...of aluminum, the Hillside plant can produce annual profits of ~$216 M, beginning in 1997. Discounting these annual profits to their 1994 value, using an 11% cost of capital, the project will be worth undertaking (see details in slide 1), assuming the price of aluminum holds at or above this level. Projections of primary world aluminum supply and demand To estimate the supply and demand levels of primary aluminum 5 years from now, we analyzed current supply capacity and world consumption. Supply Beginning with future supply, we assumed that producers would continue production as long as the market price exceeds their variable costs. State suppliers, however, are an important caveat; we assume that they are also currently producing aluminum at prices below variable costs, and will continue to do so, in order to meet strategic or economic needs. The model that we constructed based on these assumptions explains the current aluminum production levels (19.8 mtpy) with higher than 99% accuracy (predicted at 19.62 mtpy). Demand To forecast world primary aluminum demand over the next 5 years, we first constructed a demand schedule for 1993 using real prices and quantities supplied based on historical data between 1988 and 1992 (Exhibit 3 and 4 in case). Keeping these prices constant, we predicted an overall increase in...
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...products. I discuss an alternative, which consists of demand estimation and the use of a model of postmerger conduct to simulate the competitive effects of a merger. I estimate a brand-level demand system for ready-to-eat cereal using supermarket scanner data and use the estimates to (1) recover marginal costs, (2) simulate postmerger price equilibria, and (3) compute welfare effects, under a variety of assumptions. The methodology is applied to five mergers, two of which occurred and for which I compare predicted to actual outcomes. 1. Introduction Traditional analysis of horizontal mergers is based primarily on industryconcentration measures. The market is defined and pre- and postmerger market shares of the relevant firms are used to compute pre- and postmerger concentration measures, which give rise to presumptions of illegality. Using this approach to evaluate mergers in industries with differentiated, or closely related but not identical, products is problematic. In many cases the product offerings make it difficult to define the relevant product (or geographic) market. Even if the relevant market can easily be defined, the computed concentration index provides a reasonable standard by which to judge the competitive effects of the merger only under strong assumptions.1 To deal with these challenges, a new methodology to evaluate mergers has been developed. 2 The basic idea consists of ‘‘front-end’’ estimation, in which demand functions and possibly supply relations are estimated...
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...Demand Estimate 1 Today, there are thousands of different frozen foods in North America, which provide us with the nutrients we need, this has become a large part of our diet. The demand estimation of a leading brand of low calorie, frozen microwavable food is based on the following demand equation for its product using data from 26 supermarkets for the month of April. QD= -5200 -42P + 20PX + 5.2I + 0.2A + 0.25M (2.002) (17.5) (6.2) (2.5) (0.09) (0.21) R2=0.55 N=26 F=4.88 Q= quantity demand P= price of the product =$500 PX= Price of leading competitor’s product =$600 I= Monthly average income = $5500 A= monthly advertising expenditures =$10,000 M = number of microwave ovens sold =5,000 Calculation of elasticity of each independent variable The following is the elasticity for each independent variables by computing of regression equation when P=500, C=600, I=5500, A=1000 and M= 5000. QD = -5200 – 42(500) + 20(600) + 5.2(5500) + 0.2(10000) + 0.25(5000) = 17650 Elasticity equation is E= variable coefficient x variable initial value / QD Price Elasticity Ep = -42(500/17650) = |1.19| Cross price elasticity Epx = 20(600/17650) = 0.68 Demand Estimate 3 Income elasticity Ei = 5.2(5500/17650) = 1.62 Advertise expenditure elasticity Ea = 0.2(10000/17650) = .11 Number of microwave sold elasticity Em = .25(5000/17650) = 0.07 Price elasticity is -1.19, which indicates a 1% increase in the price of the product, effects the quantity demanded to decrease by...
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...that Affordable Care Act (ACA) is job killer. This article is using modeling and current facts to conclude Obama care is neither job killer nor deadweight pushed on society by Obama. Of course any modeling is prone to possible erroneous conclusions, especially in social sciences, like economy is: economist also can’t run controlled experiments so their market simulation models produce imperfect estimates. Economist model labor market, using two major laws: law of demand and law supply. To model market economist will describe how these two law function for particular market. In the case of Obama Care it is necessary to understand how law of supply and law of demand, for labor market, are influenced by ACA. Because ACA subsides are given to lower paid workers modeling the demand and supply of this labor for segment of is necessary for any conclusion on the market influence by ACA. The main source of data analyzed in this article are finding by Congressional Budget Office (CBO). According to Congressional Budget Office model, the ACA is influencing labor supply, while demand stays unchanged. According to CBO report ACA influences actually reduction of labor supply and in particular of lower paid working segment labor supply. At this point the first question would be if that fact is to be believed and second question would be if ACA is causing some positive effects as well. The final judgment of ACA negativity or positivity will take into account all ACA implementation...
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...$7,800 (E = TR - TCEX - TCIM = $16,800 - $9,000 - $4,500 = $3,300 b. Can Joe expect economic profits from the venture? If so, to what are these profits attributable? Yes, he can expect positive economic profits. This is a return to his risk-taking (it might, after all, rain all summer!) or to locational rents (he may have the only stand on the beach) 2. The American Bagel Co. is considering opening a Bagel bakery and coffee shop near Campus. In an effort to predict the profitability of this venture, their in-house consulting team estimated that the daily demand for Bagels in the area to be the following Q = -5P + 20Pp - 30Pc +5I Where P = the price of bagels, Pp = the price of pastries (each), Pc = the price of coffee (per cup), and I = Income (average annual per capita, for local residents in thousands of dollars) a. Comment on this estimated demand function. Are the parameters reasonable? Why or why not? (Restrict your commentary to the signs of the parameters) Reasonable Sign? (Y/N) Reason P _______Y__________________________Downsloping...
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...than just the concepts presented here. This exercise is just meant to give you additional practice on the types of problems that have given students the most difficulty. Q1 When the transactions costs associated with completing an activity by entering into a contract with another firm rise, the likelihood that this activity is done “external” to the firm by contracting with another firm _____ and the odds that it is done “internally” within the firm ____. A rises; falls B falls; rises Answer the next 4 Questions by 1st creating the following graph: Draw a standard supply and demand diagram, refer to it as Figure 1 label the intersection point of the supply and demand curves as Point A move from Point A up and to the left along the demand curve and label a point on the demand curve Point B move from Point A down and to the right along the demand curve and label a point on the demand curve Point C move from Point A up and to the right along the supply curve and label a point on the supply curve point D move from Point A down and to the left along the supply curve and label a point on the supply curve point E Q2 If Figure 1 represents the market for solar power cells and it initially is in equilibrium at Point A, the new equilibrium in the market after a technological innovation gain in the production of solar power cells would be: A Point A B Point B C Point C D Point D E Point E Q3 If Figure 1 represents the market for solar power cells and it initially...
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...CH2 1. Suppose the demand curve for a product is given by Q = 300 – 2P + 4I, where I is average income measured in thousands of dollars. The supply curve is Q = 3P – 50. a. If I = 25, find the market clearing price and quantity for the product. Given I = 25, the demand curve becomes Q = 300 ( 2P + 4(25), or Q = 400 ( 2P. Setting demand equal to supply we can solve for P and then Q: 400 ( 2P = 3P ( 50 P = 90 Q = 220. b. If I = 50, find the market clearing price and quantity for the product. Given I = 50, the demand curve becomes Q = 300 ( 2P + 4(50), or Q = 500 ( 2P. Setting demand equal to supply we can solve for P and then Q: 500 ( 2P = 3P ( 50 P = 110 Q = 280. c. Draw a graph to illustrate your answers. It is easier to draw the demand and supply curves if you first solve for the inverse demand and supply functions, i.e., solve the functions for P. Demand in part (a) is P = 200 ( 0.5Q and supply is P = 16.67 + 0.333Q. These are shown on the graph as Da and S. Equilibrium price and quantity are found at the intersection of these demand and supply curves. When the income level increases in part (b), the demand curve shifts up and to the right. Inverse demand is P = 250 ( 0.5Q and is labeled Db. The intersection of the new demand curve and original supply curve is the new equilibrium point. 2. Consider a competitive market for which the quantities demanded and supplied...
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...MGT314.8 DEMAND FORECASTING, PRODUCTION OPTIMIZATION AND CAPACITY MANAGEMENT FOR PRAN FOOD PRODUCTS BANGLADESH LIMITED Prepared By: Abdullah Al Rafi 111 0129 530 SM Nabil Afroj 113 0818 030 Faculty: Dr. Kais Zaman North South University Table of Contents Objectives 3 Brief Company Profile 4 Methodologies 5 Need for the forecasting 5 Forecasting Methods 8 Qualitative Analysis 10 Linear Programming 13 Conclusion 17 Objectives The primary objective is to find the demand and supply management techniques and the tools that the company uses to predict the demand for their products. The project will also determine the appropriate changes the company makes in their production process and their capacity management with regard to their forecasted demands. Many companies were and are still established to derive financial profit. In this regard the main aim of PRAN RFL Group is to maximize (optimize) profit. This report is on using Linear programming technique along with forecasting methods to derive the maximum profit from production of soft drink for PRAN RFL, Bangladesh Ltd. Linear Programming of the operations of the company was formulated and optimum results derived using Microsoft Excel. The result shows that two particular items should be produced even when the company should satisfy demands of the other - not - so profitable items in the surrounding of the plants...
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...Managerial Economics Case Number 6 Topic: Elasticity of Demand Objective: a) To apply the concept of elasticity of demand b) To correlate elasticity with decision making University fees – part I President Jones of Indian Institute of Business Economics (IIBE) is concerned about the financial state of his institution. Last year there was a loss of Rs.1.5 million and the trustees are getting restless. Currently there are 1000 full-time students, 700 of whom are degree students from their country and 300 of whom are the students from abroad. The present level of fees, including tuition, room and board, is Rs. 1,80,000 and Rs. 2,00,000 for foreign students per year. Jones is proposing a 10% increase for next year. On the basis of past experience he has estimated that the price elasticity of demand for degree students is -1.2 and for study-abroad students is 1.6. He is particularly worried about the effect of the fee increase. Jones is also considering a change in promotional expenditure. This currently amounts to 2% of total revenues and it is estimated that the promotional elasticity of demand is 0.1. It is also estimated that variable costs per student are Rs.60,000. Questions 1. Why might Jones’s estimates of the relevant price elasticities not be very reliable? 2. Estimate the effect of the proposed fee increase on the number of degree students and revenues from these students, stating any relevant assumptions. 3. Estimate the effect of the proposed fee increase on the total number...
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...2 2 Forecasting Demand and Supply FORECASTING DEMAND AND SUPPLY LEARNING OBJECTIVES • • • • • • Understand and select information required to forecast HRP Identify members of the HR planning team Understand the four steps in the HRP process Apply techniques to forecast HR demand and supply Describe various methods for assessing labour planning (quantitative and qualitative) Discuss key challenges in forecasting HR demand and supply 26 Part 2 | Forecasting Demand and Supply ■ PROFILE The Great Pyramid of Giza The Great Pyramid of Giza has fascinated the world for centuries and is revered as one of the greatest mysteries of time. When it was first built it was 145 metres tall, making it the tallest structure on the earth for over 4,300 years. Egyptologists argue that even with all of the human and computer advancements achieved to date, it would be near impossible to replicate the production of these pyramids. The HR planning scale of the project would be among the biggest challenges to face. Archaeologists have their own methods for determining how many workers (mostly slaves) were employed at Giza, but a majority agree that the Great Pyramid was built by approximately 4,000 primary labourers—quarry workers, haulers, and masons. These primary labourers would have been supported by 16,000 to 20,000 secondary workers—ramp builders, tool-makers, mortar mixers, and those providing back-up services such as supplying food, clothing, and fuel. These estimates suggest a total of...
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...Broadly speaking, there are two approaches to demand forecasting. Survey method and Statistical method are further sub-divided into various methods. The former obtains information about the consumers’ intentions by conducting consumers’ interviews, through collecting experts’ opinions. The later using past experience as a guide and by extrapolating past statistical- relationships suggests the level of future demand. Survey methods are found appropriate for short term forecasting or demand estimation, while statistical methods are more suitable for long term demand forecasting or business and economic forecasting. Either of the methods may be used for forecasting demand for existing products, but the demand for new products, in the absence of any historical data, must be forecast through the survey method only. Under survey methods surveys are conducted about the consumers’ intentions, opinions of experts, survey of managerial plans, or of markets. Data obtained through these methods are analyzed, and forecasts on demand are made. These methods are generally used to make short-run forecast of demand. Survey methods are further sub-divided in to: Consumers’ Survey and Experts’ Opinion and Survey of Managerial Plans. A. Consumers’ Survey: Consumers’ survey involves direct interview of the potential consumers who are contacted by the interviewer and asked how much they would be willing to buy a given product at different prices. Consumers’ survey may take any form...
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...With the economy already under pressure, the housing market is continuing to decline with expectations for recovery this year dwindling away. Foreclosures are currently pushing the price of homes down making it difficult for homeowners to sell. Changes of income, price, expectations, and changes in processing are excellent examples of supply and demand. The change of income came in the form of $8,000 tax credit for home buyers. What this helped was the ability to buy a house with money they didn’t have. This increased the demand for houses because those consumers, who were eligible to receive the tax credit, get extra money for buying a home and qualify for the loan. When it expired, people were unable to qualify any longer for those houses, putting the whole housing market in a downward spiral again. Currently there are an astounding number of new foreclosures. These foreclosures are drastically decreasing the price of a home. When the price of something goes down typically the demand will increase however in the current situation the demand is staying unchanged causing only the quantity demanded to change. According to Zillow, home values dropped in the first quarter by almost 3% compared to last year’s first quarter making it a consecutive 57 weeks of falling prices. The overwhelming surplus of homes on the market will continue to drive prices down until the “clearing price” is reached. The expectation for 2011 was unrealistic. The housing market was showing progress...
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...institutions for health care in China as they evolved since 1949, this paper presents statistical demand functions for health care. It applies the demand functions to explain the rapid increase in health care demand and the resulting rapid increase in price when supply failed to increase. The failure in increase in supply was traced to the system of public supply of healthcare in China. The reform experience of Suqian city in the privatization of healthcare is reported to demonstrate the positive effect of privatization on supply. The government’s health care program for the urban and rural population is described and an evaluation of it is provided. Outline 1. Introduction 2. Changes in Health Care Institutions 3. Demand Functions for Health Care 4 Supply for Health Care: Public or Private? 5. Government’s Program for Health Care 6. Evaluation of the Current Health Care System 7. Conclusion 1. Introduction With a population of over 1.3 billion China has received much attention, including its spectacular economic development since 1978 and the accompanied deterioration of health care for a substantial segment of its large rural population. Section 2 of this paper recounts the success of the PRC in improving the health conditions of its population from 1949 to 1980 and describes the changes of the public heath care system after 1980. In section 3, statistical demand equations for health care are estimated. Using only annual time-series data from 1995 to 2003 I...
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...profitability of this venture, their in-house consulting team estimated that the daily demand for Bagels in the area to be the following * Q = -5P + 20Pp - 30Pc +5I * Where P = the price of bagels, Pp = the price of pastries (each), Pc = the price of coffee (per cup), and I = Income (average annual per capita, for local residents in thousands of dollars) * a. Comment on this estimated demand function. Are the parameters reasonable? Why or why not? (Restrict your commentary to the signs of the parameters) * Reasonable Sign? (Y/N) Reason * P _________________________________________________ * Pp _________________________________________________ * Pc _________________________________________________ * I __________________________________________________ * b. Suppose that the price of pastries = $1, coffee costs $.50 per cup, and average per capita income in the fan area is $12,000. Calculate the inverse demand curve (e.g., express price as a function of quantity). Demand: __________________________________ Inverse demand _________________________________ * c. What...
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...CEO. When you meet Pat for the first time, she asks you to work on a project that has to be completed in about a week. Pat tells you that Melon is thinking about leasing a parcel of land to build a shopping center. Melon would own and operate the shopping center and generate revenue by renting space to retailers. Pat would like you to do some work on the project. Specifically, she would like you to complete the following tasks: 1. Determine the optimal size of the shopping center (to the nearest 100 square meters) based on existing estimates of the demand for retail space. 2. Determine the most Melon should be willing to pay to lease the land for the expected life of the project. 3. Calculate the profit under each possible demand curve with the optimum size of the shopping center. 4. Determine if it is worth hiring a local consultant, Roland Thomas, to do some additional market research that would provide a better estimate of the demand for retail space. 5. Write a short report summarizing the results of your analysis and any recommendations. Pat also informs you that Bob Devine, a former Melon employee, did some preliminary work on the project, but left the organization before wrapping things up. Pat says that you should have complete confidence in any work Bob did on the project and that you should use his findings and assumptions as a starting point for your analysis. In fact, Pat has reviewed Bob’s notes and quickly summarizes the key information she thinks...
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