Eco 550

Topics: Marginal cost, Variable cost, Costs Pages: 7 (2765 words) Published: December 10, 2012
For this assignment, General Motors is the automobile company that will be reviewed and researched in detail. In the year 1908 William Durant, who was already known as a leader in this industry for horse drawn vehicles, founded General Motors. "At its inception GM held only the Buick Motor Company, but in a matter of years would acquire more than 20 companies including Oldsmobile, Cadillac, and Oakland, today known as Pontiac" (General Motors, 2012). In this paper GM's income statement will be reviewed to figure out the following calculations: the number of cars sold each quarter, the elasticities, marginal cost, variable cost, and fixed costs. After figuring out these calculations, there will be a clear answer to what the future options are for General Motors if they decide to expand. Using the revenue figures from the income statement and the prices per car calculate the number of cars sold each quarter. This yields a demand curve. There is not sufficient information to construct a supple curve.

When looking at GM's income statement and reviewing the revenue figures for the past four quarters you can use the prices of the vehicles to calculate the number of cars that GM sold per quarter. The prices per vehicle are as follows (from right to left): $20,000, $24,000, $32,000, and $36,000; and the revenue figures over the past four quarters for GM are as follows (from right to left): $36,719,000,000, $37,990,000,000, $37,759,000,000, and $37,614,000,000. To calculate the number of cars that GM sold per quarter you take the quarter's revenue and divide it by the price per car the calculations are as follows: Sep 30, 2011 (revenue) $36,719,000,000/$20,000 (car price) equals 1835950, Dec 31, 2011 (revenue) $37,990,000,000/$24,000 (car price) equals 1582916.67, Mar 31,2012 (revenue) $37,759,000,000/$32,000 (car price) equals 1179968.75, and June 30, 2012 (revenue) $37,614,000,000/$36,000 equals 1044833.33.

The reason that we use the revenue figures from GM's income statement and the price per car is so that we can calculate the numbers of cars sold each quarter, and the result of this develops a demand curve. "In economics, a graphic representation of the relationship between product price and the quantity of the product demanded" (Encyclopedia Britannica, (2012). When looking at the demand curve of a product you can see that as the demand curve shifts to the left or right; this is proof of how well a product is doing. An example would be, that if a certain product is doing great and the consumer reports are favorable, then you should see the quantity demanded increase and the demand curve should shift towards the right. There can be a number of things that can cause the demand for a product to increase and/or decrease. When it comes to the demand for cars some of the demand shifting factors could be: the price of the vehicles, customer preference, income of the consumers, change in population, and also future predictions of the price of automobiles can be a demand shifting factor. Using the prices and the quantities you calculated in number one calculate the elasticities. You do not need to do this calculation for a specific make/model.

The price elasticity of demand is defined as "a measure of the responsiveness of the quantity demanded of a good to a change in its price" (Investopedia, 2012). There are many different formulas and ways to determine elasticity; there is the price elasticity of demand, point price elasticity, and the arc elasticity. The point price elasticity is used when there can become a problem with accuracy and this way uses differential calculus to find the elasticity for a minuscule change in price and quantity on the graph. Another way to measure elasticity is arc elasticity and this is defined as "the elasticity of one variable with respect to another between two given points" (Investopedia, 2012).

To calculate the elasticities for this particular problem we would use arc...

References: Demand Curve. (2012). Encyclopedia Britannica, Inc. Retrieved September 9, 2012, from
Dr. Jake, Mitchell: Alan Price (2003). Economics: Principles in Action. Upper Saddle River. New Jersey 07458: Pearson Prentice Hall
Finance. (2012). General Motors. Retrieved September 6, 2012, from
General Motors, History & Heritage (2012). Retrieved September 9, 2012, from
Investopedia. (2012). Retrieved September 9, 2012, from
InvestingAnswers. (2012). Variable Costs. Retrieved September 9, 2012, from
Marginal Cost. The American Heritage New Dictionary of Cultural Literacy, Third Edition, Houghton Mifflin Company, 2005. Retrieved September 9, 2012, from
Money Terms. (2005). Marginal Cost. Retrieved September 9, 2012, from
Small business chron. (2012). Internal Rate of Return. Retrieved September 9, 2012, from
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