🎓MBA Core

Answer: The airline systematically improved its bargaining position by strengthening the walkaway option through external actions.

Proactively making investments to lower internal execution costs and build external partnerships systematically improves a party's BATNA, which directly shifts the zone of possible agreement in their favour.

The airline's actions directly alter its bargaining leverage by strengthening the walkaway option prior to returning to the negotiating table. By reducing internal setup costs and securing a joint partner, the airline improves its outside alternative, which raises its reservation value and lowers the maximum price it will accept from the supplier. This proves that outside alternatives can be actively enhanced to shift the bargaining zone in one's favour.

Answer: The discount rate must reflect the specific business risk of the project rather than the average firm-wide risk profile.

Cost of capital must match the specific risk of the asset being acquired, defending against the misconception that WACC is a fixed constant across all project evaluations.

The Weighted Average Cost of Capital reflects the firm's average business risk and financial structure, so applying it indiscriminately ignores differences in project risk. A project with higher systematic risk requires a higher hurdle rate to account for its distinct risk profile.

Answer: Any stable process operating in steady state across manufacturing or services.

Learners often incorrectly assume Little's Law only applies to factories. However, it holds universally for any stable process in steady state across both manufacturing and service sectors.

Little's Law applies to any stable process, regardless of whether it is a manufacturing plant, a hospital emergency room, or a software help desk. As long as the system is in steady state, average work-in-process equals throughput multiplied by flow time.