Case Study - Managerial Economics
Glenn Garrett
3/31/12
Prof. Ogunji
Managerial Economics
Homework - Case Studies
Pg 107 – Sunbest Orange Juice
Spreadsheet Analysis
Endogenous variables = all important demand- and supply-related factors that are within the control of the firm (ex: product pricing, advertising, product design, and so on)
Exogenous variables = consist of all significant demand- and supply-related influences that are beyond the control of the firm (ex: competitor pricing, weather, general economic conditions, and related factors)
It is possible to learn the demand and supply implications of an almost limitless range of operating scenarios * A complete picture of the firm’s operating environment as well as strategies for responding to a host of operating conditions can be drawn up
Comparative Statics Analysis
The marginal influence on demand and supply of a change in any one factor can be isolated and studied in depth * Advantage = Causal relationships can be identified and responded to, if appropriate * Disadvantage = It becomes rather tedious to investigate the marginal effects of a wide range of demand and supply influences
Hot summer months – Demand = rapidly grows * Hot, dry weather = adverse effect on supply by reducing the size of the orange crop
Demand QD = 1,000,000 – 25,000,000P + 10,000,000PS + 1,600Y + 50,000T
Supply QS = 8,000,000P – 100,000PL – 120,000PK – 150,000T
P = Average wholesale price of Sunbest ($ per case)
PS = Average wholesale price of canned soda ($ per case)
Y = Disposable income per household ($)
T = Average daily high temperature (degrees)
PL = Average price of unskilled labor ($ per hour)
PK = Risk-adjusted cost of capital (%)
QD = 1,000,000 – 25,000,000P + 10,000,000PS + 1,600Y + 50,000T
1. QD = 1,000,000 – 25,000,000 ($6.00) + 10,000,000 ($4.50) + 1,600 (62,500) + 50,000 (80.00)
QD = 0
2. QD = 1,000,000 – 25,000,000 ($5.80) + 10,000,000 ($4.50) + 1,600 (62,500) + 50,000 (80.00)
QD
3/31/12
Prof. Ogunji
Managerial Economics
Homework - Case Studies
Pg 107 – Sunbest Orange Juice
Spreadsheet Analysis
Endogenous variables = all important demand- and supply-related factors that are within the control of the firm (ex: product pricing, advertising, product design, and so on)
Exogenous variables = consist of all significant demand- and supply-related influences that are beyond the control of the firm (ex: competitor pricing, weather, general economic conditions, and related factors)
It is possible to learn the demand and supply implications of an almost limitless range of operating scenarios * A complete picture of the firm’s operating environment as well as strategies for responding to a host of operating conditions can be drawn up
Comparative Statics Analysis
The marginal influence on demand and supply of a change in any one factor can be isolated and studied in depth * Advantage = Causal relationships can be identified and responded to, if appropriate * Disadvantage = It becomes rather tedious to investigate the marginal effects of a wide range of demand and supply influences
Hot summer months – Demand = rapidly grows * Hot, dry weather = adverse effect on supply by reducing the size of the orange crop
Demand QD = 1,000,000 – 25,000,000P + 10,000,000PS + 1,600Y + 50,000T
Supply QS = 8,000,000P – 100,000PL – 120,000PK – 150,000T
P = Average wholesale price of Sunbest ($ per case)
PS = Average wholesale price of canned soda ($ per case)
Y = Disposable income per household ($)
T = Average daily high temperature (degrees)
PL = Average price of unskilled labor ($ per hour)
PK = Risk-adjusted cost of capital (%)
QD = 1,000,000 – 25,000,000P + 10,000,000PS + 1,600Y + 50,000T
1. QD = 1,000,000 – 25,000,000 ($6.00) + 10,000,000 ($4.50) + 1,600 (62,500) + 50,000 (80.00)
QD = 0
2. QD = 1,000,000 – 25,000,000 ($5.80) + 10,000,000 ($4.50) + 1,600 (62,500) + 50,000 (80.00)
QD