FITM Macroeconomics Economics Concepts in Margin Call & Oligopoly Discussion

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OryynWW

Economics

Florida Institute of Technology-Melbourne

Description

(Macro Econ)->>

3-to-5-page Book/Documentary/Podcast Report (double spaced) for the topic ‘Margin Call’

Mention Economics Factors

Margin Call >

https://www.youtube.com/watch?v=IjZ-ke1kJrA

What is expected?

3-5 page (double spaced)

3-5 economic concepts explained from content

Name 3 mistakes by loser in battle

Name 3 ideas that won the battle

Opinion on Future of Market/Industry discussed (fine to research)

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(Macro Econ)->> 3-to-5-page Book/Documentary/Podcast Report (double spaced) for the topic ‘Margin Call’ Mention Economics Factors Margin Call > https://www.youtube.com/watch?v=IjZ-ke1kJrA What is expected? • 3-5 page (double spaced) • 3-5 economic concepts explained from content • Name 3 mistakes by loser in battle • Name 3 ideas that won the battle • Opinion on Future of Market/Industry discussed (fine to research)
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Explanation & Answer

View attached explanation and answer. Let me know if you have any questions.Hello. Please see attached 5-page paper on Margin Call.

Economics Concepts in Margin Call
"Margin Call" features an investment firm on the brink of financial collapse and
bankruptcy at the height of the economic recession in 2008. The firm recognized
notable changes in its MBS performance (mortgage-backed securities) and that
market movements surpassed their predicted market threshold. The firm resorted to
"fire sale" after its financial exposure exceeded its market capitalization. The film
eventually featured how the "fire sale" harmed the customers and the firm's reputation
and image (Bernstein, 2011).
The film featured the idea of "Oligopoly." It is an economic concept of a market
structure consisting of few companies whose influences are strategically
interdependent (Investopedia, 2021). Oligopoly was featured since the film takes
place in the financial industry where bankers trade Mortgage-backed Securities and
affect the other. Like any other investment company, the firm needed a large sum of
money, and they had to be in a small group of companies to start getting
operational.
Another economic concept was "Absolute Advantage." It refers to a specific
party's superior ability to produce work or service in a more efficient or lower-cost
manner (Bondarenko, n.d.). In the film, Peter used to work as a rocket engineer. Peter
has more superior math skills, and he could quickly analyze risks compared to his
peers. Moreover, the concept of "Demand Curve Shifting" was also featured in the
film when Peter figured out the huge losses in the firm's assets, which caused the
investment bankers to assume that the stocks are worthless. In Economics, consumers
stop purchasing a product once they deem it useless and having no value at all. This is
an example when the demand curve shifts to the left.

The concept of "Producer Surplus" was also featured in the film. It refers to the
benefits the producer gets from selling goods, as dictated by the current market price,
minus the total cost of the production (Investopedia, 2021). In the film, the firm tried
to get Eric back by offering him a considerable amount of money. Eric's new salary
minus his previous salary is Eric's producer surplus.
Lastly, the film also featured "Price Elasticity of Demand," an economics concept
on the relational interchange between cost and demand. When prices go up, the
demand drastically goes down (and vice versa). This concept was featured in the film
when the firm sold most of its MBS at a minimum price value (lower than the current
market price).

Three mistakes by the loser in battle
One mistake made by the losers in Margin Call was not giving much
importance to risk analysis and management. Throughout the film, there were
instances wherein risks, and several warnings were ignored and deemed unnecessary;
risk analysis and management are considered too technical. Thus, warrant lesser
attention and importance from the top management. But had the situation been
different, the firm could have mitigated the bankruptcy and the losses (Bernstein,
2011).
The second mistake committed was deceiving the customers for their survival.
It is a business ethics issue. The film features examples of how bureaucracy in
corporate settings hampers people from realizing the consequences of their actions, in
this case, the effects of "fire sale" to the customers. Margin Call showed us how these
corporate bureaucracies distance people from promoting the common good and
focused only on themselves. Tuld suggested that the bank resort to a "fire sale" before

customers know the actual situation in the film. To save themselves from the brink of
losses, the firm had to pretend that everything was fine (Bernstein, 2011).
A third mistake was giving too much importance to money. We should look
into the impacts of money and incentive systems on people's attitudes and behavior.
In the forms of incentives and bonuses, money influences people to do things far from
their values, motivations, and goals. People tend to do something, without realizing its
consequences, for the sake of money. The film manifested this kind of theme many
times. Banks pay their top management and employees so high that they do not
recognize the high risk of getting huge losses and deficits. The film also focuses on
money being an incentive and motivation that shapes one's behavior (Werner, n.d.).

Three ideas that won the battle
One idea that won the battle was risk assessment. The early parts of the film
showed that the firm's financial exposure exceeded its market capitalization. Having
...


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