Managerial Economics – Phaeton Factory

Mega World: Phaeton 1

Phaeton 2

Phaeton 3


(Ignore the commentaries after each video. Some of it is pure hype and some of it is inappropriate. Answer inside this document after each question.Answer questions with bullet points where appropriate. Target your answers to fit into the space allotted.)

  1. Watch the videos about the Phaeton VW Assembly plant. (This is several years old, so don’t research what actually happened to answer the questions. Try to answer the questions just from studying the videos, thinking about what you already know, and applying what was said at the beginning of the semester about marginal cost and marginal benefit and your readings on production economics.)
  2. List a few of the most important potential advantages of the plant in terms of contribution to Volkswagon’s revenue?
  3. Was the Dresden Phaeton plant designed to make a profit at the plant level, or was it serving other corporate objectives?
  1. List what might have been some of those objectives?
  1. Given what you see in the videos coupled with what you know about organizations, markets and market segments, and if you could have foreseen what would happen to the post-2007 auto market, what concerns would you have had about the Phaeton’s long term contribution to VW’s profitability?
  2. The Phaeton model was to have the VW brand on it. If you were in VW management, what advantages and disadvantages are associated with using the VW brand on the Phaeton models?
  3. What advantages and disadvantages might there have been from bringing the Phaeton to market under a separate brand not obviously associated with VW?
  4. What kind of price elasticity of demand does VW management seem to have expected with the Phaeton?
  5. What kind of cross price elasticity of demand for the Phaeton relative to prices of the Audi A8, did VW management seem to be expecting?
  6. Did the apparent cross-price elasticity expectation imply expected substitutes, complements or independent car models?


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