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Mary Weatherbee Leigh Sulkowski Ross Kelchner Gary Tan

Mary Weatherbee Leigh Sulkowski Ross Kelchner Gary Tan Table of Topics Leigh 7. Factors of Demand 8. Long & Short Run Costs 9. Implicit & Explicit Costs Ross 10. Profit Maximization 11. Elasticity 12. Market Analysis Gary 1. History 2. Factors of Production

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Mary Weatherbee Leigh Sulkowski Ross Kelchner Gary Tan

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  1. Mary Weatherbee Leigh Sulkowski Ross Kelchner Gary Tan

  2. Table of Topics Leigh 7. Factors of Demand 8. Long & Short Run Costs 9. Implicit & Explicit Costs Ross 10. Profit Maximization 11. Elasticity 12. Market Analysis Gary 1. History 2. Factors of Production 3. Target Market Mary 4. Opportunity Costs 5. Substitutes 6. Complements

  3. Starbucks’ History • 1971 - Opens its first location. • 1983 - HowardSchultz travels to Italy. • 1985 - Schultz founds Il Giornale. • 1987 - Il Giornale changes its name to Starbucks Corporation. Starbucks has 17 storefronts.

  4. Starbucks’ History • 1993 - Begins its relationship with Barnes & Noble, Inc. • 1994 - Awarded ITT/Sheraton account. • 2001 - Begins to offer high-speed wireless internet access in stores. • 2004 - Now has 7,569 locations worldwide.

  5. What is Starbucks? • Markets primarily through company-operated retail stores. • Roasts high-quality coffees. • Also sells espresso beverages, pastries, confections, and coffee-related accessories/equipment. • Committed to contributing positively to the environment.

  6. The Factors of Production • Land • Labor • Capital • Entrepreneurial Activity

  7. Land • The physical space where production occurs. • Starbucks owns land in 34 countries, including: • Austria • Germany • Japan • Turkey

  8. Labor • The time workers spend producing goods and services. • Characteristics: • Adaptable • Self-motivated • Passionate • Creative • Team player • Benefits

  9. Capital • The tools people use to produce goods and services. • Physical Capital • Over 7,600 stores and roasting plants around the world • Human Capital • Training & Education

  10. Entrepreneurial Activity • Recognizing and taking advantage of an opportunity. • Howard Schultz

  11. OPPORTUNITY COSTS The value of the best alternative which must be given up in order to get something. = • You could buy you and 4 of your friends a tall Caramel Macchiato for the price of one large Starbucks tumbler. • Imagine how many you could buy for the price of aStarbucks Barista Digital Italia™ Espresso Machine(price-$995)

  12. Opportunity Costs • Costs of Goods sold / year = $ 2.25 Billion • Starbucks could Sacrifice the amount spent on buying foreign coffee makers and spend more on coffee to increase quality or flavors • Advertising For starbucks

  13. SUBSTITUTES • A good that can be used in place of some other good and fulfills more or less the same purpose. • Substitutes for Starbucks include: • Seattle’s Best • Gloria Jean’s Coffees • Small, independently owned coffee shops • Café Bean • The Barista Café

  14. SUBSTITUTES • Starbucks sells many substitutes for coffee • ~Tea • ~Non-Coffee Beverages • ~Bottled Drinks • Substitutes for cream and sugar ~ Non-fat milk ~ Equal ~ Half and Half ~ Sugar ~ Whole milk ~ Sweet n’ Low

  15. Substitution Effect • As the price of Starbucks coffee decreases relative to the price of its substitutes, then people will substitute Starbucks for the other goods P The demand for Starbucks coffee will increase, or shift to the right S D2 D1 Q

  16. Complements • A good that is used together with some other good • Coffee Cream/Sugar • Tea Scone/Muffin • Ground Coffee Coffee Makers / Mugs / CD’s

  17. Factors of Demand • Input Prices • Number of Sellers • Expectation of Sellers • Prices of Alternate Goods • Technology

  18. Examples of Ceteris Paribus Factors of Demand Price D2 D1 D3 Quantity

  19. Short Run & Long Run Short Run~ A time horizon over which at least one of the firm’s inputs cannot be varied Long Run~ A time horizon long enough for a firm to vary all of it’s inputs

  20. Fixed Costs in the Short Run Fixed Costs: quantity remains constant, regardless of how much output is produced • Capital • Rent • Utilities

  21. Variable Costs in The Long Run Variable Costs: quantity can change as level of output changes • Labor • Natural Resources • Employees

  22. Explicit Cost vs. Implicit Cost • Explicit: money actually paid out for the use of inputs • Implicit: the costs of inputs for which there is no direct money payment

  23. Price Elasticity • Measure of how responsive quantity demanded is to price %Δ Quantity Demanded % Δ Price

  24. Price Elasticity • There are three basic determinants • Number and closeness of substitutes • The fewer substitutes, the more inelastic • The fraction of the budget of the buyer • The smaller the fraction, the more inelastic • The period of time • The shorter the period of time, the more inelastic

  25. Profit Maximization • Goal of any company • Key to maximizing profit • MC = MR • Marginal Cost • Marginal Revenue

  26. Profit Maximization • Profit = Total Revenue – Total costs In 2003: Revenues = $4,075,522,000 Costs = $3,807,176,000 Profit = $268,346,000

  27. Market Analysis • Value of common stock • 2001: 380,044,042 shares valued at $1,374,865,000 • 2002: 388,228,592 shares valued at $1,723,189,000 • 2003: 393,692,536 shares valued at $2,082,427,000

  28. ThankYou

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