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As this is a graduate level course, I am expecting serious, well thought out and detailed responses to these questions. Please document any sources used either following the APA or MLA style.
Please do not procrastinate and submit rough publishs with grammatical and spelling errors. My motivation for these assignments is to help you prepare for the major exams. Another objective is to comprehend and recognize the challenges which are encountered in managing and remaining profitable in a variety of businesses (small and large) in the U.S. and beyond. Thus, your responses should reflect accordingly.
Please check the Grading Rubric which I will use to grade your papers. When completed, please upload your paper in Turnitin. Please do your own work. Any detection of Plagiarism can result in a zero for this assignment and possibly, other academic penalties. Not worth it. I wish you all success.
I. Comparative Statics: The Cranberry Juice Market (30 Points)
Note: Please review Chapter 3 before you attempt the questions below; do not leave any sub-question answered and show all work.
Ocean Spray, an agricultural cooperative for cranberries growers in Massachusetts, need to predict what will happen to the price and output of cranberries under the conditions given below. Using Supply and Demand figures (label both the axes, supply/demand curves – before and after the shock) – either draw & label the individual graphs in Word or work in another medium and incorporate it in the body of the paper. Explain the following details for each of the 5 events given below:
a. if it is a demand or a supply related event (shifts of the supply/demand curves and their directions) and the appropriate non-price determinant of supply or demand associated with the event.
b. the short-term impact on prices and output (rationing function)
c. differentiate between a change in quantity demanded (supplied)c and a change in demand (supply) for each case. Why? Explain.
d. Identify the conditions which can result in the guiding function and the consequent impacts on equilibrium prices and output, changes in both the short run (rationing) and long-run (guiding) equilibrium prices and quantities before and after each event (Hint: Use the ceteris paribus condition for each case)
1. A major flood this summer/fall destroys a large number of cranberry fields in the major producing regions of Wisconsin and Massachusetts.
2. The scientists in the Plant Genetics department of the University of Wisconsin - Madison discover a way to double the number of cranberries produced by each cranberry bush.
3. The American Nephrology Association announces that drinking cranberry juice can reduce the risk associated with kidney stones /failure among the elderly population.
4. An increase the demand for Apple Cider Juice (it has chemical properties similar to Cranberry juice) raises the price of this product in the market.
The sub-population of the elderly population grows in the U.S. market
II. Business Decisions (20 points)
When Ms. Lucinda Sanchez graduated with honors from the American Trucking Academy, her father, Billy Sanchez gifted her with a $150,000 tractor-trailer rig. At a Truck Stop in Hondo, Texas Lucinda was boasting to some fellow truckers that her revenues were typically $85,000 per month, while her operating costs (fuel, maintenance, insurance and depreciation) amounted to $45,000 /month, motel and food costs another $15,000 on the road. Tractor-trailer rigs identical to Burton’s rig rent for $17,000 per month with similar operating costs.
1.How much are Lucinda’s monthly explicit costs? How much are her monthly costs per month?
2. What is the dollar amount of the opportunity cost of the resources used by Lucinda each month?
Lucinda is proud of the fact that she is generating a net cash flow of $25,000 per month, since she would be earning only $12,000 per month if she were working for a trucking firm. What advice would you give Ms. Lucinda Sanchez? Why?
III. Elasticities (20 points)
For each of the following cases, calculate the point price elasticity of demand, and state whether demand is elastic, inelastic, or unit elastic. The demand curve is given by: QD = 5,000 – 50 PX
When the price of the product is $50; When the price of the product is $75.
a) For each case, should the firm raise or lower the prices to maximize revenues? Why or Why not? Explain.
b) Suppose the the income elasticity of demand is 1.5; what impact will a recession cause for the demand for your product? Why? Explain.
c) The cross-price elasticity of demand between this good and a related good is -3.5; what can you determine about consumer demand for your product from this information? Suppose the price of the related good changes by 10%? How will this affect your sales? Explain.
IV. Skechers Shoes: Please review Text book pages 120-122 before you attempt this question. (30 points)
Robert Greenberg established Skechers Shoes company with more than 1000 locations all over the U.S. In 2021, the company hired a team of economists to estimate the daily demand for it’s own brand Running Shoes along with other variables - the economist estimated the demand functions as follows:
Qₓᵈ = 100 – 3 Pₓ + 4 Py – 0.71 M + 0.95 Ax
Qₓᵈ = the quantity of Skechers shoes demanded
Pₓ = the price of Skechers (in dollars)
M = the average income level (in dollars)
Pᵧ = the price of Adidas Shoes (in dollars)
Suppose Skechers sells for $55 a pair, Adidas sells for $45, the company utilizes 50 units of advertising and average consumer income is $45,000. Using this information, answer the following questions:
Calculate and interpret the own – price, cross-price and income elasticities
For raising revenues, should this firm raise or lower the price? Why? Explain?
Is Adidas a substitute or complementary good? Why? Explain using the calculated cross-price elasticities.
Is Skechers a normal or an inferior good? Why? Explain
What is the impact of advertising on the sale of Skechers Shoes? Explain
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