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    Transfer prices, relational contracts, and prediction markets

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    Discussion 1
    • In your workplace or home, are transfer prices, prediction markets, and relational contracts used? If so, explain how. If not, describe how you might implement these tools in your workplace or home.
    • The family is another sort of internal market. How could transfer prices, relational contracts, and prediction markets be used within a family?

    • What is the best way to measure a firm's performance? Why?
    • Why do managers need to understand the difference between economic profit and accounting profit? Provide an example of economic vs. accounting profit from your own experience.

    • You are the CEO of a firm that has manufacturing facilities in an emerging market. Suppose that country's government decides to impose trade restrictions requiring that all companies be majority-owned by domestic firms. What actions would you take in response to the government's restrictions?
    • If you were a CEO, would you prefer a flexible exchange rate or a fixed exchange rate? Why?

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    Solution Preview

    1) Transfer prices are utilized within my organization, due to the fact that differing departments within the organization provide supplies to other departments or sections of the organization at the approximate market price of these supplies. Prediction markets are utilized within my organization due to the fact that the organization would often create speculative markets concerning the expected value of a given supply product, purchasing that product at a low price, and then selling that product at a high price, as a means by which to gain financial rewards for their contribution to the relative improvement of the market prediction. Relational contracts are also utilized by my organization, due to the fact that this organization engages in these informal contracts with other organizations that it has had a long relationship with, and engages in agreed-upon courses of action that lead to mutual profitability, based upon the level of trust that my ...

    Solution Summary

    This solution describes the application of differing economic concepts in day-to-day life and in international trade.