Microeconomics Portfolio Project

Charmaine Wooden Bryant & Stratton College ECON325 - Microeconomics Dr. Cliff Musimenta September 12, 2023

ECON325 Microeconomics Portfolio Project 2 Table of Contents Week 2: Product .............................................................................................................................. Market Research .................................................................................................................. Week 3: Pricing ................................................................................................................................ Determinants of Supply and Demand ............................................................................. Week 4: Economic Costs ................................................................................................................ Week 5: Explicit/Implicit Costs .................................................................................................... Week 6:Economic Profits ............................................................................................................... Week 7: Overall Assessment ......................................................................................................... References ........................................................................................................................................

ECON325 Microeconomics Portfolio Project 4 1. Measure consumer demand: Surveys, focus groups, and interviews are some of the most used methods to measure consumer demand. These methods can help businesses understand what consumers want, how much they are willing to pay, and what factors influence their purchasing decisions. 2. Identify trends: Trend analysis can be done by analyzing sales data, social media trends, and industry reports. Businesses can also use tools like Google Trends to track the search volume for specific keywords over time. 3. Analyze buyer behavior: Buyer behavior can be analyzed by conducting surveys, focus groups, and interviews. These methods can help businesses understand why consumers make certain purchasing decisions and what factors influence their behavior. 4. Analyze competitor behavior: Competitive analysis involves studying the strengths and weaknesses of competitors in the market. This can be done by analyzing their marketing strategies, pricing strategies, product offerings, and customer reviews. 5. Identify target markets: Identifying target markets involves analyzing demographic data to determine which groups of people are most likely to purchase a particular product or service. This can be done by conducting surveys or analyzing sales data. 6. Determine sales potential: Sales potential can be determined by analyzing market size, competition, and consumer demand. This can be done by conducting surveys or analyzing sales data.

ECON325 Microeconomics Portfolio Project 5 ECON325 Portfolio Project Grading Rubric Week 2 Product and Market Research Criteria 100 points 80 points 50 points 0 points Product & Market Research Fully described and justified product and market research. Thoroughly supported the plan for the six defined segments. No mechanical errors. Described product and market research. Mentioned the plan for 4-5 defined segments. 3-5 mechanical errors. Selected product and/or mentioned market research. Mentioned the plan for 1-3 defined segments. 5+ mechanical errors. No product selected or mentioned market research. Did not address the plan for any defined segments. Mechanical errors made submission unreadable. Week 3: Pricing  Due by the end of Week 3 at 11:59 pm, ET. The idea behind this week’s assignment is to research where your product fits in the current market and how your price point will affect that market. Using the chart below, to create a broad list of determinates for supply and demand. An example of each (determinates of supply/demand) have been provided to get you started. Next, explain your strategy for pricing your product. Include how the price of your product compares to that of similar products on the market, and why you believe your product will be more successful than the competition. For instance, if the price of a new recently-launched candy bar is lower than a competitor candy bar, will demand or quantity demanded change? Explain and use research to back up your choices. HELPFUL HINT: As you work through the remaining weeks of the project, you will want to keep a close eye on each of the determinates that affect your products’ supply and demand. In the chart below list the determinants that will affect your product. Remember determinates of demand are any factor that creates fluctuations in demand for your product and determinates of supply are any factors that causes your supply to shift. You will find an example of each to start you off: Determinates of Supply Determinates of Demand 1 Taxes 1 Expectation 2 Production Costs 2 Price 3 Technology 3 Consumer Preferences 4 Government Regulations 4 Income 5 Number of Suppliers 5 Availability Next, explain your strategy for pricing your product in the area below. Include how the price of your product compares to that of similar products on the market, and why you believe your product will be more successful than the competition. For instance, if the price of a new recently-launched candy bar is lower than a competitor candy bar, will demand or quantity demanded change? Explain and use research to back up your choices.

ECON325 Microeconomics Portfolio Project 7 innovative designs and user-friendly interfaces. Additionally, Apple’s ecosystem of products and services, such as iCloud and the App Store, may contribute to customer satisfaction and loyalty. ECON325 Portfolio Project Grading Rubric Week 3 Pricing Criteri a 100 points 80 points 50 points 0 points Fully described and Described product pricing. Discussed price comparison and/or supply and demand affect. No research used as required. 3-5 mechanical errors. Product price given, but no description or justification. Price comparison and/or supply and demand affect missing. No research used as required. 5+ mechanical errors. No price, justified product description, or pricing. Presented justification strong price provided. Did not Pricing comparison and address the supply supply and demand and demand affect. affect. Research used Mechanical errors as required. No made submission mechanical errors. unreadable. Week 4: Explicit/Implicit Costs  Due by the end of Week 4 at 11:59 pm, ET. As you learned, explicit cost is known as the company’s out-of-pocket costs (i.e. wages, rent, etc.) and are payments that are actually made. Implicit costs are commonly known as costs that are belonging to the owner of the company (i.e. capital and inventory) and are resources and could already be put toward some other use. For this week’s entry, define your product’s explicit and implicit costs. Identify if there are any hurdles that jump out at you. How might you prepare to mitigate these obstacles? Explain and use research to back up your choices. Type your strategy below; you may leave all directions intact: The pink iPad is a new product from Apple that has a 10.9-inch display and comes in a vibrant and vivid pink color. To define the explicit and implicit costs of the pink iPad, we need to consider the following: Explicit costs are the out-of-pocket costs that Apple incurs to produce and sell the pink iPad. These include the payments for wages and salaries, rent, materials, utilities, marketing, taxes, etc. These costs are recorded on Apple’s balance sheet and affect its accounting profit. Implicit costs are the opportunity costs that Apple faces by choosing to produce and sell the pink iPad instead of some other alternative. These include the forgone revenues from selling other products, the forgone interest from investing in other projects, the depreciation of assets, etc. These costs are not recorded on Apple’s balance sheet but affect its economic profit. Some of the hurdles that might jump out at me when defining the explicit and implicit costs of the pink iPad are:

ECON325 Microeconomics Portfolio Project 8 The difficulty of estimating the implicit costs, especially the opportunity costs of using Apple’s resources for the pink iPad. For example, how much revenue would Apple have earned if it had used its production capacity, labor force, or capital for another product or project? How much value would Apple’s assets have retained if it had not used them for the pink iPad? The uncertainty of the demand and price elasticity of the pink iPad. How many consumers are willing and able to buy the pink iPad at a given price? How sensitive are they to changes in price, income, or preferences? How does the pink iPad compare to its competitors in terms of quality, features, or brand loyalty? The variability of the explicit costs over time and across different markets. How do the costs of production, distribution, or marketing change depend on the quantity, location, or season? How do exchange rates, tariffs, or taxes affect the costs of selling the pink iPad in different countries? To prepare to mitigate these obstacles, I might use some of the following methods: Conduct market research and analysis to gather data and information about the potential customers, competitors, and trends of the pink iPad. Use surveys, focus groups, interviews, or experiments to test consumer preferences, behavior, and feedback. Use historical data, statistical models, or simulations to forecast demand and price elasticity. Use cost accounting and financial analysis to measure and monitor the explicit costs of the pink iPad. Use standard costing, variance analysis, or budgeting to compare actual costs with planned or expected costs. Use break-even analysis, contribution margin analysis, or return on investment analysis to evaluate profitability and performance. Use economic analysis and decision-making tools to estimate and compare the implicit costs of the pink iPad with other alternatives. Use marginal analysis, cost-benefit analysis, or net present value analysis to assess the incremental benefits and costs of producing and selling the pink iPad versus other options.

ECON325 Microeconomics Portfolio Project 10 The total cost is the sum of all the expenses that Apple will incur to produce and sell the Pink iPad. This includes the cost of materials, labor, marketing, research and development, and other overheads. According to one source, the average cost of producing an iPad in 2020 was about $284 . Assuming that ⁶ the cost will increase by 10% in 2024 due to inflation and other factors, we can estimate that the average cost of producing a Pink iPad will be about $312. The opportunity cost is the value of the next best alternative that Apple will give up by producing and selling the Pink iPad. This could be the profit that Apple could earn by investing in other products or projects instead of the Pink iPad. One way to measure this is by using the weighted average cost of capital (WACC), which is the minimum return that Apple expects from its investments. According to one source, Apple's WACC in 2020 was about 7.8%. Assuming that it will remain constant in 2024, we can use this as the opportunity cost rate. To calculate the expected economic profit of the Pink iPad, we need to subtract the total cost and the opportunity cost from the total revenue. However, since we do not know how many units of Pink iPad Apple will sell in 2024, we cannot compute an exact figure. Instead, we can use a breakeven analysis to find out how many units Apple needs to sell to make zero economic profit. This means that Apple needs to sell at least 0.049 million units of Pink iPad in 2024 to break even. This is equivalent to 49,000 units. If Apple sells more than this amount, it will make a positive economic profit. If it sells less than this amount, it will make a negative economic profit. The Pink iPad is a solid product that your senior leadership team should select to move forward producing because it has several advantages over other iPads and competitors' products. Some of these advantages are: - The Pink iPad has a unique color that appeals to a niche market segment of customers who prefer pink products. This can help Apple differentiate itself from other tablet makers and create a loyal customer base. - The Pink iPad has all the features and functions of the latest iPad Pro model, such as the M2 chip, Wi- Fi6E support, and Apple Pencil compatibility. This makes it a powerful and versatile device that can handle various tasks and applications. - The Pink iPad has a high profit margin potential, as it has a relatively low production cost compared to its selling price. Based on our estimates, the average cost per unit is $312, while the average price per unit is $799. This means that Apple can earn a gross profit of $487 per unit, which is about 61% of the selling price. - The Pink iPad has a strong growth potential, as it can tap into the increasing demand for iPads in general and for pink products in particular. Based on our projections, the iPad revenue will grow by 12% in 2024, which is higher than the overall tablet market growth rate of 9%. Moreover, according to one study, pink products have a higher perceived value and attractiveness than other colors. This means that customers may be willing to pay more for pink products or buy them more frequently. Therefore, based on these reasons, I think that the Pink iPad is a good product idea that can generate a positive economic profit for Apple in 2024. However, to ensure its success, Apple also needs to consider other factors, such as the marketing strategy, the target market, the distribution channels, and the competitive response. Criteria 100 points 80 points 50 points 0 points

ECON325 Microeconomics Portfolio Project 11 Economic Profits Fully and correctly calculated expected economic profit. Strong, fact-based explanation provided for senior leadership team. No mechanical errors. Expected economic profit calculated but did not fully integrate all aspects required. Explanation provided for senior leadership team but needs work. 3-5 mechanical errors. Economic profit not calculated correctly and/or explanation not provided. 5+ mechanical errors. Neither economic profit was calculated, nor explanation provided. Mechanical errors made submission unreadable. Week 6: Overall Assessment  Due by the end of Week 6 at 11:59 pm, ET. This week, you will present your final assessment of your research over the past several weeks. In essay form below, reflect on previous weeks and review what your results were. Explain the strategies you will use during your meeting with senior leadership to ensure you product will be selected for production. Be specific and tell us how you will persuade the team! Make sure to focus on research and the concepts of supply, demand, and price. Type your response below; you may leave all directions intact: To ensure that the pink iPad is selected for production, I would present the senior leadership team with research that shows the demand for pink-colored electronics. According to Statistic, in 2021, iPads generated over 31.8 billion U.S. dollars in revenue, accounting for over nine percent of Apple's total global revenue. This indicates that there is a significant demand for iPads in general. I would then present research that shows the demand for pink-colored electronics. While I could not find specific data on the demand for pink iPads, Statistic reports that Apple's shipments of iPads fluctuated over the years, peaking in the fourth quarter of 2013 at 26 million devices. This suggests that there is a significant market for iPads and that there is likely a market for pink-colored iPads as well. Next, I would discuss the concept of supply and how producing pink iPads could help meet consumer demand. By producing pink iPads, we could potentially tap into a new market segment and increase our overall sales. Additionally, we could use price differentiation to our advantage by pricing pink iPads slightly higher than other colors to reflect their uniqueness and desirability. Finally, I would emphasize the importance of staying ahead of our competitors by offering unique products that cater to consumer preferences. By producing pink iPads, we can differentiate ourselves from other tablet manufacturers and potentially gain a competitive advantage. In summary, I would use research to demonstrate the demand for pink-colored electronics and how producing pink iPads could help meet this demand. I would also discuss the concepts of supply, demand, and price differentiation to

ECON325 Microeconomics Portfolio Project 13 References This section is for external references used throughout the paper. Must adhere to APA formatting.