Individual Assignment

1.Founded in 1985, Starbucks Corporation offers brewed coffees, espresso beverages, cold blended beverages, various complementary food items, and related products at over 12,000 retail outlets in the United States, Canada, the United Kingdom, Thailand, Australia, Germany, China, Singapore, Puerto Rico, Chile, and Ireland. Over 100 outlets are featured in the Greater Chicago Land area alone. For a new unit in Chicago</st1:place></st1:city>’s O’Hare Airport, suppose beverage customers spend an average $4 on beverages with an 80 percent gross margin, and food customers spend an average $5 on sandwiches and salads with a 50 percent gross margin. In both cases, gross margin is simply price minus input cost and does not reflect variable labor and related expenses. Customer traffic throughout the day is as follows:

i. Assume labor, electricity, and other incremental costs are $175 per hour of operation; calculate the profit-maximizing hours of operation per day.

? Assume the store is open 365 days per year, and that incremental rental costs are $2 million per year. Calculate optimal incremental profits. Should Starbucks close this site?

a. The market for bananas is in equilibrium. Use diagrams to show the effects of the following changes on the equilibrium price and quantity:

A cyclone destroys 70% of the banana crop

A health report shows that a banana a day increases life expectancy.

A new harvesting method increases the productivity of banana trees.

The government introduces an output tax on bananas.

The population increases.

b. Following a cyclone the price of bananas rises from $3 per kilo to $5 per kilo. The quantity sold declines from 800 tonnes per day to 400 tonnes per day. Calculate the price elasticity of demand for bananas using the mid-point method. Is the demand for bananas elastic or inelastic? Explain your answer.

3. To better serve customers interested in buying cars over the Internet, Smart Motors, Inc., hired Nora Jones to respond to customer inquiries, offer price quotes, and write orders for leads generated by the company’web site. During last year, Jones averaged 1.5 vehicle sales per week. On average, these vehicles sold for a retail price of $25,000 and brought the dealership a profit contribution of $1,000 each.

?. Estimate Jones’annual (50 workweek) marginal revenue product.

?. Jones earns a base salary of $60,000 per year, and Smart Motors pays an additional 28% of this base salary in taxes and various fringe benefits. Is Jones a profitable employee?

4. Complete the following short-run cost table using the information provided.

Total

product TFC AFC TVC AVC TC MC

0 $____ ––– $____ ––– $____ –––

1 ____ $____ ____ $12 ____ $____

2 ____ 12 ____ 10 ____ ____

3 ____ ____ ____ 12 ____ ____

4 ____ ____ ____ 14 ____ ____

Use a graph to demonstrate the circumstances that would prevail in a perfectly competitive market where firms are experiencing economic losses. Identify costs, revenue, and the economic losses on your graph. Using your graph, determine whether this firm will shut down in the short run, or choose to remain in the market. Explain your answer.

Use the following graph shown to fill in the table that follows.

The local government in a West Coast college town is concerned about a recent explosion in apartment rental rates for students and other low-income renters. To combat the problem, a proposal has been made to institute rent control that would place a $900 per month ceiling on apartment rental rates. Apartment supply and demand conditions in the local market are:

QS = -400+ 2P (Market Supply)

QD = 5,600 – 4P (Market Demand)

where Q is the number of apartments and P is monthly rent.

?.Graph and calculate the equilibrium price/output solution. How much consumer surplus, producer surplus, and social welfare is produced at this activity level?

?.Use the graph to help you algebraically determine the quantity demanded, quantity supplied, and shortage with a $900 per month ceiling on apartment rental rates.

?.Use the graph to help you algebraically determine the amount of consumer and producer surplus with rent control.

?.Use the graph to help you algebraically determine the change in social welfare and deadweight loss in consumer surplus due to rent control.

1. Portland Fluid Control, Inc., (PFC) is a major supplier of reverse osmosis and ultra filtration equipment, which helps industrial and commercial customers achieve improved production processes and a cleaner work environment. The company has recently introduced a new line of ceramic filters that enjoy patent protection. Relevant cost and revenue relations for this product are as follows:

TR = $300Q – $0.001Q2

MR = ?TR/?Q = $300 – $0.002Q

TC = $9,000,000 + $20Q + $0.0004Q2

MC = ?TC/?Q = $20 + $0.0008Q

where TR is total revenue, Q is output, MR is marginal revenue, TC is total cost, including a risk-adjusted normal rate of return on investment, and MC is marginal cost.

* Compute PFC’s optimal monopoly price/output combination.

* Compute monopoly profits at this profit-maximizing activity level.

Attachments:

individual-as….doc