IC
PhP10
HC, OpporInsuIC
tunity
rance
cost(OC) cost(IC)
IC
PhP5
PhP 5
PhP 5
PhP4
Amount
Of Cash
Holdings
DIAGRAM 1
Amount
Of Cash
Holdings
DIAGRAM 2
Amount
Of Cash
Holdings
DIAGRAM 3
Introducing a time-lag between the OPPORTUNITY COST and INSURANCE COST decision may mean a gap between the quantity
of cash the firm wants at a given opportunity cost facing it and the quantity the firm wants to hold at the corresponding insurance cost
involved. Their Reaching a balance between the OPPORTUNITY COST and INSURANCE COST involved for a quantity of cash for
holding depends on the comparative slopes of the OPPORTUNITY COST and INSURANCE COST curves or functions, as shown in
the preceding three diagrams.
MINI-CASE:
The firm wants to know whether the OPPORTUNITY COST and INSURANCE COST curves or functions it faces would yield
desirable quantity of cash for holding in order to achieve two objectives; namely: A) a relatively low opportunity cost , B) a relatively
low insurance cost. Achieving the two objective will achieve the ultimate goal of a balanced OPPORTUNITY COST and
PREPARED BY
APPROVED BY
INSURANCE COST which would yield the lowest total cost of holding cash. The firm wants you as its adviser, to follow the
decision-matrix format in the following page where it indicated its two objectives and their relative importance to the firm in
choosing among three data-sets summarized in Diagrams 1, 2, and 3 which would best satisfy the prioritized objectives.
Which data-set or diagram will you as adviser tell the firm best satisfies its two prioritized objectives?
Is there need to prioritize the two objectives to reach a decision on which data-set or diagram will best satisfy the two objectives?
PREPARED BY
APPROVED BY
DECISION-MATRIX FORMAT:
OBJECTPRIORITY
DIAGRAM 1
IVES
INDEX
(PI)OF THE
OBJECTIVE
PI as
OrdiS AS
weights
nal
WEIGHTS
Rank
A) To obtain
the lowest
opportunity
cost in
holding an
amount of
cash
B) To obtain
the lowest
insurance
cost in
holding an
amount of
cash
DIAGRAM 2
Weighted
Ordinal
Rank
PI as
weights
DIAGRAM 3
Ordinal
Rank
Weighted
Ordinal
Rank
PI as
weights
Ordinal
Rank
Weighted
Ordinal
Rank
= 2
= 4
PREPARED BY
APPROVED BY
INVENTORY MANAGEMENT
MODULE on DECISION-MAKING MODEL(DMM) WHERE THE GOAL IS TO
DETERMINE QUANTITATIVELY THE TARGETTED AMOUNTS OF
PRODUCTION OVER A PERIOD OF TIME WHICH SHOULD MATCH THE
PROJECTED AMOUNTS OF REQUIREMENTS OVER THE SAME PERIOD OF
TIME SO AS TO REDUCE TO ZERO THE INVENTORY COST IDEALY. (JUST-INTIME PRODUCTION FOR INVENTORY MINIMIZATION)
PROBLEM:
GIVEN THE FOLLOWING CHART, HOW MUCH SHOULD BE THE TARGETTED AMOUNTS OF
PRODUCTION OVER A PERIOD OF TIME WHICH SHOULD MATCH THE PROJECTED AMOUNTS
OF REQUIREMENTS OVER THE SAME PERIOD OF TIME SO AS TO REDUCE TO ZERO THE
INVENTORY COST IDEALY?
ILLUSTRATION 1:
Projected
requirements
Targetted
production
Beginning
Inventory
Ending Inventory
Average
Inventory
Back Orders
Inventory Cost
per unit: 100
Rupiah
Back Order Cost
per unit: 200
Rupiah
1ST QUARTER
2ND QUARTER
3RD QUARTER
4TH QUARTER
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0

APPROVED BY
PREPARED BY
ILLUSTRATION 2:
Projected
requirements
Targetted
production
Beginning
Inventory
Ending
Inventory
Average
Inventory
Back Orders
1ST
QUARTER
2ND
QUARTER
3RD
QUARTER
4TH
QUARTER
Total
20
20
20
7.5
3.75
1.875
15
7.5
3.75
1.875
0.9375
7.5 x 100
=750
3.75 x 100
=375
1.875 x 100
=187.5
0.9375 x 100
=93.75
1ST
QUARTER
2ND
QUARTER
3RD
QUARTER
4TH
QUARTER
Total
20
20
20
14.0625
Inventory Cost
per unit: 100
Rupiah
Back Order Cost
per unit: 200
Rupiah
14.0625
x 100 R
=
1,406.25R
ILLUSTRATION 3:
Projected
requirements
Targetted
production
Beginning
Inventory
Ending
Inventory
Average
Inventory
Back Orders
Inventory Cost
per unit: 100
Rupiah
Back Order Cost
per unit: 200
Rupiah
0
5
0
5
0
5
0
0
5 x 200 = 1000R
5 x 200 = 1000R
5 x 200 = 1000R

APPROVED BY
15 x 100R
= 1,500R
PREPARED BY
TEST RE: DECISION-MAKING MODEL(DMM) WHERE THE GOAL IS TO

DETERMINE QUANTITATIVELY THE TARGETTED AMOUNTS OF
PRODUCTION OVER A PERIOD OF TIME WHICH SHOULD MATCH THE
PROJECTED AMOUNTS OF REQUIREMENTS OVER THE SAME PERIOD OF
TIME SO AS TO REDUCE TO ZERO THE INVENTORY COST IDEALY. (JUST-INTIME PRODUCTION FOR INVENTORY MINIMIZATION)
GIVEN THE FOLLOWING CHART, HOW MUCH SHOULD BE THE TARGETTED
AMOUNTS OF PRODUCTION OVER A PERIOD OF TIME WHICH SHOULD
MATCH THE PROJECTED AMOUNTS OF REQUIREMENTS OVER THE SAME
PERIOD OF TIME SO AS TO REDUCE TO ZERO THE INVENTORY COST
IDEALY?
ILLUSTRATION 1:
1ST QUARTER
2ND QUARTER
3RD QUARTER
4TH QUARTER
0
?
10
?
0
?
10
?
Inventory Cost
per unit: 100
Rupiah
Back Order
Cost per unit:
200 Rupiah
Projected
requirements
Targetted
production
Beginning
Inventory
Ending
Inventory
Average
Inventory
Back Orders

APPROVED BY
PREPARED BY
RESOURCE ALLOCATION ALGORITHMS

MODULE on DECISION-MAKING MODEL(DMM) WHERE THE GOAL IS TO
DETERMINE QUANTITATIVELY HOW TO MATCH SUPPLY AVAILABILITIES
AND REQUIREMENTS FOR THE PURPOSE OF EITHER MINIMIZING COST OR
MAXIMIZING PROFIT. (RESOURCE ALLOCATION ALGORITHMS: VOGELS
MODEL; GREEDY MODEL; ASSIGNMENT MODEL; NORTHWEST CORNER
RULE)
Chart 1:
Requirements
X requirement: 5
Y requirement: 8
Supply
Availabilities
Source A Available
Supply
:8
1Rupiah*
2Rph*
Source B
Available Supply
4Rph*
3Rph* :
5
* Cost per unit of supply assigned to a requirement
Column 1: 4Rph 1Rph = 3Rph
Row 1: 2Rph 1Rph = 1Rph
Hence, the logical start of making an assignment of resource allocation is a column where the highest
difference in cost per unit of assignment is situated; and that is Column 1 with its 3Rph difference.
Assign the most number of supply-units from source A to X requirement of 5. then the balance of
As supply amounting to 3 will have to go to Ys requirement of 8; the balance of Ys requirement
amounting to 5 (which is computed as 8 3 =5) shall have to come from Source B. Accordingly the
following Chart 2, shows the resource allocation which will achieve the least cost:
Chart 2:
Requirements
X requirement: 5
Y requirement: 8
Supply
Availabilities
Source A Available
Supply
:8
?
?
2Rph*
1Rupiah*
Source B
Available Supply
?
4Rph*
3Rph* :
FINANCIAL MANAGEMENT SYLLABUS PREPARED BY
APPROVED BY
5
5 x 1R = 5R
3 x 2R = 6R
5 x 3R = 15R
26R
Please observe that when one rearranges the assignments to say, the following as in
Chart 3, the total cost of resource allocation amounts to 36 Rupiah which is higher
by 10 Rupiah compared to Chart 2s 26 Rupiahs
Chart 3:
Requirements
X requirement: 5
Supply
Availabilities
Source A Available
Supply : 8
Source B
Available Supply :
5
8 x 2 Rph1Rupiah*
=2Rph*
16R
5 x 4 Rph = 20R
4Rph*
3Rph*
36R
Y requirement: 8
8
5

APPROVED BY
PREPARED BY
TEST ON DECISION-MAKING MODEL(DMM) WHERE THE GOAL IS TO

DETERMINE QUANTITATIVELY HOW TO MATCH SUPPLY AVAILABILITIES
AND REQUIREMENTS FOR THE PURPOSE OF EITHER MINIMIZING COST OR
MAXIMIZING PROFIT. (RESOURCE ALLOCATION ALGORITHMS: VOGELS
MODEL; GREEDY MODEL; ASSIGNMENT MODEL; NORTHWEST CORNER
RULE)
Chart 1:
Requirements
X requirement: 4
Y requirement: 9
Supply
Availabilities
Source A Available
Supply
:9
1Rupiah*
2Rph*
Source B
Available Supply
4Rph*
3Rph* :
4
* Cost per unit of supply assigned to a requirement
Hence, the logical start of making an assignment of resource allocation is a column where the highest
difference in cost per unit of assignment is situated; and that is Column _?_ with its _?_ Rph
difference. Assign the most number of supply-units from source A to X requirement of _?_. then the
balance of As supply amounting to _?_ will have to go to Ys requirement of_?_; the balance of Ys
requirement amounting to _?_ (which is computed as _?_ _?_ =_?_ ) shall have to come from
Source B. Accordingly the following Chart 2, shows the resource allocation which will achieve the
least cost:
Chart 2:
Requirements
X requirement: 4
Supply
Availabilities
Source A Available
Supply
:9
2Rph*
1Rupiah*
Source B
Available Supply
4Rph*
3Rph* :
4
Y requirement: 9
?
?
_?_ x 1R = _?_R

APPROVED BY
PREPARED BY
_?_ x 2R = _?_R
_?_ x 3R = _?_ R
_?_ R
WORKING CAPITAL
MODULE on HOW MUCH SHORT-TERM FUNDS VERSUS LONG-TERM FUNDS
TO USE IN FINANCING
CONCEPT: There are two costs involved in financing working capital; namely: cost of
USING SHORT-TERM FUNDS and the cost of USING LONG-TERM FUNDS, as
shown in the three diagrams below:
interest
rate
interest
in using
STIC,
rate
long term
LTIC in using
funds PhP10
short term ( LTIC)
funds
(STIC)
PhP5
PhP 5
PhP4
Ratio of
short-term fund
to long-term funds
DIAGRAM 1
STIC
LTIC
STIC
LTIC
PhP 5
Ratio of
short-term fund
to long-term funds
DIAGRAM 2
Ratio of
short-term funds
to long-term funds
DIAGRAM 3
Introducing a time-lag between the SHORT-TERM-FUND COST and LONG-TERMFUND COST decision may mean a gap between the WORKING CAPITAL the firm
wants at a given SHORT-TERM FUND INTEREST facing it and the WORKING
CAPITAL the firm wants at the corresponding LONG-TERM FUND INTEREST
involved. Their reaching a balance between the SHORT-TERM-FUND COST and
LONG-TERM-FUND COST involved for AN AMOUNT OF WORKING CAPITAL
depends on the comparative slopes of the SHORT-TERM-FUND COST and LONGTERM-FUND COST curves or functions, as shown in the preceding three diagrams.
MINI-CASE:
The firm wants to know whether the SHORT-TERM-FUND COST and LONGTERM-FUND COST curves or functions it faces would yield a desirable AMOUNT OF
APPROVED BY
PREPARED BY
WORKING CAPITAL; namely: A) a relatively low SHORT-TERM-FUND COST, B) a

relatively low LONG-TERM FUND COST. Achieving the two objective will achieve
the ultimate goal of a balanced SHORT-TERM-FUND COST and LONG-TERM-FUND
COST which would yield the lowest total cost of holding WORKING CAPITAL. The
firm wants you as its adviser, to follow the decision-matrix format in the following page
where it indicated its two objectives and their relative importance to the firm in choosing
among three data-sets summarized in Diagrams 1, 2, and 3 which would best satisfy the
prioritized objectives.
Which data-set or diagram will you as adviser tell the firm best satisfies its two
prioritized objectives?
Is there need to prioritize the two objectives to reach a decision on which dataset or diagram will best satisfy the two objectives?

APPROVED BY
PREPARED BY
OBJECTPRIORITY
DIAGRAM 1
IVES
INDEX
(PI)OF THE
OBJECTPI as
OrdiWeighIVES AS
weights
nal
ted
WEIGHTS
Rank
Ordinal
Rank
A) To obtain
the lowest
1
1
x 3
= 3
SHORTTERM
FUND COST
in holding an
amount of
WORKING
CAPITAL
B) To obtain
the lowest
2
2
x 3
= 6
LONGTERM
FUND COST
in holding an
amount of
WORKING
CAPITAL
DIAGRAM 2
PI as
weights
Ordinal
Rank
Weighted
Ordinal
Rank
DIAGRAM 3
PI as
weights
Ordinal
Rank
Weighted
Ordinal
Rank
= 2
= 4
PREPARED BY
APPROVED BY
MODULE on CASH BUDGETING

CONCEPT: A HIGH RATIO OF SALES TO CASH MAY INDICATE INADEQUATE
CASH. THIS MAY LEAD TO FINANCIAL PROBLEMS IF ADDITIONAL
FINANCING IS NOT AVAILABLE AT REASONABLE RATES. A LOW TURNOVER
RATIO INDICATES EXCESSIVE CASH BEING BUDGETTED FOR A PARTICULAR
PROJECT OR PRODUCT, AS SHOWN BELOW:
Profitability
Turnover
PROFIT
RETURN-ON-INVESTMENT = ______________
SALES
Reflects poor
handling of
cash resulting
in a relatively
low ROI
10%
Reflects good
handling of
cash resulting
in a relatively
high ROI
100%
Reflects very
good handling of
cash resulting
in a relatively
very high ROI
200%
SALES
x ______________
CASH
PhP1
PhP10
______________ x ______________
PhP10
PhP10
PhP1
= ______________
PhP10
PhP10
x ______________
PhP1
PhP1
= ______________
PhP10
x ______________
PhP10
PhP0.5
MINI-CASE: THE COMPANY CHAIRMAN IS ASKING FOR YOUR ADVICE RE:

THE PROPER BUDGETING OF CASH BY USING A DECISION-MATRIX
FORMAT HE PROVIDED YOU AND FROM WHERE YOU WILL CHOOSE FROM
AMONG THE ALTERNATIVES A SOLUTION. THE DECISION-MATRIX FORMAT
IS AS FOLLOWS, WHERE HE INDICATED HIS PRIORITIZED OBJECTIVES AND
APPROVED BY
PREPARED BY
THE ALTERNATIVE SOLUTIONS. WHICH SOLUTION WILL YOU

RECOMMEND? A, B or C? PLEASE JUSTIFY YOUR ANSWER.
OBJECTIVES
1) MAXIMIZE
PROFITABILITY
2) MAXIMIZE
TURNOVER
3) MAXIMIZE
ABSOLUT
E LEVEL
OF
RETURNONINVESTME
NT
PRIORITY
INDEX OF
OBJECTIVES
( in
ascending
order of
importance;
i.e., the
higher the
number, the
more
important is
the
objective)
1
A
Profitability
ALTERNATIVE SOLUTIONS
B
Turnover
Profitability
Turnover
Profitability
Turnover
PROFIT
SALES
_________ x _________
PROFIT
SALES
_________ x _________
PROFIT
SALES
_________ x _________
SALES
SALES
SALES
CASH
CASH
CASH
P2 PROFIT P10 SALES

_________ x _________
P1 PROFIT
P10 SALES
_________ x _________
P3 PROFIT
P10 SALES
_________ x _________
P10 SALES
P10 SALES
P10SALES
P2 CASH
P 5 CASH
P1 CASH

APPROVED BY
PREPARED BY
RECEIVABLES MANAGEMENT
MODULE on HOW MUCH RECEIVABLES TO HOLD
CONCEPT: There are two costs involved in holding receivables; namely: administrative
cost per account of discounting the receivables to encourage early payment and the
opportunity cost of holding on to receivables, as shown in the three diagrams below:
Administrative
AC, cost per
OC
discounting
account
(AC)
PhP5
PhP4
OpporAC
tunity PhP10
(OC)
OC
AC
OC
PhP 5
PhP 5
Amount
Of Receivable
Holdings
DIAGRAM 1
Amount
Of Receivable
Holdings
DIAGRAM 2
Amount
Of Receivable
Holdings
DIAGRAM 3
Introducing a time-lag between the OPPORTUNITY COST and ADMINISTRATIVE

COST PER DISCOUNTING ACCOUNT decision may mean a gap between the quantity
of receivables the firm wants at a given opportunity cost facing it and the quantity the
firm wants to hold at the corresponding administrative cost per discounting account
involved. Their reaching a balance between the OPPORTUNITY COST and
ADMINISTRATIVE COST PER DISCOUNTING ACCOUNT involved for a quantity
of receivables for administering the discount depends on the comparative slopes of the
OPPORTUNITY COST and ADMINISTRATIVE COST PER DISCOUNTING
ACCOUNT curves or functions, as shown in the preceding three diagrams.
MINI-CASE:
APPROVED BY
PREPARED BY
The firm wants to know whether the OPPORTUNITY COST and

ADMINISTRATIVE COST PER DISCOUNTING ACCOUNT curves or functions it
faces would yield desirable quantity of receivables for holding in order to achieve two
objectives; namely: A) a relatively low opportunity cost , B) a relatively low
administrative cost per discounting account. Achieving the two objective will achieve the
ultimate goal of a balanced OPPORTUNITY COST and ADMINISTRATIVE COST
PER DISCOUNTING ACCOUNT which would yield the lowest total cost of holding
receivables. The firm wants you as its adviser, to follow the decision-matrix format in
the following page where it indicated its two objectives and their relative importance to
the firm in choosing among three data-sets summarized in Diagrams 1, 2, and 3 which
would best satisfy the prioritized objectives.
Which data-set or diagram will you as adviser tell the firm best satisfies its two
prioritized objectives?
Is there need to prioritize the two objectives to reach a decision on which dataset or diagram will best satisfy the two objectives?

APPROVED BY
PREPARED BY
OBJECTPRIORITY
DIAGRAM 1
IVES
INDEX
(PI)OF THE
OBJECTIVE
PI as
OrdiS AS
weights
nal
WEIGHTS
Rank
A) To obtain
the lowest
OPPORTUNITY COST
in holding an
amount of
receivables
B) To obtain
the lowest
ADMINISTRATIVE
COST PER
DISCOUNTING
ACCOUNT
in holding an
amount of
receivables
DIAGRAM 2
Weighted
Ordinal
Rank
PI as
weights
DIAGRAM 3
Ordinal
Rank
Weighted
Ordinal
Rank
PI as
weights
Ordinal
Rank
Weighted
Ordinal
Rank
= 2
= 4
CONCEPT: SIMPLE THEORY OF PRICE:

A. DEMAND CURVES SLOPE DOWNWARD CONTINUOUSLY.
B. SUPPLY CURVES SLOPE UPWARD CONTINUOUSLY.
PREPARED BY
APPROVED BY
C. AN EXCESS OF DEMAND OVER SUPPLY CAUSES PRICE TO RISE, AN EXCESS OF SUPPLY OVER DEMAND
CAUSES PRICE TO FALL.
MINI-CASE:
Mr. Robles, the manager, was asking his assistant how an excess of demand over supply will
affect the price of their firms product. The manager plans to increase his firms price-offer. Mr. Robles
informed his assistant that he has two objectives to meet and the answer lies in how an excess of demand
over supply will affect the price of their firms product; namely: to maximize the firms profit and to
maximize sales. Judging from the prioritization index the manager provided for the two objectives, he holds
both objectives as co-equal. The manager requested his assistant to provide him with the assumptions
behind whatever solution the latter will provide. The manager further provided his assistant with the
presentation format(DECISION-MATRIX FORMAT) he desires, as follows:
OBJECTIVES
PRIORIALTERNATIVE SOLUTIONS
TIZAI. INCREASE
II. DECREASE
TION
SUPPLY
INDEX DEMAND
OF OBJECTIVES
BY THE
OWNER
PREPARED BY
APPROVED BY
UNWEIGHTED ORDINAL
RANKING
ORDINAL
RANKING
WEIGHTED BY
OWNERS
PRIORITY
INDEX ON
THE OBJECTIVE
(UNWEIG
HTED
ORDIN
AL
RANKI
NG
MULTI
UNWEIGHTED
ORDINAL
RANKING
ORDINAL
RANKING
WEIGHTED BY
OWNERS
PRIORITY
INDEX
ON THE
OBJECTIVE
PLIED
BY
OWNE
R S
PRIOR
ITY
PREPARED BY
APPROVED BY
INDEX
FOR
THE
OBJEC
TIVE)
1. to maximize
the
firms
profit
2. to maximize
sales
2X2=4
1X2=2
2X2=4
1X2=2
8
Product
Unit price
Old demand
New demand
4
Old
supply
Demand
rises
Mr. ROBLES ASSISTANT
PRESENTS
THE FOLLOWING SUPPLY-AND-DEMAND GRAPH TO HIS
MANAGER:
New
unit
Price
Old unit
Price
Old equiliNew equibrium
librium
Quantity dequantity demanded-andmanded-andsupplied PREPARED
suppliedBY
at
the
new
demand
function but old
supply function
APPROVED BY
HIS ASSISTANT GAVE THE FOLLOWING ASSUMPTIONS FOR EACH OF THE SOLUTIONS TO
WORK.
A. ASSUMPTIONS FOR SOLUTION 1 TO WORK:
-THE TASTE OF THOSE WHO DESIRE THE FIRMS PRODUCT IS BACKED BY SUFFICIENT
INCOME;
-THE PRICE OF SUBSTITUTES HAVE REMAINED CONSTANT;
-THE PRICE OF COMPLEMENTS HAVE REMAINED CONSTANT.
B. ASSUMPTIONS FOR SOLUTION 2 TO WORK:
-THE FIRMS GOAL AND THAT OF THE REST OF THE FIRMS IN THE INDUSTRY HAVE
SHIFTED AWAY FROM THE PRODUCT;
-THE BUDGET OF THE FIRM, AND THAT OF THE REST OF THE FIRMS IN THE INDUSTRY,
WAS REDUCED;
-THE INDUSTRY-WIDE COST PER UNIT OF PRODUCED OUTPUT HAS INCREASED EXCEPT
THAT OF Mr. ROBLES FIRM.
ANSWER THE FOLLOWING QUESTIONS:
PREPARED BY
APPROVED BY
1. Given the prioritized objectives of Mr. Robles, the owner, which solution will you recommend if you
were the assistant?
2. Are there other assumptions you will add to each set of assumptions under each solution? If your
answer is yes, please name them.
3. What will be your recommendation if the owner changes the prioritization of his objectives in such a
way that objective 2 has a lesser priority weight of 1 compared to objective 1s priority weight of 2.
CONCEPT:
THERE IS NO MORE THAN ONE PRICE AT WHICH DEMAND EQUALS SUPPLY; IF
EITHER THE DEMAND OR SUPPLY CURVE SHIFTS, THE EQUILIBRIUM PRICE AND
QUANTITY WILL CHANGE.
MINI-CASE:
affect the quantity sold of their firms product. The manager plans to increase his firms sales. Mr. Robles
over supply will affect the quantity sold of their firms product; namely: to maximize the firms profit and to
PREPARED BY
APPROVED BY
OBJECTIVES
PRIORITIZATION
INDEX
OF OBJECTIVES
BY THE
OWNER
I. INCREASE DEMAND
II. DECREASE
SUPPLY
UNWEIGH-TED
ORDI-NAL
RANK-ING
UN-
ORDINAL
RANKING
WEIGHTED BY
OWNERS
PRIORITY INDEX
ON THE
OBJECTIVE
(UN-WEIGHTED ORDINAL
RANKING
MULTIPLIED BY
OWNERS
PRIORITY
WEIGHTED
ORDINA
L RANKING
ORDI-NAL
RANK-ING
WEIGHTED BY
OW-NERS
PRIO-RITY
INDEX ON
THE OBJECT-IVE
PREPARED BY
APPROVED BY
INDEX FOR
THE OBJECTIVE)
1. to maximize the
firms
profit
2. to maximize
sales
2X2=4
1X2=2
2X2=4
1X2=2
8
Product
Unit price
Old demand
New
supply
New demand
Demand rises at each price

New
unit
Price
Demand rises at each price
Supply falls at each price

Supply falls at each price
Old
supply
Old unit
Price
Old equili-
New equi-
New equi-
Mr. ROBLES ASSISTANT

SUPPLY-AND-DEMAND GRAPH TO
briumPRESENTS
librium THE FOLLOWING
librium
HIS MANAGER:
Quantity dequantity dequantity demanded-andmanded-andmanded-andsupplied
supplied at
supplied at
new demand
FINANCIAL MANAGEMENT SYLLABUS the
PREPARED
BY the new demand
function
and
new
but old
Dr. ROBERTO function
F. VILLARROEL
supply function supply function
APPROVED BY
HIS ASSISTANT GAVE THE FOLLOWING ASSUMPTIONS FOR EACH OF THE SOLUTIONS TO
WORK.
A. ASSUMPTIONS FOR SOLUTION 1 TO WORK:
-THE TASTE OF THOSE WHO DESIRE THE FIRMS PRODUCT IS BACKED BY SUFFICIENT
INCOME;
-THE PRICE OF SUBSTITUTES HAVE REMAINED CONSTANT;
-THE PRICE OF COMPLEMENTS HAVE REMAINED CONSTANT.
B. ASSUMPTIONS FOR SOLUTION 2 TO WORK:
PREPARED BY
APPROVED BY
-THE FIRMS GOAL AND THAT OF THE REST OF THE FIRMS IN THE INDUSTRY HAVE
SHIFTED AWAY FROM THE PRODUCT;
-THE BUDGET OF THE FIRM, AND THAT OF THE REST OF THE FIRMS IN THE INDUSTRY,
WAS REDUCED;
-THE INDUSTRY-WIDE COST PER UNIT OF PRODUCED OUTPUT HAS INCREASED EXCEPT
THAT OF Mr. ROBLES FIRM.
1. Given the prioritized objectives of Mr. Robles, the owner, which solution will you recommend, if you
were the assistant, basing your decision on whichever solution garners the higher sum of weighted
points based on the prioritized objectives?
CONCEPT:
FACTORS THAT SHIFT DEMAND AND SUPPLY:
PREPARED BY
APPROVED BY
A.
FACTORS THAT SHIFT DEMAND for X TO THE LEFT FROM AA TO BB AT A GIVEN PRICE
STRUCTURE OF PhP10-to-PhP5-to-PhP1: (Please observe that there is an increase in volume demanded for the same
price at each price level in the structure; since the volume demanded is not due to a change in unit price but due to either
one or a combination of the following: change in income of the buyer, change in taste of the buyer, change in the price of
substitutes to X, and change in the price of complements to X)
PhP10
Ph P5
FACTORS THAT SHIFT SUPPLY:

PhP1
B
0
A
4 GOOD X
B. FACTORS THAT SHIFT SUPPLY
OF X TO THE LEFT FROM XX TO YY AT A GIVEN PRICE STRUCTURE OF PhP10to-PhP5-to-PhP1: (Please observe that there is an decrease in volume supplied for the same price at each price level in
the structure; since the volume supplied is not due to a change in unit price but due to either one or a combination of the
following: change in budget of the firm, change in goal of the firm, and change in the unit cost of producing X.)
PREPARED BY
APPROVED BY
PhP10
PhP5
PhP1
Y
0
X
2
4 GOOD X
PREPARED BY
APPROVED BY
MINI-CASE:
affect the quantity sold of their firms product. The manager plans to increase his firms sales. Mr. Robles
over supply will affect the quantity sold of their firms product; namely: to maximize the firms profit and to
OBJECTIVES
PRIORITIZATION
INDEX
OF OBJECTIVES BY
THE
OWNER
I. INCREASE DEMAND
II. DECREASE
SUPPLY
UNWEIGH-TED
ORDI-NAL
RANK-ING
UN-
ORDINAL
RANKING
WEIGHTED BY
OWNERS
PRIORITY INDEX
ON THE
OBJECTIVE
WEIGHTED
ORDINA
L RANKING
ORDI-NAL
RANK-ING
WEIGHTED BY
OW-NERS
PRIO-RITY
INDEX ON
PREPARED BY
APPROVED BY
(UN-WEIGHTED ORDI-
1. to maximize the
firms
profit
2. to maximize
sales
NAL
RANKING
MULTIPLIED BY
OWNERS
PRIORITY
INDEX FOR
THE OBJECTIVE)
2X2=4
2X2=4
THE OBJECT-IVE
1X2=2
1X2=2
8
4
PREPARED BY
APPROVED BY
Mr. ROBLES ASSISTANT PRESENTS THE FOLLOWING SUPPLY-AND-DEMAND GRAPH TO

HIS MANAGER:
New supply
Old
demand
New
demand
Old supply
New equibrium
Quantity demanded-andsupplied at
the new demand
Old equililibrium
quantity demanded-andsupplied at
the old demand
New equilibrium
quantity demanded-andsupplied at
the new demand
PREPARED BY
APPROVED BY
function and new

supply function
function and old function but old

supply function supply function

1. Given the prioritized objectives of Mr. Robles, the owner, which solution will you recommend, if you
were the assistant, basing your decision on whichever solution garners the higher sum of weighted
CONCEPT:
IF PRICE ELASTICITY OF DEMAND EXCEEDS UNITY, A FALL IN PRICE INCREASES TOTAL
CONSUMER EXPENDITURE, AND A RISE IN PRICE REDUCES IT.
IF PRICE ELASTICITY IS LESS THAN UNITY, A FALL IN PRICE REDUCES TOTAL EXPENDITURE AND A
RISE IN PRICE INCREASES IT.
IF PRICE ELASTICITY OF DEMAND IS UNITY, A RISE OR A FALL IN PRICE LEAVES TOTAL
EXPENDITURE UNAFFECTED.
MINI-CASE: THE FIRMS PRODUCT FACES A RESPONSE FROM BUYERS WHERE A LESS THAN
PROPORTIONATE INCREASE IN QUANTITY DEMANDED FOLLOWS A DECREASE IN PRICE. THE
FIRMS OWNER SETS THE OBJECTIVE OF INCREASING THE FIRMS SALES ONCE PRICE IS
DECREASED; AND HE WANTS HIS ADVISERS CONFIRMATION ON HIS DECISION TO REDUCE THE
FIRMS PRICE ON THE PRODUCT RATHER THAN MAINTAINING ITS PRESENT PRICE. THE OWNER
PRESENTS TWO SETS OF DATA ON PRICE-AND-QUANTITY DEMANDED IN THE DECISION MATRIX TO
APPROVED BY
HIS ADVISER. IF YOU WERE THE ADVISER WHICH SET OF DATA WILL YOU SHOW TO THE OWNER
WHICH AGREES WITH HIS OBJECTIVE TO INCREASE SALES UPON LOWERING OF THE PRICE.
CONSIDERING THE FIRMS PRODUCT AS FACING A RESPONSE FROM BUYERS WHERE A LESS THAN
PROPORTIONATE INCREASE IN QUANTITY FOLLOWS A DECREASE IN PRICE, WILL YOU CONFIRM
THE OWNERS DECISION TO LOWER THE FIRMS PRICE ON ITS PRODUCT.
PRIORITIZATION
INDEX
OF OBJECTIVES BY
THE
OWNER
I. DECREASE PRICE
II. MAINTAIN PRICE
UNWEIGHTED
UNWEIGH-
ORDINAL RANKING (except in the
case of the 2nd

objective where
interval-scale
shall be used)
ORDINAL
RANK-ING
WEIGHTED BY
OWNERS
PRIORITY
INDEX ON THE
OBJECT-IVE
(UNWEIGHTED
ORDI-NAL
RANK-ING
MUL-TIPLIED BY
OWNERS
PRIORITY
INDEX
TED
ORDINAL
RANKING(except
in the case
of the 2nd
object-ive
where
intervalscale shall
be used)
ORDINAL RANKING
WEIGHTED BY
OWNERS
PRIORITY INDEX
ON THE OBJECTIVE
PREPARED BY
APPROVED BY
FOR THE
OB-JECTIVE)
1. to maxi-mize
sales
2.to maxi-mize
profit
?
_____
2X?=?
2X?=?
__
?
?
____
1X?=?
1X?=?
__
ASSUMPTIONS BEHIND THE WORKINGS OF THE ALTERNATIVE SOLUTIONS :

SOLUTION I:
A DECREASE IN PRICE IS FOLLOWED BY THE FF:
a. A MORE THAN PROPORTIONATE INCREASE IN QUANTITY DEMANDED;
b. A LESS THAN PROPORTIONATE INCREASE IN UNIT COST OF PRODUCTION.
SOLUTION II:
MAINTAINING THE PRICE IS FOLLOWED BY THE FF:
a. A HIGHER REVENUE THAN WHEN PRICE IS DECREASED;
b. A HIGHER UNIT COST WHEN PRICE IS DECREASED.
THE DATA SET FOR EACH ALTERNATIVE SOLUTION

FOLLOWS:
SOLUTION 1 DATA SET:
SOLUTION II DATA SET:
A decrease in price from PhP2 to PhP 1 Maintaining price at PhP2 is followed
is followed by:
by:
a. an increase in the rate of quantity
a. a lower revenue of PhP2 than when
demanded from 1 unit to 3 units or price is decreased to PhP1 which yields
APPROVED BY
an increase in revenue to PhP3;

b. unit cost increases from PhP2 to
PhP2.50.
an increase in the rate of quantity

demanded to 3 or an increase in
revenue to PhP3.
b. a lower unit cost of PhP2.
PLEASE ANSWER THE FOLLOWING QUESTIONS:

1. Given the prioritized objectives of the firms owner, which solution will you recommend, if you were the adviser, basing your
decision on whichever solution garners the higher sum of weighted points based on the prioritized objectives?
2. Are there other assumptions you will add to each set of assumptions under each solution? If your answer is yes, please name
them.
3. What will be your recommendation if the owner changes the prioritization of his objectives in such a way that objective 2 has a
lesser priority weight of 1 compared to objective 1s priority weight of 2.
PREPARED BY
APPROVED BY
CONCEPT: COMPARING THE TOTAL PROFIT WITH THE INCREMENTAL PROFIT AT EACH
RATE OF PRODUCTION, AS THE RATE INCREASES BY ONE UNIT PER UNIT OF TIME,
WILL REVEAL THE RATE OF PRODUCTION WHERE TOTAL PROFIT IS AT ITS MAXIMUM
BUT NOT NECESSARILY MAXIMUM EMPLOYMENT.
Given the following Table A, at what rate of production will you settle as general manager? Justify
your answer.
TABLE A
Total Revenue:
Less: Total Cost:
Equals: Total Profit
Ph P 1
Ph P 1
0
Ph P 2.00
Ph P 1.75
Ph P 0.25
Ph P 3.00
Ph P 2.25
Ph P 0.75
Ph P 4.00
Ph P 3.00
Ph P 1.00
Incremental Revenue:
Less : Incremental Cost:
Equals::Incremental Profit
Ph P 1
Ph P 1
0
Ph P 1.00
Ph P 0.75
Ph P 0.25
Ph P 1.00
Ph P 0.50
Ph P 0.50
Ph P 1.00
Ph P 0.75
Ph P 0.25
Price:
PhP 1
PhP 1
Ph P0.25
Ph P0.75
Ph P0.50
Ph P 5.00
Ph P 4.00
Ph P 1.00
Ph P0.25
Ph P0.75
Ph P 1.00
Ph P 1.00
Ph P 0
PhP 1
Ph P0.50
Legend:
Incremental
Cost:
Number of Units
Legend:
IncrementalCos
t:
Produced
Per unit of Time
Profit:
MINI-CASE: Your advice is sought by the Companys Chairman as to the rate of production his
company shall produce. The options ranges from 1 to 5 units of output per unit of time as he shows
you in the preceding Table A. The Chairman shows below also the decision-making format
containing his prioritized objectives. To satisfy his prioritized objectives, at what rate of production
should the company produce given the information in Table A? Will the answer differ under the
APPROVED BY
PREPARED BY
following situations: a) if the prioritization of the objectives were reversed; b) when there is no
prioritization of the objectives? Explain why at rate of production 5 units per unit of time, the
total profit is at PhP1 and yet the incremental profit is zero. Is there really a total profit of PhP1 at
rate of production 5 units per unit of time?

APPROVED BY
PREPARED BY
DECISION-MAKING FORMAT:
CHAIRMANS
OBJECTIVES
A. TO
MAXIMIZE
TOTAL PROFIT
B. TO
MAXIMIZE
EMPLOYMENT
(on the
assumption that
all the cost goes
to paying
employees)
CHAIRMANS
PRIORITY
INDECES FOR
THE
OBJECTIVES(in
ascending order
of importance; to
wit: the higher
the figure, the
more important
is the objective)
ALTERNATIVE RATES OF PRODUCTION
Unweighted
ordinal
ranking
Weighted
ordinal
ranking
Unweighted
ordinal
ranking
Weighted
ordinal
ranking
Unweighted
ordinal
ranking
Weighted
ordinal
ranking
Unweighted
ordinal
ranking
Weighted
ordinal
ranking
Unweighted
ordinal
ranking
Weighted
ordinal
ranking
2x?=?
2x?=?
2x?=?
2x?=?
2x?=?
1x?=?
1x?=?
1x?=?
1x?=?
1x?=?
__? __
_?_
__? __
_?_
__? __
PREPARED BY
_?_
__? __
_?_
__? __
APPROVED BY
_?_
CONCEPT: THE PRICE OF AN ASSET IS DIRECTLY RELATED TO ITS EARNING CAPACITY;

IF THERE IS COMPETITION AMONG PURCHASERS OF ASSETS, ASSET PRICES WILL TEND
TO BE SET AT LEVELS THAT YIELD EQUAL RATES OF RETURN.
MINI-CASE: Mr. Jun San Jose is considering selling his firms idle assets. He asks his adviser which
set of idle assets he will sell considering his prioritized objectives as shown in the following decisionmatrix format which he wants his adviser to use in presenting his recommended alternative solutions.
(He further instructs his adviser to provide him with separate sets of assumptions for each alternative
solution to work.) :
OBJECTIVES
PRIORITIZATION
INDEX
OF OBJECTIVES BY
THE
OWNER
I.
SELL IDLE ASSETS WHICH

ARE IN A COMPETITIVE
MARKET
UNWEIGH-TED
ORDI-NAL
RANK-ING
ORDINAL
RANKING
WEIGHTED BY
OWNERS
PRIORITY INDEX
ON THE
OBJECTIVE
(UN-WEIGH-
II.
SELL IDLE
ASSETS WHICH
ARE NOT IN A
COMPETITIVE
MARKET
UNWEIGHTED
ORDINA
L RANKING
ORDI-NAL
RANK-ING
WEIGHTED BY
OW-NERS
PRIO-RITY
INDEX ON
THE OB-
PREPARED BY
APPROVED BY
1. to maximize the
firms
profit
from
nonnormal
or nonoperatio
nal
sources
2. to maximize
sales
TED ORDINAL
RANKING
MULTIPLIED BY
OWNERS
PRIORITY
INDEX FOR
THE OBJECTIVE)
1X2=2
1X2=2
JECT-IVE
2X2=4
2X2=4
4
8
Assumptions for each alternative solution to work:
PREPARED BY
APPROVED BY
Solution I: SELL IDLE ASSETS WHICH ARE IN A COMPETITIVE MARKET

A.
The buying price of assets in a competitive market are higher relative to those
in a non-competitive market;
B.
Mr. San Joses firm has IDLE assets available for sale in a competitive
market.
Solution II: SELL IDLE ASSETS WHICH ARE NOT IN A COMPETITIVE MARKET
The buying price of assets in a non-competitive market are lower relative to those in a
competitive market but Mr. San Jose has more IDLE ASSETS IN A NON-COMPETIVE MARKET
THAN IDLE ASSETS IN A COMPETITIVE MARKET SUCH THAT IT WOULD GENERATE
MORE NON-OPERATING PROFITS THAN THOSE IN THE LATTER GROUP.
1. Given the prioritized objectives of Mr. San Jose, the owner, which solution will you recommend, if
you were the adviser, basing your decision on whichever solution garners the higher sum of weighted
PREPARED BY
APPROVED BY
OBJECTIVES
PRIORITIZATION
INDEX
OF OBJECTIVES BY
THE
OWNER
I.
SELL IDLE ASSETS WHICH

ARE IN A COMPETITIVE
MARKET
UNWEIGH-TED
ORDI-NAL
RANK-ING
1. to maximize the
ORDINAL
RANKING
WEIGHTED BY
OWNERS
PRIORITY INDEX
ON THE
OBJECTIVE
RANKING
MULTIPLIED BY
OWNERS
PRIORITY
INDEX FOR
THE OBJECTIVE)
1X2=2
II.
SELL IDLE
ASSETS WHICH
ARE NOT IN A
COMPETITIVE
MARKET
UNWEIGHTED
ORDINA
L RANKING
ORDI-NAL
RANK-ING
WEIGHTED BY
OW-NERS
PRIO-RITY
INDEX ON
THE OBJECT-IVE
2X2=4
PREPARED BY
APPROVED BY
firms
profit
from
nonnormal
or nonoperatio
nal
sources
2. to maximize
sales
1X?=?
2X?=?
?
?
PREPARED BY
APPROVED BY
CONCEPT: A DEFICIT ON CURRENT ACCOUNT MUST BE MATCHED BY A SURPLUS ON

CAPITAL ACCOUNT, WHICH MEANS EITHER BORROWING FROM ABROAD OR
REDUCING THE FOREIGN EXCHANGE AND GOLD HELD BY THE DOMESTIC CENTRAL
AUTHORITIES.
MINI-CASE:
THE PRESIDENT OF THE REPUBLIC IS BOTHERED BY ITS COUNTRYS IMPORTS
EXCEEDING ITS EXPORTS FROM YEAR-TO-YEAR. AS HIS ADVISER YOU WERE ASKED TO
RECOMMEND TO HIM TWO ALTERNATIVE SOLUTIONS TO FINANCING THE AFORESAID
DEFICIT ON CURRENT ACCOUNT. HE CONFIDED TO YOU AS HIS ADVISER TWO OF HIS
PRIORITIZED OBJECTIVES IN SEEKING A SOLUTION; TO WIT: A) TO MINIMIZE COST OF
IMPLEMENTATION TO GOVERNMENT; B) A SOLUTION THAT WOULD LAST BEYOND HIS
TERM OF OFFICE. HE ALSO INSTRUCTED YOU TO PROVIDE HIM WITH THE ASSUMED
CONDITIONS UNDER WHICH EACH OF YOUR ALTERNATIVE SOLUTIONS WILL WORK.
The PRESIDENT further provided you as his adviser with an example of the presentation
format(DECISION-MATRIX FORMAT) he desires where he incorporated his prioritized objectives but left
blank (Say X or Say Y) the space for your specific recommended alternative solutions, as follows:
OBJECTIVES
PRIORITIZA-
PREPARED BY
APPROVED BY
TION
INDEX
OF OBJECTIVES BY
THE
OWNER
I.
SAY X
UNWEIGH-TED
ORDI-NAL
RANK-ING IN
SATISFYING
OBJECTIVE
a) and b)
a) TO MINIMIZE
COST OF
IM-PLEMEN-TATION TO
ORDINAL
RANKING
WEIGHTED BY
OWNERS
PRIORITY INDEX
ON THE
OBJECTIVE
RANKING
MULTIPLIED BY
OWNERS
PRIORITY
INDEX FOR
THE OBJECTIVE)
1X1=1
II.
UNWEIGHTED
ORDINAL
RANKING IN
SATISFYING
OBJECTIVE a)
SAY Y
ORDI-NAL
RANK-ING
WEIGHTED BY
OW-NERS
PRIO-RITY
INDEX ON
THE OBJECT-IVE
and
b)
2X1=2
PREPARED BY
APPROVED BY
GOVERNMENT;
B) A SOLUTION
THAT
HAS THE
PO-TENTIAL TO
LAST BEYOND
HIS
TERM OF
OFFICE.
2X2=4
1X2=2
3
4
IN FOLLOWING THE PRESIDENTS SUGGESTED PRESENTATION FORMAT, THE ADVISER

PROVIDED THE FOLLOWING DECISION-MATRIX WITH HIS RECOMMENDED ALTERNATIVE
SOLUTIONS:
PREPARED BY
APPROVED BY
OBJECTIVES
PRIORITIZATION
INDEX
OF OBJECTIVES
BY THE
OWNER
I.
II.
BORROWING FROM
ABROAD
UNWEIGHTED ORDINAL RANKING IN

SATISFYING
OBJECTIVE
a) and
b)
ORDINAL
RANKING
WEIGHTED BY
OWNERS
PRIORITY
INDEX ON THE
OBJECTIVE
(UNWEIGHTED ORDI-
REDUCING
THE
FOREIGN
EXCHANGE
AND GOLD
HELD BY
THE
DOMESTIC
CENTRAL
AUTHORITIES
UNORDIWEIGH
-TED
ORDINAL
RANKING IN
SATISFYING
OB -
NAL
RANKING
WEIGHTED BY
OWNERS
PRIORITY
PREPARED BY
APPROVED BY
a) TO
MINIMIZE
COST
OF IMPLEMENTATION
TO GOVERNMENT;
B) A
SOLUTION
THAT
NAL
RANKING
MULTIPLIED BY
OWNERS
PRIORITY
INDEX FOR
THE
OBJECTIVE)
1X1=1
2X2=4
JECTIVE
a)
and
b)
INDEX
ON THE
OBJECTIVE
2X1=2
1X2=2
PREPARED BY
APPROVED BY
HAS
THE POTENTIAL TO
LAST
BEYOND
HIS
TERM
OF
OFFICE.
3
3
4
THE ADVISER FURTHER PROVIDED THE ASSUMED CONDITIONS UNDER WHICH HIS
ALTERNATIVE SOLUTIONS WOULD WORK:
FOR SOLUTION I: BORROWING FROM ABROAD
A. FOREIGN INVESTORS WOULD RATHER LEND THAN ENGAGE IN DIRECT INVEST-MENT
;
B. THE COST OF MONEY IN BORROWING IS LESS THAN THE OPPORTUNITY COST OF
USING THE FOREIGN EXCHANGE RESERVES OR TRADING WHATEVER GOLD IS HELD
BY CENTRAL BANK AUTHORITIES.
PREPARED BY
APPROVED BY
FOR SOLUTION II: USING THE FOREIGN EXCHANGE RESERVES OF THE CENTRAL BANK OR
TRADING WHATEVER GOLD IS HELD BY IT
A.
THERE ARE VIABLE EXPORT ITEMS FOR PRODUCTION NEEDING EITHER
FOREIGN EXCHANGE OR THE SALE OF CENTRAL-BANK-HELD GOLD;
B.
LOWER ADMINISTRATIVE COST FOR GOVERNMENT IMPLEMENTATION
CONCEPT: THE DEMAND CURVE FOR A FOREIGN CURRENCY BY A LOCAL ECONOMY IS

DOWN WARD SLOPING WHEN PLOTTED AGAINST THE PRICE OF THE FOREIGN
CURRENCY IN TERMS OF THE LOCAL CURRENCY.
MINI-CASE: A FOREX MONEY-CHANGING FIRMS EMPLOYEE WAS ASKING YOU, A
STUDENT OF ECONOMICS, WHEN TO BUY A FOREIGN CURRENCY IN TERMS OF THE
LOCAL CURRENCY, HE ASKED YOU SHALL I SELL WHEN THE PRICE OF THE FOREIGN
CURRENCY IS HIGH OR LOW IN TERMS OF THE LOCAL CURRENCY? YOU SHOWED THE
EMPLOYEE THE DECISION-MATRIX FORMAT BELOW AND ASKED HIM TO MAKE THE
DECISION TO BUY FOREIGN EXCHANGE ON HIS OWN GIVEN THE DATA SET FOR EACH
ALTERNATIVE SOLUTION:
DECISION-MATRIX FORMAT I :
OBJECT-
PRIORI-
PREPARED BY
APPROVED BY
IVES
TIZATION
INDEX
OF OBJECTIVES
BY THE
OWNER
I.
BUY WHEN THE

PRICE OF THE
FOREIGN
CURRENCY IS HIGH
IN TERMS OF THE
LOCAL CURRENCY

SATISFYING
OBJECTIVE
a) and
b)
ORDINAL
RANKING
WEIGHTED BY
OWNERS
PRIORITY
INDEX ON THE
OBJECTIVE
(UNWEIGHTED ORDINAL
RANKING
MULTIPLIED BY
OWNERS
II.
BUY
WHEN THE
PRICE OF
THE
FOREIGN
CURRENCY
IS LOW IN
TERMS OF
THE
LOCAL
CURRENCY
UNORDIWEIGH
-TED
ORDINAL
RANKING IN
SATISFYING
OB JECTIVE
a)
and
b)
NAL
RANKING
WEIGHTED BY
OWNERS
PRIORITY
INDEX
ON THE
OBJECTIVE
PREPARED BY
APPROVED BY
PRIORITY
INDEX FOR
THE
OBJECTIVE)
a) TO
MAXIMI
ZE THE
FOREX
MONEYCHANGING
FIRMS
PURCHASE
OF
FOREIGN
EXCHANGE;
B) TO
MAXIMIZE
THE
FOREX
MONEY-
1X2=2
2X2=4
2X2=4
1X2=2
PREPARED BY
APPROVED BY
CHANGING
FIRMS
SALES
OF
FOREIGN
CURREN
CY.
3
3
6
ASSUMPTIONS BEHIND THE WORKINGS OF THE ALTERNATIVE SOLUTIONS :

SOLUTION I:
BUY WHEN THE PRICE OF THE FOREIGN CURRENCY IS HIGH IN TERMS OF THE LOCAL CURRENCY, SUCH
MOVE IS FOLLOWED BY THE FF:
a. A DECREASE IN QUANTITY DEMANDED OF THE FOREIGN CURRENCY BY THE FOREX MONEYCHANGING FIRM;
b. A RELATIVE INCREASE IN THE SUPPLY OF THE FOREIGN EXCHANGE MONEY-CHANGING FIRMS
WOULD LIKE TO SELL.
SOLUTION II:
BUY WHEN THE PRICE OF THE FOREIGN CURRENCY IS LOW IN TERMS OF THE LOCAL CURRENCY , SUCH
MOVE IS FOLLOWED BY THE FF:
a. AN INCREASE IN QUANTITY DEMANDED OF THE FOREIGN CURRENCY BY THE FOREX MONEYCHANGING FIRM;
PREPARED BY
APPROVED BY
b. A RELATIVE DECREASE IN THE SUPPLY OF THE FOREIGN CURRENCY MONEY-CHANGING FIRMS

WOULD LIKE TO SELL.
THE DATA SET FOR EACH ALTERNATIVE SOLUTION

FOLLOWS:
DATA SET OF
SOLUTION 1: BUY
DATA SET OF
SOLUTION II: BUY
WHEN THE
PRICE OF THE
FOREIGN
CURRENCY IS
HIGH IN TERMS
OF THE LOCAL
CURRENCY IS
WHEN THE
PRICE OF THE
FOREIGN
CURRENCY IS
LOW IN TERMS
OF THE LOCAL
CURRENCY IS
FOLLOWED BY THE
FF:
A RELATIVE INCREASE IN
THE SUPPLY OF THE FOREIGN
CURRENCY MONEYCHANGING FIRMS WOULD
LIKE TO SELL.
FOLLOWED BY THE
FF:
A RELATIVE DECREASE IN THE
SUPPLY OF THE FOREIGN
CURRENCY MONEY-CHANGING
FIRMS WOULD LIKE TO SELL.
PREPARED BY
APPROVED BY
1.
Given the prioritized objectives of the forex money-changing firms employee, which solution IN DECISIONMATRIX FORMAT I will you recommend, if you were the adviser, basing your decision on whichever solution
garners the higher sum of weighted points based on the prioritized objectives?
2. Are there other assumptions you will add to each set of assumptions under each solution? If your answer is yes, please
name them.
3. What will be your recommendation if the owner changes the prioritization of his objectives in such a way that objective
2 has a lesser priority weight of 1 compared to objective 1s priority weight of 2? What will be the ranking you will
provide in the question marks of DECISION-MATRIX II?
DECISION-MATRIX FORMAT II:

OBJECTPRIORIALTERNATIVE SOLUTIONS
IVES
TIZAI. BUY WHEN THE
II. BUY WHEN
TION
PRICE OF THE
THE PRICE
INDEX
FOREIGN
OF THE
OF OBCURRENCY IS HIGH
FOREIGN
JECTIN TERMS OF THE
CURRENCY
IVES BY
LOCAL CURRENCY
IS LOW IN
THE
TERMS OF
OWNER
THE LOCAL
CURRENCY
UNWEIGHORDINAL
UNORDITED ORDIRANKING
WEIGHNAL
NAL RANKWEIGHTED BY TED
RANKING IN
OWNERS
ORDIING
SATISFYING
PRIORITY
NAL
WEIGHOBJECTIVE
INDEX ON THE RANKTED BY
PREPARED BY
APPROVED BY
a) and
b)
a) TO MAXIMIZE THE
FOREX
MONEYCHANGING
FIRMS
PURCHASE
OF
FOREIGN
CURREN-
OBJECTIVE
(UNWEIGHTED ORDINAL
RANKING
MULTIPLIED BY
OWNERS
PRIORITY
INDEX FOR
THE
OBJECTIVE)
1X2=2
and
b)
OWNERS
PRIORIT
Y INDEX
ON THE
OBJECTIVE
2X2=4
ING IN
SATISFYING
OB JECTIVE a)
PREPARED BY
APPROVED BY
CY;
B) TO MAXIMIZE THE
FOREX
MONEYCHANGING
FIRMS
SALES OF
FOREIGN
CURRENCY.
2 X _?_ = ?
1 X _?_=
?
3
?
PREPARED BY
APPROVED BY
CONCEPT: IF THE PRICE LEVEL OF ONE COUNTRY IS RISING FASTER (falling slower) THAN THAT OF
ANOTHER COUNTRY, THE EQUILIBRIUM VALUE OF ITS CURRENCY WILL BE FALLING RELATIVE TO
THAT OF THE SECOND COUNTRY.
MINI-CASE: A CERTAIN COUNTRY B WANTS TO INCREASE ITS FOREIGN CURRENCY RESERVES EITHER
BY LOWERING THE PRICE (OR DEVALUATING ITS CURRENCY WHICH MEANS ISSUING AN OFFICIAL
ACCEPTANCE OF A DEPRECIATION OF ITS CURRENCY) OF ITS CURRENCY IN TERMS OF COUNTRY
As CURRENCY OR BY COMING UP WITH POLICIES THAT DECREASE ITS GENERAL LEVEL OF PRICES.
WHICH OF THE TWO APPROACHES WILL ACHIEVE THE COUNTRYs OBJECTIVES OF INCREASING ITS
FOREIGN CURRENCY RESERVES AND ENCOURAGING LOCAL BUSINESS BY LOOKING AT THE DATA
SET IN THE FOLLOWING GRAPH?
C
O
U
N
T
R
Y
D
S
$1
$1
HOTDOG
CURRENCY EXCHANGE RATE: P40/$1

C
O
U
N P40
T
R
Y
B
HOTDOG
CURRENCY EXCHANGE RATE: P50/$1

D
S
P50
HOTDOG
HOTDOG
PREPARED BY
APPROVED BY
ASSUMPTIONS BEHIND THE WORKINGS OF EACH SOLUTION:

SOLUTION I: DEVALUATE ITS CURRENCY IN TERMS OF COUNTRY A
A. COUNTRY A RESPONDS TO A DECREASE IN THE EFFECTIVE PRICE IN COUNTRY
B, DUE TO THE DEVALUATION, BY BUYING MORE OF THE LATTERS PRODUCT;
B. COUNTRY B CONTINUES TO PRODUCE WHAT COUNTRY A NEEDS.
SOLUTION II: COME UP WITH POLICIES THAT DECREASE ITS GENERAL LEVEL OF
PRICES.
A. COUNTRY A BUSINESSMEN RESPONDS POSITIVELY DESPITE INCREASES IN
THE AMOUNT OF FOREIGN CURRENCY NEEDED TO BUY THE LOCAL
CURRENCY BY ORDERING MORE OF COUNTRY Bs PRODUCTS;
B. COUNTRY B BUSINESSMEN RESPONDS POSITIVELY DESPITE DECREASES IN
THE GENERAL LEVEL OF PRICES IN THEIR COUNTRY.
OBJECTPRIORIALTERNATIVE SOLUTIONS
IVES
TIZAI. LOWER THE PRICE
II. COME UP
TION
(OR DEVALUATE ITS
WITH
INDEX
CURRENCY WHICH
POLICIES
OF OBMEANS ISSUING AN
THAT
JECTOFFICIAL
DECREASE
IVES BY
ACCEPTANCE OF A
COUNTRY
THE
DEPRECIATION OF
BS
OWNER
ITS CURRENCY) OF
GENERAL
PREPARED BY
APPROVED BY
ITS CURRENCY IN
TERMS OF
COUNTRY As
CURRENCY
SATISFYING
OBJECTIVE
a) and
b)
ORDINAL
RANKING
WEIGHTED BY
OWNERS
PRIORITY
INDEX ON THE
OBJECTIVE
(UNWEIGHTED ORDINAL
RANKING
MULTIPLIED BY
OWNERS
PRIORITY
INDEX FOR
THE
OBJECTIVE)
LEVEL OF
PRICES
UNWEIGH
-TED
ORDINAL
RANKING IN
SATISFYING
OB JECTIVE
ORDI-NAL
RANK-ING
WEIGHTED BY
OW-NERS
PRIORITY
INDEX ON
THE OBJECT-IVE
a)
and
b)
PREPARED BY
APPROVED BY
a) INCREASE
ITS
FOREIGN
CURRENCY RESERVES
B) ENCOURAGE
LOCAL
BUSINESS
2X2=4
1X2=2
2 X _?_ = ?
1 X _?_= ?
3
?

1. Given the prioritized objectives of COUNTRY B, which solution IN DECISION-MATRIX FORMAT
will you recommend, if you were the adviser, basing your decision on whichever solution garners the
higher sum of weighted points based on the prioritized objectives ASSUMING THE TWO
OBJECTIVES ARE CO-EQUAL AT A PRIORITY INDEX OF 2? What will be the ranking you will
provide in the question marks of the DECISION-MATRIX FORMAT?
way that objective 2 has a lesser priority weight of 1 compared to objective 1s priority weight of 2?
PREPARED BY
APPROVED BY
What will be the ranking you will provide in the question marks of the DECISION-MATRIX
FORMAT?
MARSHALL-EDGEWORTH EQUILIBRIUM CONDITION. ASSUMING THAT TWO COUNTRIES, ENGAGED IN INTERNATIONAL
TRADE, HAVE THE CAPABILITIES TO PRODUCE THE QUANTITIES OF, SAY 2 PRODUCTS, WHICH THEY DESIRE TO EXCHANGE
IN TRADE, THE QUANTITIES TO BE TRADED DEPENDS NOT ONLY ON THEIR RELATIVE EFFICIENCIES TO PRODUCE THE
PRODUCTS BUT ALSO ON THE EFFECT OF THE LAW OF DIMINISHING UTILITY FOR EACH OF THE PRODUCTS.
CONCEPT: MARSHALL-EDGEWORTH EQUILIBRIUM CONDITION. ASSUMING THAT TWO COUNTRIES, ENGAGED IN
INTERNATIONAL TRADE, HAVE THE CAPABILITIES TO PRODUCE THE QUANTITIES OF, SAY 2 PRODUCTS, WHICH THEY
DESIRE TO EXCHANGE IN TRADE, THE QUANTITIES TO BE TRADED DEPENDS NOT ONLY ON THEIR RELATIVE EFFICIENCIES
TO PRODUCE THE PRODUCTS BUT ALSO ON THE EFFECT OF THE LAW OF DIMINISHING UTILITY FOR EACH OF THE
PRODUCTS.
PRODUCT A
of
COUNTRY Y
COUNTRY X Offer-curve
for Prod. B
Country Y Offer-curve
for Product A
0.5 A
1
1A
1.0
1B
0.5 A
0.5
0
1
PRODUCT B of
COUNTRY X

1 B
1 BDr. ROBERTO F. VILLARROEL
APPROVED BY
COUNTRY Y, DURING THE 1st EXCHANGE, WOULD LIKE TO HAVE 1 UNIT OF COUNTRY Xs PRODUCT B IN EXCHANGE FOR 1 UNIT
OF ITS OWN PRODUCT A; ON THE OTHER HAND, COUNTRY X WOULD BE WILLING TO FOREGO 1 UNIT OF ITS PRODUCT B FOR ONLY 0.5
UNIT OF COUNTRY Ys PRODUCT A DURING THE 1st EXCHANGE. COUNTRY Y WILL HAVE TO WAIT FOR THE 2nd EXCHANGE WHERE
COUNTRY X WOULD BE WILLING TO FOREGO 1 UNIT OF ITS PRODUCT B WHEN IT DESIRES TO HAVE A SECOND SERVING OF COUNTRY Ys
PRODUCT A OF ONLY 0.5 UNIT FOR 1 UNIT OF ITS PRODUCT B.
FOR WAITING, COUNTRY Y WOULD HAVE DURING THE 2ND EXCHANGE 2 UNITS OF COUNTRY Xs PRODUCT B, INCLUDING THE 1
UNIT OF B IT SHOULD HAVE ACQUIRED DURING THE 1st EXCHANGE, AND COUNTRY X WOULD HAVE 1.5 UNITS OF COUNTRY Ys PRODUCT
A, INCLUDING THE 0.5 UNIT OF PRODUCT A IT SHOULD HAVE ACQUIRED DURING THE 1st EX-CHANGE.
CONCEPT: MARSHALL-EDGEWORTH EQUILIBRIUM CONDITION. ASSUMING THAT TWO COUNTRIES, ENGAGED IN INTERNATIONAL
TRADE, HAVE THE CAPABILITIES TO PRODUCE THE QUANTITIES OF, SAY 2 PRODUCTS, WHICH THEY DESIRE TO EXCHANGE IN TRADE,
THE QUANTITIES TO BE TRADED DEPENDS NOT ONLY ON THEIR RELATIVE EFFICIENCIES TO PRODUCE THE PRODUCTS BUT ALSO ON THE
EFFECT OF THE LAW OF DIMINISHING UTILITY FOR EACH OF THE PRODUCTS.
PRODUCT A
of
COUNTRY Y
COUNTRY X Offer-curve
for Prod. B
Country Y Offer-curve
for Product A
1.5
0.5 A
1
1A
1.0
1B
0.5 A
0.5
0
1
1 B
PRODUCT B of
COUNTRY X
PREPARED BY
1 B
APPROVED BY
COUNTRY Y, DURING THE 1st EXCHANGE, WOULD LIKE TO HAVE 1 UNIT OF

COUNTRY Xs PRODUCT B IN EXCHANGE FOR 1 UNIT OF ITS OWN PRODUCT A; ON THE
OTHER HAND, COUNTRY X WOULD BE WILLING TO FOREGO 1 UNIT OF ITS PRODUCT B
FOR ONLY 0.5 UNIT OF COUNTRY Ys PRODUCT A DURING THE 1st EXCHANGE.
COUNTRY Y WILL HAVE TO WAIT FOR THE 2nd EXCHANGE WHERE COUNTRY X WOULD
BE WILLING TO FOREGO 1 UNIT OF ITS PRODUCT B WHEN IT DESIRES TO HAVE A
SECOND SERVING OF COUNTRY Ys PRODUCT A OF ONLY 0.5 UNIT FOR 1 UNIT OF ITS
PRODUCT B.
FOR WAITING, COUNTRY Y WOULD HAVE DURING THE 2ND EXCHANGE 2 UNITS OF
COUNTRY Xs PRODUCT B, INCLUDING THE 1 UNIT OF B IT SHOULD HAVE ACQUIRED
DURING THE 1st EXCHANGE, AND COUNTRY X WOULD HAVE 1.5 UNITS OF COUNTRY Ys
PRODUCT A, INCLUDING THE 0.5 UNIT OF PRODUCT A IT SHOULD HAVE ACQUIRED
DURING THE 1st EX-CHANGE.
MINI-CASE: AS THE ADVISER OF COUNTRY X IN TRADING ITS PRODUCT B WHICH OF
THE FOLLOWING AMOUNTS OF PRODUCT B WILL YOU ADVISE IT TO TRADE WITH
COUNTRY Ys PRODUCT A WHERE COUNTRY Y WILL BE WILLING TO TRADE ITS
PRODUCT A BASED ON THE PRECEDING DIAGRAM: i) 1 OF PRODUCT B FOR 0.5 OF
PRODUCT A, ii) 1 OF PRODUCT B FOR 1 OF PRODUCT A, iii) 2 OF PRODUCT B FOR 1.5
OF PRODUCT A,
PREPARED BY
APPROVED BY
CONCEPT: THE MARSHALL-LERNER CONDITION FOR A FRUITFUL DEVALUATION CAN BE

DEMONSTRATED IN DIAGRAMS I AND II AS FOLLOWS:
Price
In
US
dollars of
1 Philippine
peso
Perfectly price inelastic demand curve A

by a US dollar holder for Philippine goods who considers the latter as
necessities
Demand curve B by
a US dollar holder for Philippine
goods who considers the
latter as inferior
Perfectly price elastic supply curves by Philippine suppliers at every US dollar price of 1 peso
US 0.05
per
1 peso
US 0.04
per
1 peso
Price elastic demand curve C by a US dollar holder for Philippine goods who
considers the latter as uxury goods l
QB =$4 QA=$7
QC=$20
Inflow of US dollars
PREPARED BY
APPROVED BY
DIAGRAM I
Price
In
US
dolars of
1 Philippine
peso
Perfectly price inelastic demand curve A

by a Filipino US dollar holder for US
goods who considers the latter as
necessities
Demand curve B by
a Filipino US dollar holder for
US goods who considers the
latter as inferior
Perfectly price elastic supply curves by Philippine suppliers at every US dollar price of 1 peso
US 0.05
per
1 peso
US 0.04
per
1 peso
Price elastic demand curve C by a Filipino US dollar
holder for US goods who considers the latter as luxury
Goods
QB =$4 QA=$7
QC =$15
Outflow of US dollars
DIAGRAM II
PREPARED BY
APPROVED BY
Mini-case: As the economic adviser of the Philippine president and given the preceding diagrams, in
which of the following demand curves of the US dollar holder will you recommend a devaluation of the
Philippine peso from US 0.05 per peso to US 0.04 per peso in order to increase the inflow of US dollars
into the Philippine economy: i) Demand curve A in DIAGRAMS I and II, ii) Demand curve B in
DIAGRAMS I and II, iii) Demand curve C in DIAGRAMS I and II? Please justify your answer.
PREPARED BY
APPROVED BY
CONCEPT: THE LAW OF ABSOLUTE ADVANTAGE IS DEMONSTRATED IN THE FOLLOWING

TABLES:
TABLE 1
PRODUCTION PATTERN
ENTITY A
ENTITY B
PRODUCT X
1 HOUR
PRODUCT Y
1 HOUR
= 8
IN TABLE 1, PLEASE OBSERVE THAT WHEN EACH PRODUCT WERE BOTH PRODUCED BY ONE ENTITY,
EACH ENTITY COULD PRODUCE ONLY A TOTAL OF 4 UNITS OF BOTH PRODUCTS OR A TOTAL OF 8 UNITS.
ON THE OTHER HAND IN TABLE 2, WHEN EACH ENTITY SPECIALIZES IN THE PRODUCT WHERE IT IS
MORE EFFICIENT( as indicated by having produced more of the product per hour; it means ENTITY A focuses on
PRODUCT A where it produces 3 units per hour while ENTITY B focuses on PRODUCT Y where it produces 3 units
per hour), SO THAT BY DEVOTING 2 HOURS FOR EACH PRODUCT BY ENTITY A OR B YIELDS 6 UNITS FOR
EACH PRODUCT OR A TOTAL OF 12 WHEN ADDED TOGETHER.
PREPARED BY
APPROVED BY
TABLE 2
PRODUCTION PATTERN
ENTITY A
ENTITY B
PRODUCT X
1 HOUR
3 units
6 units
0 units
1 unit
PRODUCT Y
1 HOUR
6 =
4 units = 8 units only when there is no specialization

12 units
4 units
6
MINI-CASE:
AS ADVISER TO THE PHILIPPINE PRESIDENT, WHICH PRODUCT WILL YOU ASSIGN
FOR THE PHILIPPINES TO PRODUCE, IF THE PHILIPINES WERE ENTITY B, WHEN THE
AIM IS EFFICIENCY.
CONCEPT: WHEN THE LAW OF ABSOLUTE ADVANTAGE IS INVOKED NOT ONLY FOR
INCREASING JOINT PRODUCTION OF, AT LEAST, TWO ENTITIES (as demonstrated in Tables 1
and 2 in the preceding CONCEPT ), BUT IS INVOKED ALSO FOR INCREASING JOINT
PREPARED BY
APPROVED BY
CONSUMPTION, AN ASSUMPTION MUST HAVE TO BE MADE IN ORDER TO FACILITATE ITS

DEMONSTRATION AS FOLLOWS: THE PRODUCTION PATTERN MUST HAVE TO BE
ASSUMED AS BASED ON THE CONSUMPTION PATTERN(meaning, there is no surplus left after
consumption when Table 1 PRODUCTION PATTERN is matched with each entitys CONSUMPTION
PATTERN as shown in the following Table 3).
TABLE 3
PRODUCTION AND CONSUMPTION PATTERNS
ENTITY A
3
ENTITY B
PRODUCTION
PATTERN
PRODUCT X
1 HOUR
CONSUMPTION
PATTERN
PRODUCT X
1 HOUR
-3
_____
0
-1
_____
0
PRODUCTION
PATTERN
PRODUCT Y
1 HOUR
CONSUMPTION
PATTERN
PRODUCT Y
1 HOUR
-1
_____
0
-3
_____
0
THE FOLLOWING TABLE 4 DEMONSTRATES, NOT ONLY THE GAIN IN JOINT PRODUCTION BUT THE GAIN IN JOINT
CONSUMPTION AS WELL, WHEN MATCHING IS DONE BETWEEN THE SPECIALIZED PRODUCTION OF BOTH ENTITIES AND
THEIR CONSUMPTION PATTERNS.
PREPARED BY
APPROVED BY
TABLE 4
MATCHING BETWEEN THE SPECIALIZED PRODUCTION OF BOTH ENTITIES AND THEIR CONSUMPTION PATTERNS
ENTITY A
PRODUCTION
PATTERN
PRODUCT X
1 HOUR
CONSUMPTION
PATTERN
PRODUCT X
1 HOUR
-3
_____
3
PRODUCTION
PATTERN
PRODUCT Y
1 HOUR
CONSUMPTION
PATTERN
PRODUCT Y
1 HOUR
ENTITY B
3
-1 -1
___ ___
+2 0
3
- 1 -1
___ ___
0 +2
6
-3
_____
3
MINI-CASE: THE PHILIPPINE PRESIDENT WANTS YOUR ADVISE ON WHICH PRODUCT TO SPECIALIZE IN PRODUCTION;
WHICH PRODUCT WILL YOU ADVISE FOR THE PHILIPPINES TO SPECIALIZE IN PRODUCTION? WHY?
PREPARED BY
APPROVED BY
CONCEPT: LAW OF COMPARATIVE ADVANTAGE

THE FOLLOWING TABLE 5 DEMONSTRATES THE PRODUCTION PATTERN OF TWO
ENTITIES WHERE ONE IS SUPERIOR TO THE OTHER ENTITY IN BOTH PRODUCTS.
TABLE 5
THE PRODUCTION PATTERN OF TWO ENTITIES WHERE ONE IS SUPERIOR IN PRODUCTION RATES PER
HOUR TO THE OTHER ENTITY IN BOTH PRODUCTS
INFERIOR
ENTITY A
SUPERIOR
ENTITY B
PRODUCT X
1 HOUR
3.25
PRODUCT Y
1.50
4.75
= 8.75
1 HOUR
4
PREPARED BY
APPROVED BY
WHEN THE ENTITY SUPERIOR TO THE OTHER ENTITY FOCUSES ON THE PRODUCT WHERE IT EXCEEDS THE OTHER
ENTITYS RATE OF PRODUCTION PER HOUR AT A GREATER RATE, ( in this instance, PRODUCT Y ), TABLE 6 COMES ABOUT, AS
FOLLOWS:
TABLE 6
THE PRODUCTION PATTERN OF TWO ENTITIES WHERE ONE IS SUPERIOR TO THE OTHER ENTITY IN PRODUCTION RATES
PER HOUR IN BOTH PRODUCTS
(Nonetheless, Entity B focuses, by spending the entire two hours in the production of product B, since comparing itself with itself, it has greater
difference compared to Entity A in producing Y than in producing X.)
INFERIOR
ENTITY A
SUPERIOR
ENTITY B
3.25 3.00= 0. 25
PRODUCT X
1 HOUR
3.25
PRODUCT Y
3.0
1.50
1.50 1.00= 0. 50
1 HOUR
_____
4
__
+
6
___ _______
4.75
= 8.75
3.0 =
9.0
PREPARED BY
APPROVED BY
TABLE 7
THE PRODUCTION PATTERN AND CONSUMPTION PATTERN(under the premise that the production pattern is based on the consumption
pattern) OF TWO ENTITIES WHERE ONE IS SUPERIOR IN PRODUCTION RATES PER HOUR TO THE OTHER ENTITY IN BOTH
PRODUCTS
3 u nits x 2hrs. = 6 units
per hour
during per 2 hours
before
specialspecialization
ization
INFERIOR
ENTITY A
Production
pattern
PRODUCT X
1 HOUR
Consumption
pattern
PRODUCT X
1 HOUR
-3
____
3
SUPERIOR
ENTITY B
3.0
-3.25 -3.25
___ ______
-0.25 -3.25
TRADE BEFORE
SPECIALIZATION
TRADE AFTER
SPECIALIZATION
1.5 u nits x 2hrs. = 3 units

per hour
during per 2 hours
before
specialspecialization
ization
Production
pattern
PRODUCT Y
1 HOUR
Consumption
pattern
PRODUCT Y
1 HOUR
1.5
3.0
-1.0 -1.0
___ ____
-1.0 0.5
-1.5
_____
1.5
PREPARED BY
APPROVED BY
TRADE BEFORE
SPECIALIZATION
TRADE AFTER SPECIALIZATION
MINI-CASE:
AS ADVISER TO THE PHILIPPINE PRESIDENT, WHICH OF THE FOLLOWING TWO PRODUCTS WOULD YOU RECOMMEND
FOR THE PHILIPPINES TO PRODUCE FOR EXPORT IN ORDER TO ACHIEVE A GAIN IN THE FOLLOWING:
A)
B)
IN JOINT PRODUCTION, IF THE PHILIPPINES WERE THE SUPERIOR COUNTRY IN BOTH PRODUCTS: i) PRODUCT X, ii) PRODUCT Y ?
WOULD THERE BE A GAIN IN JOINT PRODUCTION IF YOU RECOMMENDED PRODUCT X INSTEAD OF PRODUCT Y? EXPLAIN YOUR ANSWER.
IN JOINT CONSUMPTION, IF THE PHILIPPINES WERE THE SUPERIOR COUNTRY IN BOTH PRODUCTS: i) PRODUCT X, ii) PRODUCT
Y ? WOULD THERE BE A GAIN IN JOINT CONSUMPTION IF YOU RECOMMENDED PRODUCT X INSTEAD OF PRODUCT Y? EXPLAIN YOUR
ANSWER.
PREPARED BY
APPROVED BY
CONCEPT: JOHN POWER MODEL. GROSS DOMESTIC PRODUCT = SAVINGS /1 x NUMBER OF

EMPLOYED PER CAPITAL BUILD-UP x OUTPUT PER EMPLOYED.
Scarcity can be prevented when a given level of resource can be made to produce more by using a new
technique as demonstrated below:
GROSS
DOMESTIC = SAVINGS x NUMBER OF EMPLOYED x OUTPUT
PRODUCT
1
CAPITAL BUILD-UP
EMPLOYED
GROSS
P1 B of
2M is the
P 400
DOMESTIC = SAVINGS x NUMBER OF EMPLOYED x OUTPUT
PRODUCT
1
CAPITAL BUILD-UP
EMPLOYED
Of P800 M
of P1 B
Let us say, the Philippine President wants the P800 M Gross Domestic Product increased to P1,600 M
by using the same level of P1 B savings, the same level of 2 M employed with a productivity of P400 per
employed; from the equation, the only variable that can be changed is the required CAPITAL BUILDUP. Please observe that discovering a new technique that saves on the needed capital build-up from P1 B
down to P0.5 B without decreasing the productivity of the employed will yield a GROSS DOMESTIC
PRODUCT OF P1,600 M.
Innovation is the key to going around the problem of scarcity in the following: SAVINGS, the
NUMBER OF EMPLOYED, and PRODUCTIVITY.
MINI-CASE: THE Philippine President wants you, as his adviser, to tell him the appropriate amount of
capital-build up that a new technology should require to yield a GROSS DOMESTIC PRODUCT of
PREPARED BY
APPROVED BY
P3,200 M and still using the same old level of P 1 billion SAVINGS, the same level of 2 million
EMPLOYED, and A PRODUCTIVITY of the EMPLOYED at P400 per employed.
IN THE MODEL OF CIRCULAR FLOW OF NATIONWIDE INCOME, GROSS
INVESTMENT IS REGARDED AS AN INJECTION, SINCE IT ADDS TO THE FLOW WITHOUT
THERE BEING ANY CHANGE IN THE SPENDING OF HOUSEHOLDS ON PRODUCTS.
CONCEPT: THE ACT OF SAVING WITHDRAWS FUNDS FROM THE CIRCULAR FLOW OF
NATIONWIDE INCOME AS SHOWN BELOW AND UNLESS INVESTMENT RE-INJECTS A
SIMILAR AMOUNT, THERE SHALL BE A REDUCTION IN THE NATIONWIDE FLOW OF
INCOME:
PREPARED BY
APPROVED BY
CIRCULAR FLOW OF NATIONWIDE INCOME:

PhP13Tr
2012 to 2013: WAGESPhP4 Tr
PREFERRED SHARE DIVIDENDPhP4
FIRMS
COMMON SHARE DIVIDENDPhP5
Domestic firms
receive payment
of domestic
buyers: PhP10 Tr
HOUSEHOLDS
Withdraws
Savings of
PhP3 Tr
Please observe that unless the domestic savings of PhP3 Tr is re-injected once in year 2013 into the
circular flow of income by way of an investment, the circular flow of nationwide income is reduced to
PhP10 Tr in year 2013. To continually sustain an annual increase in nationwide income (presuming it
takes a year to realize an increment in nationwide income), the computation follows:
On the premise that the employed can obtain an advanced payment for their 1st years production
which takes a year to produce, coming from an investment of PhP3 Tril-lion(henceforth, Tr) at the
beginning of the 1st year, the government receipts on the taxpayment of PhP3Tr, and domestic firms
PREPARED BY
APPROVED BY
receipt on payments for exports worth PhP6; then the 1st years increase in nationwide income amounts
to PhP12 Tr coming from the years investment, tax revenues, and export receipts. However, since the
production takes a year , the employeds advanced payment for their work during the 1st year will only
be spent during the succeeding year ( which is the 2nd year since the 1st investment, payment of taxes,
and payments for export of PhP12 Tr of the prior year was made) and given the propensity to consume
of 0.75 from an increase in nationwide income of PhP 12Tr due to the total receipts of PhP12Tr of the
immediately preceding past year, consumer spending will be PhP Tr in the 2nd year (or thereby
create the 2nd years increment of PhP2.25 Tr) and thereby increase the income of those engaged in the
production of the goods that will be bought (which will take a year to produce) by the same amount of
PhP2.25 during the 2nd year. Hence by the end of the 2nd year (PhP3 Tr of the 1st yr + PhP2.25Tr of
the 2nd yr = a cumulative total of PhP5.25Tr), PhP5.25Tr is the cumulative increment in nationwide
income and-so-on-and-so-forth at every year until the total of about PhP12Trillion is reached from the
1st years injection of an investment of PhP3 Tr. To repeat, the annual increase in income from the 1st
years injection of PhP3 Tr. until the yearly increments reaches a cumulative total of about PhP 12.0
follows {The short-cut for arriving at the cumulative total of PhP12 Tr. is to multiply the 1st years
injected investment of PhP3 by the reciprocal of the difference between 1 and the marginal propensity to
consume of 0.75 which equals 4 (or 1 divided by [1 - 0.75] = 4}. Hence PhP3 Tr x 4 = PhP12 by the 29th
year:
1st Yr.: 2013 PhP 12.0 Tr, (the income is registered as a payment coming from the firms which paid
them for their work)
2nd Yr.: 2014 PhP 12.0 Tr x 0.75 =PhP 9 Tr ( from the 2nd yr and henceforth, the income is
registered as payments to the firms by the employed as they paid for
the products they are buying from the firms)
3rd Yr.: 2015 PhP 9 Tr x 0.75 =6.75
1.69
x 0.75 =1.27
PREPARED BY
APPROVED BY
.
.
.
.
1.27
0.96
0.72
0.54
.
.
.
.
x 0.75 = 0.95
x 0.75 =0.72
x
=0.54
x
.40
.30
.23
.17
.13
.10
.07
.05
.04
.03
.02
.017
.013
.009
.007
.005
.004
.003
.002
.0013
.0012
.00096
.0007
PREPARED BY
APPROVED BY
.0005
.
.
.0004
.0003
.0002
.00016
.
.
.0001
.
.
.
.
.
. .
29th year ....................................... 12.0 Tr
MINI-CASE: The Philippine president presents to you th3e following decision-matrix format, for
presenting to him your recommendation, which contains the presidents prioritized objectives and your
alternative courses of action for sustaining the annual incremental increase in the flow of nationwide
income and at least maintaining the prior years nationwide income in succeeding years.
OBJECT-IVES
PRIORITIZA-
PREPARED BY
APPROVED BY
TION
INDEX
OF OBJECTIVES
BY THE
OWNER
I. re-inject the savings of PhP3 Tr

through investments while it
lasts beginning year 2013

SATISFY-ING
OBJECTIVE
a) and
b)
a) sustain an
annual
increase in
nationwide
income
from the
original
PhP3
Trillion in
2013
b) maintain in
2013 and
the
following
years, the
original
2012 PhP
13 Trillion
nationwide
income
ORDINAL RANKING WEIGH-TED

BY OW-NERS
PRIO-RITY INDEX
ON THE
OBJECTIVES
(UNWEIGH-TED
ORDINAL RANKING
MULTIPLIED BY
OWNERS PRIORITY
INDEX FOR THE
OBJEC-TIVE)
II. encourage the domestic

consumption purchases of
PhP10 Tr in year 2013 and
the following years
III. COMBINE ALTERNATIVE

SOLUTIONS I. AND II.
UNWEIGHTED
ORDI-NAL
RANK-ING IN
SATIS-FYING
OBJECTIVE
a) and b)
UNWEIGHTED
ORDI-NAL
RANK-ING IN
SA-TIS-FY-ING
OB-JECT-IVES
a) and b)
ORDINAL
RANK-ING
WEIGH-TED BY
THE PRESIDENTS PRIO-
RITY INDEX ON
THE OBJECTIVES

BY THE PRESIDENTS PRIORITY
INDEX ON THE
OBJECTIVES
2X2=4
2X1=2
2X2=4
2X1=2
2 X 2= 4
2X 2=4
3 6
PREPARED BY
APPROVED BY
1. Given the prioritized objectives of the Philippine president, which solution in the DECISION-MATRIX FORMAT will you
recommend, if you were the adviser, basing your decision on whichever solution garners the higher sum of weighted points based
on the prioritized objectives?
2. Are there other assumptions you will add to each set of implicit assumptions under each solution? If your answer is yes, please
name them.
3. What will be your recommendation if the Philippine president changes the prioritization of his objectives in such a way that
objective b) has a lesser priority weight of 1 compared to objective a)s priority weight of 2? What will be the revised weighted
ranking you will provide in the DECISION-MATRIX FORMAT?
PREPARED BY
APPROVED BY
APART FROM THE ACT OF SAVING, PAYING TAXES, AND PAYING FOR IMPORTS TO
FOREIGN-OWNED FIRMS, WITHDRAW FUNDS FROM THE CIRCULAR FLOW OF
NATIONWIDE INCOME.
IN THE MODEL OF CIRCULAR FLOW OF NATIONWIDE INCOME, APART FROM
GROSS INVESTMENT, GOVERNMENT PURCHASES, AND REVENUES FROM EXPORTS,
SUCH ARE REGARDED AS INJECTIONS INTO THE CFNI, SINCE THEY ADD TO THE FLOW
WITHOUT THERE BEING ANY CHANGE IN THE SPENDING OF HOUSEHOLDS ON
PRODUCTS.
CONCEPT: SAVING, PAYING TAXES, AND PAYING FOR IMPORTS TO FOREIGN-OWNED
FIRMS, SUCH ACTS WITHDRAW FUNDS FROM THE CIRCULAR FLOW OF NATIONWIDE
INCOME AS SHOWN BELOW AND UNLESS A SIMILAR AMOUNT ARE RE-INJECTED
THROUGH THE FOLLOWING MEANS, --INVESTMENT BY FIRMS, PAYMENT TO FIRMS BY
GOVERNMENT FOR THEIR PURCHASES, AND PAYMENT TO DOMESTIC FIRMS BY
EXPORTERS-- THERE SHALL BE A REDUCTION IN THE NATIONWIDE FLOW OF INCOME.
PREPARED BY
APPROVED BY
CIRCULAR FLOW OF NATIONWIDE INCOME(CFNI):

PhP13
FIRMS
2012 to
2013: WAGESPhP4
PREFERRED SHARE DIVIDENDPhP4
COMMON SHARE DIVIDENDPhP5
Domestic firms
receive payment
of domestic
buyers: PhP1
HOUSEHOLDS
Withdraws
from the
CFNI
Domestic firms Payment of
receive export Imports to
foreignincome of
owned
PhP4
firms:PhP6
Domestic
firms receive
government
payment for its
purchases:
PhP4
Withdraws
from the
CFNI
Payment
of Taxes:
PhP3
PREPARED BY
Withdraws
from the
CFNI
Savings of
PhP3
Domestic firms
receive
investment of
PhP4
APPROVED BY
Please observe that unless the domestic savings of PhP3 Tr, tax payments of PhP3 Tr, and import
payments of PhP6 Tr are re-injected once in year 2013 into the circular flow of nationwide income by
way of an investment, government purchases, export revenues, the circular flow of nationwide income
is reduced to PhP1 Tr on the premise that the latter is spent by consumers on stock balances of products
produced in year 2012 and carried over to year 2013 and there is no reinjection of the withdrawals
made in the form of the said savings, tax payments, and payments for imports. To continually sustain an
annual increase in nationwide income (presuming it takes a year to realize an increment in nationwide
income), the computation follows:
On the premise that the employed can obtain an advanced payment for their 1st years production
which takes a year to produce, coming at the beginning of the 1st year from the following: an
investment of PhP3 Trillion, government purchases of PhP3 Tr, and export revenues of PhP6 Tr; then
the 1st years increase in nationwide income amounts to the latters total of PhP12 Tr. However, since the
production takes a year , their advanced payment during the 1st year will only be spent during the
succeeding year ( which is the 2nd year since the 1st injection of investment, government purchases, and
export revenues of PhP 12 Tr of the prior year was made) and given the propensity to consume of 0.75
from an increase in nationwide income of PhP 12 Tr due to the immediately preceding past years
investment of PhP3, government purchases of PhP 3 Tr, and export revenues of PhP 6 Tr, consumer
spending will be PhP9 Tr in the 2nd year (or thereby create the 2nd years increment of PhP9 Tr) and
thereby increase the income of those engaged in the production of the goods that will be bought (which
will take a year to produce) by the same amount of PhP9 during the 2nd year. Hence by the end of the
2nd year (PhP12 Tr of the 1st yr + PhP9Tr of the 2nd yr = a cumulative total of PhP21Tr), PhP21Tr is
the cumulative increment in nationwide income and-so-on-and-so-forth at every year until the total of
about PhP__Trillion is reached from the 1st years injection of an investment of PhP12 Tr. To repeat,
PREPARED BY
APPROVED BY
the annual increase in income from the 1st years injection of PhP12 Tr. until the yearly increments
reaches a cumulative total of about PhP 48 follows {The short-cut for arriving at the cumulative total of
PhP48 Tr. is to multiply the 1st years injected investment of PhP12 by the reciprocal of the difference
between 1 and the marginal propensity to consume of 0.75 which equals 4 (or 1 divided by [1 - 0.75] =
4}. Hence PhP12 Tr x 4 = PhP48 by the 29th year:
1st Yr.: 2013 PhP 12.0 Tr, (the income is registered as a payment coming from the firms which paid
them for their work)
2nd Yr.: 2014 PhP 12.0 Tr x 0.75 =PhP 9 Tr ( from the 2nd yr and henceforth, the income is
registered as payments to the firms by the workers as they paid for the
products they are buying from the firms)
3rd Yr.: 2015 PhP 9 Tr x 0.75 =5.06
5.6 x 0.75 =3.80
3.80 x 0.75 =2.84
2.84 x 0.75 =2.13
2.13 x 0.75 =1.59
1.59 x 0.75 =1.20
.
.
0.90
.
.
0.67
.
.
0.50
.
.
.38
.28
.21
.16
.12
.09
PREPARED BY
APPROVED BY
.07
.05
.038
.028
.
.021
.016
.012
.007
.005
.
.004
.003
.002
.0016
.0012
.
.
.0009
.0007
.0005
.0004
.
.
.0003
.
.
.
.
.
. .
29th year ....................................... 48.0 Tr
PREPARED BY
APPROVED BY
MINI-CASE: The Philippine president presents to you the following decision-matrix format, for
presenting to him your recommendation, which contains the presidents prioritized objectives and your
PREPARED BY
APPROVED BY
alternative courses of action for sustaining the annual incremental

increase in the flow of nationwide income and at least maintaining the
prior years nationwide income in succeeding years.
OBJECT-IVES
PRIORITIZATION
INDEX
OF OBJECTIVES
BY THE
OWNER
I. re-inject the savings of PhP12

Tr through investments while
it lasts beginning year 2013

SATISFY-ING
OBJECTIVE
a) and
b)
a) sustain an
annual
increase in
nationwide
income
from the
original
PhP3
Trillion in
2013
b) maintain in
2013 and
the
following
years, the
original
2012 PhP
13 Trillion
nationwide
income

BY OW-NERS
PRIO-RITY INDEX
ON THE
OBJECTIVES
(UNWEIGH-TED
ORDINAL RANKING
MULTIPLIED BY
OWNERS PRIORITY
INDEX FOR THE
OBJEC-TIVE)
II. encourage the domestic

consumption purchases of
PhP1 Tr in year 2013 and the
following years
III. COMBINE ALTERNATIVE

SOLUTIONS I. AND II.
UNWEIGHTED
ORDI-NAL
RANK-ING IN
SATIS-FYING
OBJECTIVE
a) and b)
UNWEIGHTED
ORDI-NAL
RANK-ING IN
SA-TIS-FY-ING
OB-JECT-IVES
a) and b)
ORDINAL
RANK-ING
WEIGH-TED BY
THE PRESIDENTS PRIO-
RITY INDEX ON
THE OBJECTIVES

BY THE PRESIDENTS PRIORITY
INDEX ON THE
OBJECTIVES
2X2=4
2X1=2
2X2=4
2X1=2
2 X 2= 4
2X 2=4
3 6

1. Given the prioritized objectives of the Philippine president, which solution in the
DECISION-MATRIX FORMAT will you recommend, if you were the adviser, basing
your decision on whichever solution garners the higher sum of weighted points based
on the prioritized objectives?
2. Are there other assumptions you will add to each set of implicit assumptions under each
solution? If your answer is yes, please name them.
3. What will be your recommendation if the Philippine president changes the prioritization
of his objectives in such a way that objective b) has a lesser priority weight of 1
compared to objective a)s priority weight of 2? What will be the revised weighted
ranking you will provide in the DECISION-MATRIX FORMAT?
147
Business Game
A shipwreck caused four men to be stranded in two islands; namely:
1) Island A
2) Island B.
Two men; namely:
1) X
2) Y,
found themselves in Island A; while
the other two men; namely:
1) Z
2) T,
found themselves in Island B.
Each man needs for consumption and for saving two pairs of two products; namely:
1) Services as Consumer Product 1
2) Goods as Consumer Product 2.
The first pair for consumption shall be of this form:
Consumer Product 1:
SERVICES
Consumer Product 2:
GOODS
148
The second pair for saving shall also be of the same form as the preceding:
Consumer Product 1:
SERVICES
Consumer Product 2:
GOODS
Each of the two men in an island , has a role to play other than being a consumer and being a
saver.
They also have to be investors.
Each man as an investor or producer makes an investment purchase of an input he
does not as yet possess to combine with the input he already possesses in order to
address the purchase order issued to him regarding the Consumer Product he is in the
business of producing.
For example, Person X of Island A who is a producer of Consumer Product 1
of Form S received four purchase orders for the latter.
149
Form S:
Consumer Product 1:
SERVICES
Input
g
Input
s
Person X of Island A who is a producer of Consumer Product 1 of Form S needs

Product 2 as an Input Product, which is also called as Good-as-Input(Input g) of which he
needs 4 pieces, in producing Consumer Product 1 of Form S for combination with Product 1
as an Input Product, which is also called as Service-as-Input(Input s), as shown in input
Form s below but he need not buy the latter because he has four pieces of it.
Form s
Input Product 1 or
Service-as-Input
What he needs to buy is 4 of Form g which he does not as yet have .

Form g
Input Product 2:
Goods-as-Input
150
In respect of Person Y of Island A who is a producer of Consumer Product 2 of Form G

needs both Input s and Input g also as shown below in Form G:
Form G:
Consumer Product 2:
GOODS
Input
s
Input
g
In producing Consumer Product 2 of Form G, Product 1 as an Input Product, which is

also called as Service-as-Input(Input s), is to be combined with Product 2 as an Input
Product, which is also called as Goods-as-Input(Input g), as shown in input Form g but
he need not buy it because he has four pieces of it.
Form g
Input Product 2 or
Good-as-Input
151
What he needs to buy is 4 of Form s which he does not as yet have.

.
Form s
Input Product 1:
Service-as-Input
Accordingly, the summary of the game procedure follows:

1. Each man in an Island has to fill-up the Balance Sheet Form as of the start of the
game as follows:
Balance Sheet as of __start of the game___:
ASSETS
=
1. cash
_______
2. book value
of pieces
_______
LIABILITIES
__________
EQUITY
_______
__________
_______
2. Each man in an Island has to place a purchase order, for two pairs of the
following pair of products(Please see Diagram M below), from himself
regarding the product he produces(for records purposes) and from the producer
of the other product. One pair is for current consumption. The other pair is for
saving. Use the larger version of the following accounting form in Page 10:
PURCHASE
ORDER FOR
CONSUMER
GOODS
PURCHASE
ORDER FOR
CONSUMER
SERVICES
FROM GOODS
CONSUMER : __
FROM SERVICE
CONSUMER: __
(signature or
initials)
(signature or
initials)
GIVEN TO
GOODS
PRODUCER: __
(signature or
initials)
Qty.
Agreed
Price
GIVEN TO
SERVICE
PRODUCER: __
(signature or
initials)
Qty.
Agreed
Price
152
3. Upon receipt of two purchase orders from the consumer of Product 1, one for the
purchase of the product for current consumption by the consumer and the other for
saving, the producer or investor of Consumer Product 1 as consumer service, shall
purchase Input g to be combined with what he has of Input s in order to produce
Product 1 as Consumer Service by using Diagram N on Page 15 for the buyers current
consumption and then using Diagram O on Page 16 for the buyers saving of Consumer
Product 1 as consumer service.
Upon receipt of two purchase orders from the consumer of Product 2, one for the
purchase of the product for current consumption by the consumer and the other for
saving, the producer or investor of Consumer Product 2 as consumer good, shall
purchase Input s to be combined with what he has of Input g in order to produce
Product 2 as Consumer Good by using Diagram P on Page 17 for the buyers current
consumption and then using Diagram Q on Page 18 for the buyers saving of Consumer
Product 2 as consumer good.
4.
Accordingly, for the purchase of Inputs s and g, the producer of Consumer Product 1 and the other
producer covering Consumer Product 2 must then issue purchase order for each Input g and Input s.
For each producer, there shall be four purchase orders of inputs received by him, two coming from the other
person in the island while the other two comes from himself issued unto himself for records purposes.
(Please see Diagram R on Page 19 and its continuation on Page 20 for the actual size of the shapes
outlines for Input s and Input g.
PURCHASE
ORDER FOR
GOODS AS
INPUT
PURCHASE
ORDER FOR
SERVICES AS
INPUT
FROM SERVICE
PRODUCER: __
FROM GOODS
PRODUCER: __
(signature or
initials)
(signature or
initials)
GIVEN TO
GOODS
PRODUCER: __
GIVEN TO
SERVICE
PRODUCER: __
(signature or
initials)
(signature or
initials)
Qty.
Qty.
Agreed
Price
Agreed
Price
a. Each man in an island also has cash-on-hand in an undisclosed amount; and

shall use the cash-on-hand for buying Products 1 and 2 either in the form of
inputs or outputs(consumer product). No barter is allowed.
153
b. The end of the game is signalled as an island or a man in an island has bought a
pair of the consumer products(a good and a service) for current consumption and
another pair for saving) with all the following accounting forms properly
accomplished :
i. Balance Sheet Form as of the end of the game as follows:

Balance Sheet as of __end of the game___:
ASSETS
=
1. cash
_______
2. book value
of pieces
_______
LIABILITIES
__________
EQUITY
_______
__________
_______
ii. Income-and-Loss Statement in the duration of the game:
Income-and-Loss Statement, for the period: _duration of game

Sales:
Input products
PhP ______
Consumer products PhP ______
Total
Cost:
Purchase of
Input products
Ph P _____
Ph P ____
Minus:
Ph P ______
Profit:
Ph P ______
c) State-of-the-Island-Nation as to its Gross Domestic Product( The Gross

Domestic Product of the Island-Nation is equal to the sum of the consumer products bought
for current consumption and for saving by both men. Please note that when a man in an island
have bought a pair of the good and service for current consumption and another pair for
154
saving and has accomplished first all the accounting forms, he cannot as yet indicate their
Island-Nations Gross Domestic Product because the other man in their common island is not
yet finished. Accordingly, if the two men in an Island-Nation can finish simultaneously
before the other the two men in the other Island-Nation, then their individual scores will be
perfect. The two men in each island must strategize to finish simultaneously for a perfect
score; by not leaving someone behind, ones entrepreneurial leadership imbued with a social
purpose is indicated. Not growth, but growth with equity is the objective of a social
entrepreneur.)
Who shall be the winner?

1st Condition: The island (group of two) that wins is the island that completes first
the eight pieces of products: two goods and two services for each man;
2nd Condition: The man that wins in an island is the man that completes first his two
pieces of goods(Consumer Product G) and two pieces of service(Consumer
Product S); provided however, all his accounting forms are properly done;
3rd Condition: Further, the man explains how the strategy of teamwork increases
the groups output despite the superiority of a member over the other in the
production of both product G and S;
4th Condition: Explains also how an islands scarcity, given the following data, can
be overcome through a strategy which will change a datum, except the Capped
Resources, that will increase the islands output to Ph P 1, 600 which presently has
only Ph P800 as an output:
From:
Capped
Ph P 800 = Savings: Ph P1 Million X
Capped
Number of Employed: 2
Capped
X Output per Employed: Ph P400
Capital Goods: Ph P 1 Million
To Growth with Equity:

Ph P 1, 600 =
Capped
Savings:____
Capped
Number of Employed:__
Capped
X Output per Employed:______
Capital Goods: ________
155
APPENDIX A.
ACCOUNTING FORMS
PURCHASE
ORDER FOR
CONSUMER
GOODS
PURCHASE
ORDER FOR
CONSUMER
SERVICES
PURCHASE
ORDER FOR
GOODS AS
INPUT
PURCHASE
ORDER FOR
SERVICES AS
INPUT
FROM GOODS
CONSUMER : __
FROM SERVICE
CONSUMER: __
(signature or
initials)
(signature or
initials)
FROM SERVICE
PRODUCER: __
FROM GOODS
PRODUCER: __
(signature or
initials)
(signature or
initials)
GIVEN TO
GOODS
PRODUCER: __
(signature or
initials)
Qty.
Agreed
Price
GIVEN TO
SERVICE
PRODUCER: __
GIVEN TO
GOODS
PRODUCER: __
GIVEN TO
SERVICE
PRODUCER: __
(signature or
initials)
(signature or
initials)
(signature or
initials)
Qty.
Qty.
Qty.
Agreed
Price
Balance Sheet as of __start of the game___:

ASSETS
=
1. cash
___
2. book value
of pieces ___
LIABILITIES
__________
__________
EQUITY
_______
_______
Agreed
Price
Agreed
Price
Balance Sheet as of __end of the game___:

ASSETS
=
1. cash
___
2. book value
of pieces ____
LIABILITIES
__________
EQUITY
_______
__________
_______
Income-and-Loss Statement, for the period: _duration of game

Sales:
Input products
PhP ______
Consumer products PhP ______
Total
Cost:
Purchase of
Input products
Ph P _____
Ph P ____
Minus:
Ph P ______
Profit:
Ph P ______
156
APPENDIX B. PAGES 10 TO 13 ARE SAME THE ACCOUNTING FORMS AS IN THE PRECEDING BUT IN
A SIZE AND SHAPE FOR EASE-OF-ACCOMPLISHMENT BY HAND WRITING
PURCHASE ORDER
FOR CONSUMER GOODS
FROM GOODS CONSUMER : _________________
PURCHASE ORDER
FOR CONSUMER GOODS
(signature or initials)
GIVEN TO GOODS PRODUCER: ________________


Qty.
PURCHASE ORDER
Agreed Price
FOR CONSUMER GOODS
Qty.
PURCHASE ORDER
Agreed Price
FOR CONSUMER GOODS


Qty.
Agreed Price
Qty.
Agreed Price
157
PURCHASE ORDER
FOR CONSUMER GOODS
PURCHASE ORDER
FOR CONSUMER GOODS


Qty.
PURCHASE ORDER
Agreed Price
FOR CONSUMER GOODS
Qty.
PURCHASE ORDER
Agreed Price
FOR CONSUMER GOODS


Qty.
Agreed Price
Qty.
Agreed Price
158
PURCHASE ORDER
FOR CONSUMER SERVICES
FROM SERVICE CONSUMER : _________________
GIVEN TO SERVICE PRODUCER: ________________
Qty.
PURCHASE ORDER
Agreed Price
Qty.
Agreed Price
PURCHASE ORDER
Qty.
PURCHASE ORDER
Agreed Price
Qty.
Agreed Price
159
PURCHASE ORDER
Qty.
PURCHASE ORDER
Agreed Price
Qty.
Agreed Price
PURCHASE ORDER
Qty.
PURCHASE ORDER
Agreed Price
Qty.
Agreed Price
160
Diagram M (Each man on an Island-Nation shall at the end of the game have a pair of Consumer Product 1 as Service and Consumer Product 2
as Good for current consumption and another pair for saving:
Consumer Product 1:
Consumer Product 2:
SERVICES
GOODS
Inputs
book value at games
start: =PhP50
Input g
book value at games start:*
= Ph P100
Input g
=Ph P 100
Input s
book value at games
start: =PhP50
* Book value: The book value at the end of the game can either becomes higher or lower than the book value at the start
of the game based on the result of the trade negotiation between the current buyer and seller during the
game.
DIAGRAM M
161
Diagram N (The producer or investor of Consumer Product 1

as Service who has received a purchase order for Consumer
Product 1 as Service shall place the puzzle pieces of input g
he earlier bought which he shall combine with Input s he
produces and owns in the following outline of the puzzlepieces combinations as Consumer Product 1 on SERVICES
for current consumption of the buyer:
Consumer Product 1:
SERVICES
Input g
= Ph P100
Input s
*book value at games
start: =PhP50
* Book value: The book value at the end of the

game can either becomes higher or
lower than the book value at the
start of the game based on the result
of the trade negotiation between the
current buyer and seller during the
game.
DIAGRAM N
162
Diagram O (The producer or investor of Consumer Product

1 as Service who has received another purchase order for
Consumer Product 1 as Service shall place the puzzle
pieces of input g he earlier bought together with Input
s which he produces and owns in the following outline
of the puzzle-pieces combinations as Consumer Product 1
on SERVICES for savings of the buyer:
Consumer Product 1:
SERVICES
Input g
= Ph P100
Input s
book value at games
start: =PhP50
* Book value:
The book value at the end
of the game can either becomes higher or
lower than the book value at the start of the
game based on the result of the trade
negotiation between the current buyer and
seller during the game.
DIAGRAM O
163
Diagram P (The producer or investor of Consumer Product 2 as Good

who has received a purchase order for Consumer Product 2 as Good shall
place the puzzle pieces of input s he earlier bought which he shall
combine with Input g he produces and owns in the following outline
of the puzzle-pieces combinations as consumer product 2 on GOODS for
current consumption of the buyer:
Consumer Product 2:
GOODS
Input s
start: =PhP50
Input g
= Ph P100
* Book value: The book value at the end of the game can
either becomes higher or lower than the
book value at the start of the game based on
the result of the trade negotiation between
the current buyer and seller during the
game.
DIAGRAM P
164
Diagram Q (The producer or investor of Consumer Product 2 as Good

who has received another purchase order for Consumer Product 2 as
Good shall place the puzzle pieces of input s he earlier bought
together with Input g he produces and owns in the following outline of
the puzzle-pieces combinations as consumer product 2 on GOODS for
saving by the buyer:
Consumer Product 2:
GOODS
Input s
start: =PhP50
Input g
= Ph P100
* Book value: The book value at the end of the game can
either becomes higher or lower than the
book value at the start of the game based on
the result of the trade negotiation between
the current buyer and seller during the
game.
DIAGRAM Q
165
DIAGRAM R: Each investor or producer in an Island-Nation must buy two Inputs of the same kind which he does
not produce but is produced by his co-islander. The other type of Input which he alone produces, two which are to
be retained by him while selling the other two to his co-islander.
Hence for the producer of Consumer Product 1 as Service , he has to buy four of Input g, two of which
will be inputted in the two Service Product he will sell while the other two will be inputted in the two Service
Products he will produce and keep for himself for current consumption while the other he will reserve(save) for his
future use as shown below:
One Input
g
will be
inputted in
this one of
two
Service
Products
he will
sell
One Input
g
will be
inputted in
this one of
two
Service
Products
he will
sell
One Input
g
will be
inputted in
this one of
two service
Products he
will produce
and keep for
himself for
current
consumption
One Input
g
will be
inputted in
this one of
two service
Products he
will produce
for current
saving
166
DIAGRAM R
(continuation of DIAGRAM R): Each investor or producer in an Island-Nation must buy two Inputs of the same
kind which he does not produce but is produced by his co-islander. The other type of Input which he alone
produces, two of which are to be retained by him while selling the other two to his co-islander.
Hence for the producer of Consumer Product 2 as Good, he has to buy four of Input s, two of which will
be inputted in the two Goods (Consumer Product 2) he will sell while the other two will be inputted in the two
Goods he will produce and keep for himself for current consumption while the other he will reserve(save) for his
future use as shown below:
One Input
s
will be
inputted in
this one of
two
Consumer
Product 2
as Good
he will
sell
One Input
s
will be
inputted in
this one of
two
Consumer
Product 2
as Good
he will
sell
One Input
s
will be
inputted in
this one of
two
Consumer
Product 2, as
Good, he
will produce
and keep for
himself for
current
consumption
One Input
s
will be
inputted in
this one of
two
Consumer
Product 2, as
Good, he
will produce
and keep for
himself for
current
saving
167
One Input
g
will be
inputted in
this one of
two
Consumer
Product 2,
as Good, he
will produce
and save for
himself for
future use
168
(Continuation of DIAGRAM R
Diagram U (Each man on an Island-Nation shall at the end of the game have a pair of Consumer Product 1 as Service and Consumer Product 2 as
Good for current consumption:
Consumer Product 1:
Consumer Product 2:
SERVICES
GOODS
Input s
book value at games
start: =PhP50
Input g
= Ph P100
Input g
=Ph P 100
Input s
book value at games
start: =PhP50
* Book value: The book value at the end of the game can either become higher or lower than the book value at the start
game.
169
DIAGRAM S
Diagram V (Each man on an Island-Nation shall at the end of the game have a pair of Consumer Product 1 as Service and Consumer Product 2 as
Good for saving:
Consumer Product 1:
Consumer Product 2:
SERVICES
GOODS
Inputs
book value at games
start: =PhP50
Input g
= Ph P100
Input g
=Ph P 100
Input s
book value at games
start: =PhP50
* Book value: The book value at the end of the game can either becomes higher or lower than the book value at the start
game.
170
When each member of a group of two has completed, before the others did, to have a pair of Product Service and a Pair of Product
Good for each of them, it identifies them as the winning group. However, the presentation of the Products should be as follows:
GROUP A, MEMBER 1:
Final Product buyer-seller Agreed Price for Product
Service: for
example is PhP12
P1
P1
P1
GROUP A, MEMBER 1:
Service: for
example is PhP12
P1
P1
P1

Good: for
example is PhP12

Good: for
example is PhP12
171
3rd Condition for winning is solving the following: A STRATEGIC CONCERN of the islanders is determining
which of them will specialize in what activity to boost their joint production. Without specialization, the total
of adding their individual productions amount only to __? __, while with specialization the two workers can
boost their joint production as a team to __?__. In what activities should the two workers specialize for team
work to boost the sum of their joint production given the following Diagram 1.?
172
Diagram1. Production Capability Rates Per Hour In

Products X and Y Of Workers A and B
Product X
Per hour
Product Y
Per hour
Worker
A
Worker
B
1 unit
1.5 units
3 units
3.25 units
Solution:
a) without specialization, the islanders
individual production when combined amounts to the following:
Diagram J. Production Capability Rates Per Hour In

Product X
Per hour
Product Y
Per hour
Worker
A
Worker
B
1 unit
1.5 units
3 units
4 units
3.25 units
4.75 units = 8.75 units
= combined production
173
b) with specialization, the islanders individual production when combined amounts to the following:
Diagram K. Production Capability Rates Per Hour In

Worker
A
Product X
Per hour
Product Y
Per hour
1 unit
Worker
B
0
3 units . 6 .
4 units
+
0.
1.5 units
3.25 units
4.75 units = 8.75 units
without specialization
with specialization
174
4th Condition for winning is solving the following: Explain also how an islands scarcity, given the
following data, can be overcome through a strategy which will change a datum, except the Capped
Resources, that will increase the islands output to Ph P 1, 600 which presently has only Ph P800 as an
output:
From:
Capped
Capped
Capped

Ph P 1, 600 =
Capped
Savings:____
Capped
Number of Employed:__
Capped
X Output per Employed:______
Capital Goods: ________
175
SOLUTION:
Explanation on how an islands scarcity, given the following data, can be overcome through a
strategy which will change a datum, except the Capped Resources, that will increase the islands
output to Ph P 1, 600 which presently has only PhP800 as an output:
From:
Capped
Capped
Capped

Capped
Ph P 1, 600 = Savings: Ph P1 Million X
Capped
Capped
Capital Goods: Ph P 0.5 Million
By improving technology, what used to be employed in the amount of Ph P 1Million Capital Goods to
generate a total production of Ph P800 with two persons employed at their individual productivity of Ph P400 per
head, is now increased to Ph P1,600 through being enabled by improved technology to reduce the amount of Capital
Goods employed to Ph P0.5 Million despite the following: Capped Savings of Ph P1 Million, Capped Number of
employed at 2 heads, and Capped Output per employed of Ph P400. This assumes that the other PhP0.5 Million
saved is equally employed to generate another PhP800 so that in combination with the output generated by the first
Ph P0.5 Million, a total of Ph P1,600 is generated.
176
P.O
FOR
THE FINAL
PRODUCT
F
P _______________
AGREED PRICE
(negotiated price with
buyer)
P.O
FOR
THE INTERMEDIATE
INPUT F
P _______________
AGREED
PRICE(negotiated price
with buyer)
P.O
FOR
THE INTERMEDIATE
INPUT F
P.O
FOR
THE FINAL
PRODUCT F
P _______________
AGREED
PRICE(negotiated
price with buyer)
P ____________
IMPUTED
PRICE (producers
charge upon himself
for using his own
product)
177
P.O
FOR
THE FINAL
PRODUCT
F
P.O
FOR
THE INTERMEDIATE
INPUT F
P.O
FOR
THE INTERMEDIATE
INPUT F
P.O
FOR
THE FINAL
PRODUCT F
P _______________
AGREED
PRICE(negotiated
price with buyer)
P _______________
IMPUTED
PRICE(producers
charge upon himself for
using his own product)
P _______________
IMPUTED
PRICE(producers
charge upon himself
for using his own
product)
P _______________
IMPUTED
PRICE(producers
charge upon himself
for using his own
product)
178
P.O
FOR
THE FINAL
PRODUCT
NF
P _______________
AGREED PRICE
(negotiated price with
buyer)
P.O
FOR
THE INTERMEDIATE
INPUT NF
P _______________
AGREED
PRICE(negotiated price
with buyer)
P.O
FOR
THE INTERMEDIATE
INPUT NF
P _______________
AGREED
PRICE(negotiated
price with buyer)
P.O
FOR
THE FINAL
PRODUCT
NF
P ____________
IMPUTED
PRICE(producers
charge upon himself
for using his own
product)
179
P.O
FOR
THE FINAL
PRODUCT
NF
P.O
FOR
THE INTERMEDIATE
INPUT NF
P.O
FOR
THE INTERMEDIATE
INPUT NF
P.O
FOR
THE FINAL
PRODUCT
NF
P _______________
AGREED
PRICE(negotiated
price with buyer)
P _______________
IMPUTED
PRICE(producers
charge upon himself for
using his own product)
P _______________
IMPUTED
PRICE(producers
charge upon himself
for using his own
product)
P _______________
IMPUTED
PRICE(producers
charge upon himself
for using his own
product)
180
181
182
183
184
PhP1
PhP1
PhP 7
PhP 7
PhP2
PhP2
PhP 8
PhP 8
PhP3
PhP3
PhP 9
PhP 9
PhP4
PhP4
PhP 10
PhP10
PhP5
PhP5
PhP 11
PhP 11
PhP6
PhP6
PhP 12
PhP 12
185
PhP1
PhP1
PhP 7
PhP 7
PhP2
PhP2
PhP 8
PhP 8
PhP3
PhP3
PhP 9
PhP 9
PhP4
PhP4
PhP 10
PhP10
PhP5
PhP5
PhP 11
PhP 11
PhP6
PhP6
PhP 12
PhP 12
186
PhP1
PhP1
PhP 7
PhP 7
PhP2
PhP2
PhP 8
PhP 8
PhP3
PhP3
PhP 9
PhP 9
PhP4
PhP4
PhP 10
PhP10
PhP5
PhP5
PhP 11
PhP 11
PhP6
PhP6
PhP 12
PhP 12
187
PhP1
PhP1
PhP 7
PhP 7
PhP2
PhP2
PhP 8
PhP 8
PhP3
PhP3
PhP 9
PhP 9
PhP4
PhP4
PhP 10
PhP10
PhP5
PhP5
PhP 11
PhP 11
PhP6
PhP6
PhP 12
PhP 12
188
189
190

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JOS RIZAL UNIVERSITY

COLLEGE OF BUSINESS ADMINISTRATION

FINANCIAL MANAGEMENT SYLLABUS

1. Gain a conceptual and practical understanding of MICROECONOMICS following

FINANCIAL MANAGEMENT SYLLABUS

FINANCIAL MANAGEMENT SYLLABUS

FINANCIAL MANAGEMENT SYLLABUS

consumer behavior analysis

FINANCIAL MANAGEMENT SYLLABUS

consumer behavior analysis

FINANCIAL MANAGEMENT SYLLABUS

FINANCIAL MANAGEMENT SYLLABUS

-Law of diminishing marginal returns

FINANCIAL MANAGEMENT SYLLABUS

--Law of diminishing marginal returns

for the Theory-

FINANCIAL MANAGEMENT SYLLABUS

FINANCIAL MANAGEMENT SYLLABUS

for the Theory-

factor employment and factor

FINANCIAL MANAGEMENT SYLLABUS

FINANCIAL MANAGEMENT SYLLABUS

FINANCIAL MANAGEMENT SYLLABUS

FINANCIAL MANAGEMENT SYLLABUS

McGraw-Hi11 Book Co.

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CASES TO CHOOSE FROM:

FINANCIAL MANAGEMENT SYLLABUS

FINANCIAL MANAGEMENT SYLLABUS

4. The Filipino worker is grossly underpaid.

FINANCIAL MANAGEMENT SYLLABUS

FINANCIAL MANAGEMENT SYLLABUS

FINANCIAL MANAGEMENT SYLLABUS

FINANCIAL MANAGEMENT SYLLABUS

FINANCIAL MANAGEMENT SYLLABUS

FINANCIAL MANAGEMENT SYLLABUS

FINANCIAL MANAGEMENT SYLLABUS

FINANCIAL MANAGEMENT SYLLABUS

FINANCIAL MANAGEMENT SYLLABUS

FINANCIAL MANAGEMENT SYLLABUS

FINANCIAL MANAGEMENT SYLLABUS

FINANCIAL MANAGEMENT SYLLABUS

FINANCIAL MANAGEMENT SYLLABUS

FINANCIAL MANAGEMENT SYLLABUS

FINANCIAL MANAGEMENT SYLLABUS

FINANCIAL MANAGEMENT SYLLABUS

FINANCIAL MANAGEMENT SYLLABUS

FINANCIAL MANAGEMENT SYLLABUS

Legaspi Oil Co., Inc.

Cagayan de Oro Oil Co., Inc.

National Lead Co.

FINANCIAL MANAGEMENT SYLLABUS

American Cable & Radio Corporation

Hongkong & Shanghai

Davao Insular Hotel Co., Inc.

Ayala Corporation's principal sources of revenue were:

FINANCIAL MANAGEMENT SYLLABUS

*Difference is due to rounding-off.

FINANCIAL MANAGEMENT SYLLABUS

FIVE-YEAR FINANCIAL HIGHLIGHTS

Return on ave. equity

Return on ave. total assets

Ayala Corporation Balance Sheet

FINANCIAL MANAGEMENT SYLLABUS