MBA 5010 Week 6 Assignment Rolando Guerra

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Apr 3, 2024

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MBA 5010 Week 6 Assignment (Rev 2) The weekly assignments are intended to be completed individually. It is important in an online program that you pay careful attention to when it is and is not appropriate to work with peers. Misunderstandings can have significant consequences. By submitting this assignment, you are attesting that you completed this work without assistance from another current or former student of this class. Exceptions can be made for tutors, but only with prior consent from your instructor. Your answer will be evaluated based on correctness, completeness, and clarity. Be attentive to your writing. You have until midnight CST Sunday to submit both parts of this assignment. Part A (25 Points) Joe’s Plain-o Bikes makes and sells a single model of a basic single speed bike. Joe sells the bike to low-end bike shops for $75. They in turn retail the bike for $150. Joe’s cost of making each bike is $25 and his overhead averages out to around another $25. Answer the following: Question 1 – What is Joe’s profit (or margin) per bike? Joe’s profit or margin per bike can be calculated by subtracting the cost of making each bike and his overhead expenses from the selling price to low-end bike shops, therefore Joe’s profit is $25. Question 2 – What is Joe’s producer surplus per bike? Producer surplus is the difference between the price at which a producer is willing to sell a good and the actual price. In this case, Joe is willing to sell the bike to low-end shops for $75, but they retail for $150, so Joe’s producer surplus per bike is $75. Question 3 – What happens to consumer and producer surplus if he lowers the price to zero? If Joe lowers the price to zero, consumer surplus would increase, but producer surplus would decrease. The consumer surplus would increase because more people would be able to afford the bike, and the producer surplus would decrease because Joe would not be making any profit. The bus service the Meanwells began is the only one in their small city. We’ll also assume there’s no other alternative form of public transportation.

Question 4 - For each of the determinants of elasticity, speak directly to its impact on the price sensitivity of the bus service. Proportion of budget : if the bus service keeps its price at $5, it will allow them to keep the business operating. They may lose customers but at that price, they can cover their costs and continue to provide value. Availability of substitutes : If there are no other alternative forms of public transportation, the demand for the bus service will be less elastic because consumers have no other options. Therefore, the price sensitivity of the bus service will be low. Necessity or Luxury: If the bus service is a necessity for the consumers, they will be less sensitive to price changes. Therefore, the price sensitivity of the bus service will be low. Time Frame: if the time frame is short, the demand for the bus service will be less elastic because consumers have no time to find alternatives. Therefore, the price sensitivity of the bus service will be low. Question 5 – Outline one proactive step the Meanwells might take to reduce the price sensitivity of their bus service so they can increase the price charged? One step the Meanwells might take to reduce the price sensitivity of their bus service is to offer additional services to augment their transportation service. For example, they could offer free Wi-Fi on the bus, or they could offer a loyalty program that rewards frequent riders with discounts or other perks. By offering additional services, the Meanwells can create a unique value proposition for their customers. The Meanwells will need to consider the cost of providing these additional services and ensure that they are financially viable. Part B (25 points) This week you are to complete a FINAL response to the following questions. The class will be divided into groups so you and your peers may collaborate on Part B of this assignment. This final response will be evaluated on content as well as completeness and clarity. In week 1, we analyzed the sharing economy. This week, you’re going to build on the knowledge you gained. Your assignment is to deconstruct the economics underlying AirBnB. Specifically, I want you to answer the following questions:  What resources are being shared?  What is the opportunity cost of the resources “consumed” to facilitate this sharing?  How does this create value for customers?  Does the value created for customers outweigh the opportunity cost of the resources consumed?

 Does AirBnB capture a sufficient amount of any value generated to remain a viable business? The purpose of this question is to provide you an opportunity to demonstrate your understanding of the economics of value creation. So, emphasize this aspect of your answer. Shoot for 500 words, although no one is going to count so long as you’re close. Airbnb is a platform that enables people to rent out their homes, apartments, or rooms to travelers. The resources being shared are the living spaces of the hosts , either partially or entirely . Airbnb provides the platform for hosts to list their properties and for guests to search and book these properties. The opportunity cost of the resources being used to facilitate this transaction is the foregone income the hosts could have earned by renting out their property through some other means or by using the property themselves. Airbnb creates value for customers by providing them with affordable and flexible lodging options that aren’t available through traditional hotels. Customers can choose from a wide range of properties that suit their needs and preferences, such as price, amenities, and style. Airbnb also provides a personalized and authentic travel experience by allowing customers to interact with local hosts and communities. Customers looking for a more bespoke traveling experience or a unique living experience can see value in Airbnb. Whether the value created for customers outweighs the opportunity cost of the resources consumed is a matter of debate. Some argue that Airbnb has disrupted the hotel industry by providing a more affordable and flexible alternative to traditional hotels, while others argue that Airbnb has contributed to the housing crisis by reducing the supply of long-term rental units and driving up housing prices in some cities. (Reinhold, 2021) . Housing prices could theoretically rise if a small subset of consumers purchase houses solely for the purpose of turning it into a year-round Airbnb location. Airbnb captures enough value generated to remain a viable business by charging a service fee to both guests and hosts. The service fee is usually a percentage of the booking subtotal and varies on the length of the stay and other factors. (CMU, 2021) Airbnb also generates revenue by offering additional services such as cleaning, photography, and property management to hosts for a fee. Airbnb’s business model has been successful so far, but it faces challenges such as regulatory issues from legislators and lobbying from competitors, and competition from other platforms seeking to capture more market share. Works Cited University, C. M. (2021). Study finds airbnb units expand market but reduce long-term rentals, including affordable housing - tepper school of business - carnegie Mellon University . Study Finds Airbnb Units Expand Market But Reduce Long-Term Rentals, Including Affordable Housing - Tepper School of Business - Carnegie Mellon University.

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https://www.cmu.edu/tepper/news/stories/2021/september/airbnb-market- expansion.html Reinhold, S. and Dolnicar, S. (2021) The evolution of Airbnb’s business model, in S. Dolnicar (Ed.) Airbnb before, during and after COVID-19 , University of Queensland DOI: https://doi.org/10.6084/m9.figshare.14195957

MBA 5010 Week 6 Assignment Rolando Guerra

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