Finance

  

To help you analyze LGI so that you can make recommendations to reverse the trends, you receive an Excel workbook containing the following:

• Prices and quantities of LGI’s product

After plotting a supply/demand graph and calculating elasticity, submit your team’s initial findings.

Complete the analysis calculation for the project:

• Download the Project 2 Excel workbook, click the      Instructions tab, and read the instructions.
• Draw a supply and demand graph and calculate      elasticity.
• If you would like instructor feedback on this step,      follow the instructions in the Take Action box below to submit your Excel      file to the Assignments folder as a milestone by the end of Week 3. This      is optional. If you choose to submit the milestone, you will receive      instructor feedback on the milestone submission. To distinguish the      milestone submission from the file you will submit at the end of Project      2, label your file as follows: P2­_milestone_lastname_Calculation_date.

Instructions

In Class Currently

Largo Global Inc. is a fictious firm that is will be used to allow you to understand the market forces of supply and demand as they impact a company as well as the industry in which the company operates. The company produces two types of boxes, a Standard box and a Deluxe box. These boxes are also produced by many other companies.
In Project 2, you will learn about how to apply the tenets of microeconomics to improve the company’s profitability. In tab 1 after reading the instructions, you will chart the supply and demand curves for the two different boxes. In tab 2 you will focus on the price elasticity of demand for these two products. In tab 3 you will determine at what price the company can maximize the profitability of both boxes.
Project 2 is the team assignment in MBA 620. Follow these steps to complete the project:
1. In step 3 the team will complete their Team Agreement and Work Plan and submit it to their faculty member by the due date noted by their faculty member.
1. In step 4, the team will complete this Excel file by answering the questions for all three tabs in the boxes provided. One member of the team will submit this file to the Project 2 Milestone assignment folder by the stated due date to receive feedback from their faculty member. Upon receipt of the feedback, the team will coordinate any necessary corrections.
2. In step 5, each team member must answer all questions for two of the five topics provided in the Word file. These questions constitute the core of your team’s report. Each team member will serve as the team’s primary respondent for one of the five topics and coordinate the answers for that topic. Each team member will also serve as the secondary respondent to one of the five topics and submit their answers to the primary respondent.
a. The faculty member will create a separate Team Project 2 Discussion forum for each team which includes all five topics. All team members should prepare their answers to the questions for their two chosen topics as separate Word files. They should post their two files in the appropriate topics in the Team Project 2 Discussion forum.
b. After coordinating with the other members of the team, the primary respondent for each topic will submit their answers to the editor of the team’s Word file. The editor will then consolidate the answers to the questions for all five topics in a single Word file and submit that file along with the team’s revised Excel file to the Project 2 Final assignment folder.
c. If the team does not receive a grade of Meets Requirements or Exceeds Requirements, the primary respondents will coordinate any necessary changes to the answers for their topic questions and resubmit them to the editor. The editor will then consolidate all changes to the Word file and resubmit the file along with the team’s Excel file to the Project 2 Final assignment folder.

Tab 1 – Supply and Demand Graph

Table 1

Future Supply and Demand for Standard boxes

Price per box
Daily US demand of Standard boxes (in billions of boxes per day)
Daily US supply of Standard boxes (in billions of boxes per day)

$17.00
2
0.1

$17.20
1.8
0.2

$17.40
1.6
0.3

$17.60
1.4
0.4

$17.80
1.2
0.5

$18.00
1
0.6

$18.20
0.8
0.7

$18.40
0.6
0.8

$18.60
0.4
0.9

$18.80
0.2
1

$19.00
0.1
1.1

Question 1:

Create a Supply and Demand Chart for the Standard box below

Equilibrium:

Table 2

Future Supply and Demand for Deluxe boxes

Price per box
Daily US demand of Deluxe boxes (in billions of boxes per day)
Daily US supply of Deluxe boxes (in billions of boxes per day)

$25.00
2
0.3

$25.50
1.8
0.4

$26.00
1.6
0.5

$26.50
1.4
0.6

$27.00
1.2
0.7

$27.50
1
0.8

$28.00
0.8
0.9

$28.50
0.6
1

$29.00
0.4
1.1

$29.50
0.2
1.2

$30.00
0.1
1.3

Question 2:

Create a Supply and Demand Chart for the deluxe box below

Equilibrium:

Equilibrium:

1. Based on the information provided in Table 1, create a chart in the space below showing the supply and demand curves for the number of Standard boxes in the United States per day. This information is helpful in knowing how many boxes to produce. After you have examined the graph below, identify the price and quantity at which market equilibrium exists.
.

2. Based on the information provided in Table 2, create a chart in the space below showing the supply and demand curves for the number of Deluxe boxes in the United States per day. This information is helpful in knowing how many boxes to produce. After you have examined the graph below, identify the price and quantity at which market equilibrium exists.

Tab 2 – Price Elasticity

Price Elasticity

Quantity
Price

10
18.00
Original

New

% change
% change
Elasticity of Demand

Elasticity:

By how much did revenues increase or decrease as a result of the change in price?

By how much did profits increase or decline?

Standard Boxes sold per monthly (millions)
Price
Revenue (millions)
Variable Cost per Standard box
Variable Cost (millions)
Fixed cost per month (millions)
Total Cost (millions)
Monthly Profit (millions)

10
$ 18.00
$ 180
$ 10.00
$ 100
$ 10
$ 110
$ 70

Quantity
Price

Original

New

% change
% change
Elasticity of Demand

Elasticity:

By how much did revenues increase or decrease as a result of the change in price?

By how much did profits increase or decline?

Standard Boxes sold per month (millions)
Price
Revenue (millions)
Variable Cost per Standard box
Variable Cost (millions)
Fixed cost per month
Total Cost (Millions)
Monthly Profit (millions)

Quantity
Price

Original

New

% change
% change
Elasticity of Demand

Elasticity:

By how much did revenues increase or decrease as a result of the change in price?

By how much did profits increase or decline?

Deluxe boxes sold per month (millions)
Price
Revenue (millions)
Variable Cost per Deluxe box
Variable Cost (millions)
Fixed cost per month
Total Cost (Millions)
Monthly Profit (millions)

Quantity
Price

Original

New

% change
% change
Elasticity of Demand

Elasticity:

By how much did revenues increase or decrease as a result of the change in price?

By how much did profits increase or decline?

Deluxe boxes sold per month (millions)
Price
Revenue (millions)
Variable Cost per Deluxe box
Variable Cost (millions)
Fixed cost per month
Total Cost (Millions)
Monthly Profit (millions)

Select One

Price Elastic

Price Inelastic

Unit Price Elastic

1. Last month the company sold 10 million of their Standard boxes at an average price of $18.00 per box. This week the company raised the average price to $18.40 per box. The company sold 9.5 million boxes for the month. The variable cost per unit is $10 and the fixed costs are $10 million per month. Assume these costs don’t change in the short term.
What is the price elasticity of demand?
Can the demand be characterized as price elastic, price inelastic, or neither?
By how much did revenues increase or decrease as a result of the change in price?
By how much did profits increase or decline?

2. After reviewing last month’s results, the company decided to lower the price of a Standard box to $17.60. After this change, the volume sold increased to 10.5 million boxes for the month.
What is the price elasticity of demand?
Can the demand be characterized as price elastic, price inelastic, or neither?
By how much did revenues increase or decrease as a result of the change in price?
By how much did profits increase or decline?
3. Last month the company sold 1.55 million Deluxe boxes at an average price of $28 per box. This month the company raised the price to $29 and sold 1.35 million boxes. The variable cost per unit is $20 and the fixed costs are $3 million per month. Assume these costs don’t change in the short term.
What is the price elasticity of demand?
Can the demand be characterized as price elastic, price inelastic, or neither?
By how much did revenues increase or decrease as a result of the change in price?
By how much did profits increase or decline?
4. After reviewing the last results, the company decided to lower the price to $27 and sold 1.65 million boxes for the month.
What is the price elasticity of demand?
Can the demand be characterized as price elastic, price inelastic, or neither?
By how much did revenues increase or decrease as a result of the change in price?
By how much did profits increase or decline?

Tab 3 – Profit Maximization

Profit Maximization

Standard boxes sold per month (millions)
Price
Revenue (price x volume)
Variable Cost per Standard box
Variable Cost (cost per unit x volume)
Fixed cost per month (millions)
Total Cost (Fixed + Variable)
Monthly Profit (revenue – all costs)
MR
MC

5
$ 22.00
$ 110.00
$ 10.00
$ 50.00
$ 10.00000
$ 60.0000
$ 50.00

5.5
$ 21.60

6
$ 21.20

6.5
$ 20.80

7
$ 20.40

7.5
$ 20.00

8
$ 19.60

8.5
$ 19.20

9
$ 18.80

9.5
$ 18.40

10
$ 18.00

10.5
$ 17.60

11
$ 17.20

11.5
$ 16.80

12
$ 16.40

12.5
$ 16.00

13
$ 15.60

13.5
$ 15.20

14
$ 14.80

Profit Maximization

Deluxe boxes sold per month (millions)
Price
Revenue (price x volume)
Variable Cost per Deluxe box
Variable Cost (cost per unit x volume)
Fixed cost per month (millions)
Total Cost (Fixed + Variable)
Monthly Profit (revenue – all costs)
MR
MC

1
$ 30.00
$ 30.00
$ 20.00

$ 3.00000

1.2
$ 29.50

1.35
$ 29.00

1.5
$ 28.50

1.55
$ 28.00

1.6
$ 27.50

1.65
$ 27.00

1.7
$ 26.50

1.75
$ 26.00

1.8
$ 25.50

1.85
$ 25.00

1.9
$ 24.50

1.95
$ 24.00

2
$ 23.50

2.05
$ 23.00

2.1
$ 22.50

2.15
$ 22.00

2.2
$ 21.50

2.25
$ 21.00

1. The company views its goal as profit maximization. Complete the table to the right to approximate the profit-maximizing price for the Standard boxes.
What is the closest price that will help the company maximize the profit on Standard boxes?

2. The company views its goal as profit maximization. Complete the table to the right to approximate the profit-maximizing price for the Deluxe boxes.
What is the closest price that will help the company maximize the profit on Deluxe boxes?