Economics Homework Help

Economics Homework Help. FIN 321 San Diego State University Kroger Company Economic Analysis

 

Introduction

The Primary goal of the term project was for students to gain comfort in using statistical software packages to conduct an empirical analysis of a particular firm. The general goal for this project was to assess how certain risk factors that are well-known within the Finance community impact the stock price of a particular firm.

The Primary goal of this final exam project is complementary to the term project. It is to conduct an economic analysis of the same firm as your term project. The general goal here will be to assess how certain risk factors affect the market for a particular product produced by your firm. Using the same company as your term project, please pick any product that your firm produces and label this as your primary product. If your company produces multiple products, please select one and denote this as your primary product for the duration of your final exam project. Please provide explanations for answers to the questions and include a reference list at the end of your project to include all sources that you used to aid you in coming to your answers. Please do not worry about the format of the citation list, but please just be consistent.

Please make sure to submit your work and to put everything in your own words. Again, it is okay to work with other people, but you must demonstrate full mastery over material to get full credit. Finally, you will turn in the project via blackboard and it will check for plagiarism, so, again, please put make sure to put all answers in your own words. Thank you.

In addition to other factors, you will be evaluated based upon uniqueness in your answers and selection of primary product as much as the selection of the company since I know many of you have picked the same company due to the brevity in duration of our face-to-face conversations. The reason for this is to do our best to continue to maintain the integrity of the assignment in continuation of the discussion given above.

Assignment questions

(Please remember to justify clearly all your conclusions and label all graphs)

I would like to begin the content portion of this project by providing more background on its motivation. The term project focused on the stock price and as we mentioned during week #1, a closely related often-cited goal in business is profit maximization. Therefore, the goal of our semester has been to manage the following equation:

= −

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.

1. Demand analysis (For this assignment we will use REDID # 211723868 and the company is Kroger Co.)

Specify the demand equation using your REDID above. 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 − (1) ∗ 3 ∗ . If your 2

REDID is 987654321, then your demand equation will be = 3 − (1) ∗ 7 ∗ . If any digit is a 2

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 − (1) ∗ 4 ∗ .

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.

2. 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.

2

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, how do you operate your business? Do you have market power, why or why not? If so, how do you exploit it? Using the demand curve you derived in question #1, please calculate the maximum revenues you can earn through the exploitation of the above market power.

Economics Homework Help