As we discussed in class, total revenues are typically assumed to come from demand and so question #1 is all about demand and shifters of demand.
- Demand analysis
Specify the demand equation using your REDID. The intercept for this equation will be the third digit of your REDID starting from the right. If this digit is a zero, please pick the digit immediately to its right that is not a zero. The coefficient will be the third digit of your REDID starting from the left, but multiplied by -(1/2).
So, if your REDID is 123456890, then your demand equation is: ??=8−(12)∗3∗???. If your REDID is 987654321, then your demand equation will be ??=3−(12)∗7∗???. If any digit is a zero, please pick the digit immediately to its right that is not a zero. If your REDID is 120456090,then your demand equation will be ??=9−(12)∗4∗???.
((MY RED IS IS: 824335467))**
This equation completes the specification for the demand equation for your primary product. So, if your company was Sherwin Williams and you pick yellow paint, this equation would specify the demand for yellow paint.The usage of the REDID is to provide some randomization to the demand equation selection to continue to ensure the integrity of the project and not to make you crazy over the demand equation. If you have any questions about the selection of your demand equation, please send me an email.
Please determine the three most important demand shifters for the market for your primary product. So, if your product is yellow paint and your company is Sherwin Williams, your answer to this question will focus on the market for yellow paint, generally, and not just the paint produced and manufactured by Sherwin Williams. Please use graphs of the demand equation that you constructed above to demonstrate how the shifters you have chosen impact the demand for goods bought and sold in your primary market. Again, in the context of the above example, these graphs would correspond to the graphs for yellow paint.
- Cost analysis
The second term in the above equation is total cost. The lecture on cost was all about Q(short for Quantity), since total revenue=Price*Quantity. This lecture focused on where Q came from because we need to produce Q in order to supply it to the market and subsequently sell it in the market. A key assumption about cost, then, is that it corresponds to manufacturing cost, i.e., the cost we incur to sell our product in the marketplace. So, in the context of the above example, this would be the cost to manufacture (i.e. make) yellow paint. In other words, we need to make our product in order to sell it and so the lecture on production taught us how to produce our product and the lecture on demand and supply taught us how to represent the corresponding supply equation.
The intercept for the supply equation is the fifth digit from the left and the coefficient will be 1. So, if your REDID is 123456890, then your supply equation will be, ??=5+???. If your REDID is 12340980, then your supply equation will be ??=9+???. Please graph this supply equation and remember to label all axes.
What are the three most important shifters for the supply of your product? Please now assume that costs of production and supply are related and recall from our lectures in class that the two factors that drive production for any firm are labor and capital. How is the production of your product impacted by the shifts in the supply of your product? (Hint:if our product is yellow paint and after doing our research we find that technology is an important shifter in the supply of yellow paint. Then, in addition to discussing how technology affects the supply of yellow paint, we want to explain how technology affects the production of yellow paint and in particular, does it affect labor, capital, both? If it affects neither, but it does affect cost, then please state it. In all cases, please make sure to explain your position and use graphs to support your position).
The slides also describe economies of scale, scope, and cost complementarities as additional tools to represent costs. Does your firm exploit any of these in order to reduce its costs? If so how and if not why not? (Please use graphs to support your answer).
Finally, bringing everything together, of the market structures described during our last two virtual lectures, in which, if any, do you operate your business? Do you have market power, why or why not? If so, how do you exploit it?
- Corona Virus effects
In a recent Wall street journal article from February 27, 2020 titled “The Fed can’t wait to respond to the coronavirus”, the author stated, “Today, the novel Coronavirus is a material risk to the economy. It represents an unexpected shock…”Inevitably,in our lifetimes, we may run into such shocks again and we, as business managers and family members, should help other people within our business and our family.
Assuming the CoronaVirus is tantamount to a risk factor to the economy, how does the shock of the CoronaVirus affect your primary market? (Please be sure to consider system wide/market shocks, industry specific,and firm specific shocks in your response. For these types of shocks, additional helpful considerations include the fixed costs and the variable costs you may face. How are these costs affected by CoronaVirus? How are revenues, profits affected? Remember:profit=revenue-total costs. It may also be helpful to classify it as a supply shock or demand shock or as affecting both.How does the market, your industry, your firm get affected?).
How can you successfully navigate your business through such shocks for the security/protection (both financially and personally) of your employees and shareholders and both your family members and those of your employees?