Using a real world business describe their economic background, you are expected to collect real world data on your firm and to present this data in your background description.
structured paragraph. It means well-structured sentences, well-chosen words, accurate spelling and paragraphs with a beginning, middle and end;
-Well-structured work. This means a document with a clear and clearly stated purpose, a clear, coherent and cohesive central core, and an insightful conclusion which also reflects on learning;
-Appropriate coverage. This means a document demonstrating that all significant elements of the argument have been identified and included. It also means that no extraneous or irrelevant material has been included;
-Well-presented work. This means a document with a professional appearance. To put it plainly, the document will look good;
-Your own work: this means that other people’s words are not presented as if they were your own and that you have not colluded with anyone else to produce the work.
This is guidance on how to approach the economic aspects of this assignment; an exercise made easier if you choose one commercial outlet.
1. The demand curve: your objective is to determine whether your customers are price or taste sensitive and to depict this in terms of the demand curve for your product. The number of substitutes and income levels determine how taste or price sensitive your customers are likely to be and using a diagram to demonstrate what you mean provides clear evidence of your understanding. The larger the number of substitutes there are for your product, the greater the price sensitivity of your customers. Branded goods are more taste sensitive; store brands are more price sensitive. The higher their income levels, the more tastes sensitive customers are because the product price represents a smaller proportion of income. Make your observations about your customers and draw your conclusions. Is your demand curve relatively steep or relatively flat?
2. The demand shift factors: identify the important ones and explain why they are important: the shift factors include substitute products (competition); variations in income levels; tastes etc. See the workshop slides for more examples. Explain whether the shift factor and the demand curve work in the same direction or in opposite directions eg income up and demand curve right (more meals out); temperature up and demand curve left (warm coats).
3. The supply curve shape: choose one of your demand shift factors and consider what happens if it shifts to the right. Demonstrate whether prices are unaltered (flexible/flat supply) or rising prices (forward rising supply curve). Establish whether it is the marketing department or the market which is determining your product price. If prices are unaltered and your firm is a retail firm, is it using mark-up as opposed to marginal cost pricing?
4. The factors: list your factors of production and distinguish the fixed from the variable factors. Remember, efficient use of these factors is achieved in different ways. So are your most important factors being used as efficiently as possible: fixed used frequently; variable only when necessary? Remember too that there are no fixed factors in the long run – all factors are variable.
5. The factor costs: describe the costs associated with the factors in terms of: TC, AC and MC. In the short run, your variable costs are embodied in your marginal costs (your fixed costs are fixed). Examine a potential change in marginal cost eg by exploring the implications of an increase in output of eg one hour. What are your extra costs if you do this? What would your extra revenues be? Is it worth opening for the extra hour?
7. Total Revenue: return to your (steep or flat) demand curve and examine PED). However, this time you are exploring how much revenue can be gained/lost by changing prices taking into account of the steepness/flatness of your curve between your price points. Will total revenue rise or fall if prices are raised? Will total revenue rise or fall if prices are reduced?
8. Briefly explore profit or contribution to capital costs and provide hints (but no more than hints) on economic problems for your second assignment. Your firm will be more profitable once the economic problems have been fixed.
9. The Conclusions: describe your key findings in economic terms and explain why these are important (insights); provide some reflection on learning: one or two brief points will do.