Case Study - Managerial Economics

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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 = 5,000,000

3. QD = 1,000,000 – 25,000,000 ($5.60) + 10,000,000 ($4.50) + 1,600 (62,500) + 50,000 (80.00) QD = 10,000,000

4. QD = 1,000,000 – 25,000,000 ($5.40) + 10,000,000 ($4.50) + 1,600 (62,500) + 50,000 (80.00) QD = 15,000,000

5. QD = 1,000,000 – 25,000,000 ($5.20) + 10,000,000 ($4.50) + 1,600 (62,500) + 50,000 (80.00) QD = 20,000,000

7. QD = 1,000,000 – 25,000,000 ($4.80) + 10,000,000 ($4.50) + 1,600 (62,500) + 50,000 (80.00) QD = 30,000,000

8. QD = 1,000,000 – 25,000,000 ($4.60) + 10,000,000 ($4.50) + 1,600 (62,500) + 50,000 (80.00) QD = 35,000,000

9. QD = 1,000,000 – 25,000,000 ($4.40) + 10,000,000 ($4.50) + 1,600 (62,500) + 50,000 (80.00) QD = 40,000,000

10. QD = 1,000,000 – 25,000,000 ($4.20) + 10,000,000 ($4.50) + 1,600 (62,500) + 50,000 (80.00) QD = 45,000,000
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1. QD = 1,000,000 – 25,000,000 ($5.00) + 10,000,000 ($4.50) + 1,600 (62,500) + 50,000 (81.25) QD = 25,062,500

2. QD = 1,000,000 – 25,000,000 ($5.00) + 10,000,000 ($4.50) + 1,600 (62,500) + 50,000 (81.00) QD = 25,050,000

3. QD = 1,000,000 – 25,000,000 ($5.00) + 10,000,000 ($4.50) + 1,600 (62,500) + 50,000 (80.75) QD = 25,037,500

4. QD = 1,000,000 – 25,000,000 ($5.00) + 10,000,000 ($4.50) + 1,600 (62,500) + 50,000 (80.50) QD = 25,025,000

5. QD = 1,000,000 – 25,000,000 ($5.00) + 10,000,000 ($4.50) + 1,600 (62,500) + 50,000 (80.25) QD = 25,012,500

7. QD = 1,000,000 – 25,000,000 ($5.00) + 10,000,000 ($4.50) + 1,600 (62,500) + 50,000 (79.75) QD = 24,987,500

8. QD = 1,000,000 – 25,000,000 ($5.00) + 10,000,000 ($4.50) + 1,600 (62,500) + 50,000 (79.50) QD = 24,975,000

9. QD = 1,000,000 – 25,000,000 ($5.00) + 10,000,000 ($4.50) + 1,600 (62,500) + 50,000 (79.25) QD = 24,962,500

10. QD = 1,000,000 – 25,000,000 ($5.00) + 10,000,000 ($4.50) + 1,600 (62,500) + 50,000 (79.00) QD = 24,950,000

B. QS = 8,000,000P – 100,000PL – 120,000PK – 150,000T

1. QS = 8,000,000 ($6.00) – 100,000 (18.00) – 120,000(10.00) –...
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