Microeconomics Analysis of Investment for two Gasoline Station / Convenience Stores
Project – Statistical Analysis:
Microeconomics Analysis of Investment for two Gasoline Station / Convenience Stores
Situation/Scenario
Cousin Edgar is always thinking of the next business idea. This time, he plans to invest in buying two gas stations. He reckons American consumers have come to accept the high gasoline prices, and estimates world prices for gasoline to increase even further with high demand from India and China. Besides, Cousin Edgar thinks he will make a good profit on the sale of convenience items at each station. But before buying the gas stations, he decides to ask for your advice because you are taking this course in business economics.
You happened to read the piece “$4-a-Gallon Gas Fueling Fears for Recovery” on page 196 of the textbook. Being skeptical of Cousin Edgar’s optimism on the profitability of selling gasoline and convenience items, you decide to research the market in terms of supply and demand, elasticity, costs of production, pricing, and normal or economic profit or loss. You want to provide Cousin Edgar with the most informed advice possible.
Instructions:
Complete a detailed Microeconomic Analysis Report on the situation above.
The Microeconomic Paper tests your ability to apply economic principles to a business decision. The completed paper is to be written as a professional report. See the grading rubric at the end of this document. Be sure to use Peer Reviewed and Scholarly Journals for finding data. Avoid questionable sources, such as Wikipedia. Note: Wikipedia is Not an acceptable reference for scholarly material. 5 references and 5 pages minimum.
Charts and Graphs. Charts and graphs must be included to represent statistical data. A chart and graph may not exceed ¼ page in length. Maximum total graphs and charts is four. Use current data, DO NOT copy and paste from reading. You must use a minimum of two charts/graphs with current statistical data (Graph the Demand and Graph of Supply).
Other charts and graphs may include but are not limited to: 1. Price Elasticity of Demand, 2.Price Elasticity of Supply, 3. Relationship between Price Elasticity and Total Revenue, 4. Elastic and Inelastic Demand, 5. Perfectly elastic and perfectly inelastic supply.
The following is a list of the specific required information, research, graphs, and math to be included in each section.
The 5 Determinants of Demand are:
1. Availability of close substitutes
2. Passage of time
3. Luxuries versus necessities
4. Definition of the market
5. Share of the good in the consumer’s budget
1. Demand Determinants:
a. Each individual determinant analyzed for your situation, with examples applicable to your situation (5 points each) and research (3 points each) showing current Demand data or most recent past data, except for the Expectations Determinant in which you need to use data estimating future market conditions.
b. (20 points) Price Elasticity of Demand facing you in your scenario, including actual calculation of it using the midpoint formula. If you can’t find data, then determine the Price Elasticity from the Characteristics and make up numbers to use. Be sure to identify this if you use this approach. This will help you in deciding the slope of your Demand curve below.
c. (10 points) Graph the Demand facing your situation. Note that this requires information from the Supply Determinant analysis before deciding how to draw the curve(s), as you may need a separate MR curve.
2. Supply Determinants:
a. Each individual determinant analyzed for your situation, with examples applicable to your situation (5 points each) and research (3 points each) showing current Supply data or most recent past data, except for the Expectations Determinant in which you need to use data estimating future market conditions.
i. (40 points) You need to be very specific in the Cost of Production Determinant to identify Fixed, Variable, and Marginal Cost in order to derive your Supply curve for the graphing component. You will need to explain and show how Profit Maximization or Loss Minimization output and price are determined. You will need to do the math using actual figures [cited] or your own estimated figures [identified as such] and explain why you expect Short Run Economic or Normal Profits, Acceptable Loss or temporary Shut Down and how you will know which it is.
ii. The Number of Sellers determinant must contain your analysis of the kind of market structure in which your firm or labor service will be sold.
b. (20 points) Price Elasticity of Supply you have based on the Cost of Production changes as output changes, including actual calculation of it using the midpoint formula. If you can’t find data, then determine the Price Elasticity from the Characteristics and make up numbers to use. Be sure to identify this if you use this approach. This will help you in deciding the slope of your Supply curve.
c. (10 points) Graph your Supply situation using the numbers from your earlier Cost of Production analysis.
3. Recommendations—(40 points) what are your recommendations explained by your analysis?
4. Paper presentation—(10 points) good format, citations, lack of spelling errors, etc.
Microeconomic Paper as a Professional Report
Your paper should be organized into five parts as listed below. 5 pages minimum
1. Title Page—Name, course, and date
2. Introduction to situation, but do NOT copy the scenario. Briefly summarize the situation and identify the microeconomic issue(s) to be decided from the perspective of the organization.
3. Relevant Economic Principles: Determinants of Demand, Supply, etc. and Relevant Data
Identify the variables that are critical in addressing the issue(s). Gather and present the relevant data on the variables by searching the DeVry Online Library or scholarly (peer reviewed) articles. Ask a librarian for help if needed. Use in-text citation to report the source(s) of the data. Graphs may be included here.
4. Recommendations and Economic Justification
Formulate and present your recommendations for addressing the issue(s) based on the relevant data and economic principles identified above. Justify your recommendations in terms of the economic impact on those affected.
5. References
List the full references for at least eight sources alphabetically in APA format.
Grading Rubric
Section Points earned Points Description
Paper Presentation
10 Good format, citations, lack of spelling errors, etc.; correct Title page and Reference pages
Relevant Data: Demand: 70 points
Supply: 110 points
180
Demand Determinants and research data (40 points)
Price Elasticity of Demand (20 points)
Graph of Demand (10 points)
Supply Determinants and research data (40 points + Profit Max/Cost of Production analysis = 40 points for total of 80 points)
Price Elasticity of Supply (20 points)
Supply graph (10 points)
Recommendations 40
What are your recommendations explained by your analysis?
Total 230
To complete this Project you must read:
1. “$4-a-Gallon Gas Fueling Fears for Recovery” on page 196
2. CHAPTER 6 Elasticity: The Responsiveness of Demand and Supply
Note: Use current statistical data. Do Not copy and paste charts and graphs from readings.