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Assignment 4: Automotive Production Levels General Motors

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Assignment 4: Automotive Production Levels
General Motors

Shelia Lott

Eco 550 - Managerial Economics and Globalization
Dr. John Ilokwu Ph.D.
September 5, 2012

General Motors Company
General Motors Corporation (GM) is the largest company in an industry that has a major impact on the American economy and in the world. GM has led the auto industry in innovation and for most of the 20th century. From 1931 to 2008 GM led in the industry only to be surpassed by Toyota in 2008.
After major cutbacks for over two years, GM found itself at the brink of bankruptcy and accepted government financial assistance and plan for debt reconstruction and recovery. Under this plan, brands Chevrolet, Cadillac, and GMC became the base brands for General Motors Company. General Motors sales cars in 31 countries, these brands also include Opel, Holden, and Vauxhall.
The law of demand states that the higher the price of a good or service, the less likely will people have a demand for that good or service with all other factors being constant. As a result the higher priced a GM product the less quantity demand by the consumer. A picture of this would indicate a downward slope in the demand curve.
The law of supply states that quantities sold at a higher price will cause an upward slope in the curve and unlike the demand curve the price will remain high because this will increase revenue. In the example to the Chevrolet Camaro a slack in production may increase the price even more because of scarcity. The effect can even be sought for a specific color or equipment. According to USA Today, Chevrolet struggled in 2010 to meet the demand of the Chevrolet Camaro and buyers paid $500 to $2500 more than the suggested retail to have an opportunity to make their purchase. The Chevy Camaro has outsold Ford Mustang for the first time since 1985. In 2011 for the first time, buyers bought 81,371 Camaro’s to 73,716 Mustangs. GM accredits the fuel economy of the Camaro being superior to the Mustang for the increase in sales and for the growing demand.
According to Edmunds, the Camaro sales price starts at $22,245 for a V-6 model and the V-8 models start at $30,245. Pricing only increases from there will no room for negotiation from the sticker price. Dealers will charge what the market will pay, they are independent from the manufacturer. For the Dealership the Chevy Camaro has been good for business.

Determine the equilibrium price and quantity and explain its meaning to your chosen company indicate how your chosen company’s management should use this information to make sound strategic decisions.

Calculate the elasticity of demand for your chosen company’s automobiles (or choose a specific make / model). Interpret what the demand tells your chosen company’s management team.

Speculate what may happen to your chosen company’s specifically if the elasticity of demand calculated above represented a competitor of your choice instead. Provide support for your response.

Create a cost analysis and graph. Include total cost, total variable cost, marginal cost, and fixed costs, along with any other costs you believe are valuable to the cost analysis.

Create a total revenue schedule, marginal revenue schedule, and a graph representing both interpret what the graph tells your chosen company’s management team.

Determine the profit maximizing level of output by assessing the actions your chosen company should take if it is to continue to maximize profits.

Assume your chosen company wants to expand its operations which involve capital budget decisions. Recommend two different and appropriate cost related tools provide support for your recommendation.

Assume your chosen company wants to expand its operations globally into a new market. Suggest two strategies the firm should consider.


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