Assignment:
The Microeconomic Paper tests your ability to apply economic principles to a business decision.
Select one situation from the items outlined below: A to D. Complete the paper on the selected situation as specified below. The completed paper is a professional report
The following is a list of the specific required information, research, graphs, and math to be included in each answer regardless of the scenario chosen.
1. Demand Determinants:
a. Each individual determinant analyzed for your situation, with examples applicable to your situation and research showing current demand data or most recent past data, except for the expectations determinant in which you need to use data estimating future market conditions.
b. Price Elasticity of Demand facing you in your scenario, including actual calculation of it using the midpoint formula. If you can't find data, then determine the price elasticity from the characteristics and make up numbers to use. Be sure to identify this if you use this approach.
This will help you in deciding the slope of your demand curve below.
c. Graph the demand facing your situation. Note that this requires information from the supply determinant analysis before deciding how to draw the curve(s), as you may need a separate MR curve.
2. Supply Determinants:
a. Each individual determinant analyzed for your situation, with examples applicable to your situation and research showing current supply data or most recent past data, except for the expectations determinant in which you need to use data estimating future market conditions.
i. You need to be very specific in the cost of production determinant to identify fixed, variable, and marginal cost in order to derive your supply curve for the graphing component. You will need to explain and show how profit maximization or loss minimization output and price are determined. You will need to do the math using actual figures [cited] or your own estimated figures [identified as such] and explain why you expect short run economic or normal profits, acceptable loss or temporary shutdown, and how you will know which it is.
ii. The number of sellers determinant must contain your analysis of the kind of market structure in which your firm or labor service will be sold.
b. Price Elasticity of Supply you have based on the cost of production changes as output changes, including actual calculation of it using the midpoint formula. If you can't find data, then determine the price elasticity from the characteristics and make up numbers to use. Be sure to identify this if you use this approach. This will help you in deciding the slope of your supply curve.
c. Graph your supply situation using the numbers from your earlier cost of production analysis.
Situation A
Jenny, your niece, is a smart high-school student who wants to make smart choices for her future. Hearing of your course in Business Economics, she has emailed you asking for advice on whether to become a medical doctor and on the best location to practice it. She recognizes the high costs of tuition and the years of study involved in becoming a doctor. She wants to evaluate if that career choice is an optimum decision for her. So she has asked you for advice.
You recognize the significance of such a career decision for Jenny. You decide to examine the career choice in terms of the utility it provides to Jenny: return on investment as well as personal satisfaction of contributing to the well-being of others. But to evaluate the utility, you also need to identify and quantify the total opportunity costs of the decision. You decide to educate yourself about the market for physicians in terms of supply and demand, elasticity, costs of production, pricing, and normal profit. You want to provide Jenny with the most informed advice possible.
Situation B
Your neighbor Cindy wants to start a contracting business for installing solar panels. She has heard of the cost savings that households and businesses can make each year from installing solar panels on the roofs. Cindy has also heard of government incentives for installing solar panels. Being concerned about the environment and wishing to reduce pollution, Cindy thinks installing solar panels also serves a social purpose. But she does not want to risk her life's savings on a venture that might not succeed or become profitable enough. After hearing from you about taking this course in Business Economics, she decides to ask you for advice.
At first you were hesitant to give investment advice. Then you read the section "Losing Money in the Solar Panel Industry" on pages 402-403 of the textbook, and the need for differentiation in Chapter. You realize there are more pieces to the decision than Cindy is considering. You decide to research the market in terms of supply and demand, elasticity, costs of production, pricing, normal profit, and savings for consumers. You want to provide Cindy with the most informed advice possibleSituation C
Cousin Edgar is always thinking of the next business idea. This time, he plans to invest in buying two gas stations. He reckons American consumers have come to accept the high gasoline prices, and estimates world prices for gasoline will increase even further due to increasing high demand from India and China. Besides, Cousin Edgar thinks he will make a good profit on the sale of convenience items at each station. But before buying the gas stations, he decides to ask for your advice since you are taking this course in Business Economics.
You also recall reading about perfectly competitive markets and the need for differentiation. Being skeptical of Cousin Edgar's optimism on the profitability of selling gasoline and convenience items, you decide to research the market in terms of supply and demand, elasticity, costs of production, pricing, and normal profit. You want to provide Cousin Edgar with the most informed advice possible.
Situation D
After hearing of your taking this course in Business Economics, your college friend has emailed you asking for advice on opening a restaurant. Your friend Rajeev reminded you of his popular recipes for Indian food, and shared his dream of building a franchise business modeled on the P.F. Chang chain of restaurants. He reckons that creating special fusion recipes based on a popular ethnic cuisine will provide the restaurant chain with sufficient differentiation to become profitable and to grow nationwide.
Luckily before you could find time to answer Rajeev's email, you read the pieces on Starbucks and opening a restaurant, on page 425 of the textbook. Recognizing the costs and risks for Rajeev, you decide to research the market in terms of supply and demand, elasticity, production costs, pricing, normal profit, and the supply chain for ethnic cuisine. You decide to educate yourself about the restaurant business so you can provide Rajeev with the most informed advice possible.