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requirement in docs General Information and Project Requirements As I mentioned in the class, the course project for our class is designed to be submitted in lieu of a term paper. Please read the following instruction extremely carefully and follow the guidelines exactly, in order to receive full credit. My expectation is that you work on the project diligently and present it as if you are presenting it to the upper management of your company or potential investors for your product. This will allow you to learn the art of presenting your research in a professional and presentable manner. As such, I do assign points to the elegance and clarity of your presentation. As a manager in your prestigious business, you should also carefully read this project and its instructions, as if assigned to you by the upper management of the company and be sure you understand what is being asked of you. For example, even though you are encouraged to use formulas and show your mathematical work, your final paper should NOT be a series of formulas and equation as if you are submitting a math problem. In order to get credit for the presentation, be sure to explain your math in clear and concise English language. You are allowed to work on this project with a partner. THIS IS NOT MANDATORY. If you choose a partner, you will work on the project together and submit the exact same project with both of your names as authors. Both partners must upload the same project under their own name on Blackboard. All submissions should be electronic. I don’t accept paper copies. You should submit your work on Blackboard in the form of a Microsoft Word. Please avoid sending your work in PDF, Page, or other formats, none of which will be accepted. University computers have MS Word and you should be able to convert files to Word. I DO NOT ACCEPT OTHER FORMATS. If you have any question about how to submit your project electronically, please contact me prior to the due date. Technical failure to submit your project electronically will not be accepted as reason for late or no submission. Please do NOT take a photo of your presentation and post it. Also your paper should not be hand-written as you would not make a presentation to your professional organization in your handwriting. Be sure to answer each section of the assignment clearly and in the same sequence shown in the project description. Your answers should include the Question Number and, when applicable, its section number. For example, do NOT answer section 1, after having answered section 4, and then followed by section 2! Please clearly mark each section and please don’t expect me to guess what section your answers belong to. If your answer is not placed within the pertinent and identifiable section, it will NOT receive any credit. Moreover, your answers should contain explanation of what you are doing and why. A simple yes or no answer, or simply providing the numerical answer without any explanation will not be sufficient. This is NOT a math problem and your detailed work should be shown with explanation. This means for every major calculation or formulation, you should show and explain your work. Remember, you are presenting this to the VP or other officers of your company, who may not understand technical terms and expect you to explain unfamiliar terms. Your presentation should follow APA, or other standard, formats. Information on this format can be learned from the following YouTube video: https://www.youtube.com/watch?v=8u47x2dvQHs With this introduction, please proceed to read the Project Description. https://www.youtube.com/watch?v=8u47x2dvQHs Economic 380 Course Project This is your course project, and it is based on what we covered in Chapter 2. You will do well to review that chapter and lecture notes for Chapter 2. It would be great to review recorded lecture for Chapter 2 as well. Your assignment is to create a product (a real or an imaginary product, a new or a product competing with an existing one) for your business and construct an inverse demand equation for this product. This demand function is supposed to help you arrive at a pricing strategy that benefits your business. In other words, the purpose of this project is to find an optimal price for your product. For this project, you should start with a general and brief description of your product and its characteristics. You are considered to be “the” expert for your product and know the market very well. In order to construct the inverse demand for your product, please follow the following explanation very carefully. As you recall, we discussed the “inverse demand equation” of the functional form: 𝑃𝑃 = 𝑎𝑎 − 𝑏𝑏 𝑄𝑄 Where P is the price of the product and Q is quantity demanded. There are two parameters in this equation: the intercept “a”, and the slope “b”, with which you are now very familiar. If you don’t remember what these are, please refer to lecture notes and refresh your memory. The assignment is asking that you to use this form of the demand function [not the direct demand equation] to estimate the demand for your product. To construct the demand for your product, you must come up with your best guess/estimate of “a” and “b”. Your estimate should not be a random number or an arbitrary number. Being the expert for your product, your estimate of the intercept “a”, and the slope “b” should make economic sense and be consistent with the nature of your product. You must show the reason(s) why you have chosen a specific value for “a” and “b” for your product because if these estimates are not reasonable, the demand equation you will construct will be meaningless. Simply picking a number as your best guess, without giving an economic justification is NOT sufficient. In addition, you must present an interpretation of what these parameters mean as it relates to your product and why it would make sense for your market. Once you show a reasonable estimate for a and b, you must specifically and clearly show the inverse demand equation with your estimate of parameters of “a” and “b” in your equation. Please do not leave me guessing what your equation is! Based on this general overview, the assignment requires answering the following questions. The format of your presentation should be based on the description given in the document titled “General Information and Requirements for Assignments.pdf”. Briefly, your submission must be highly professional and well-written. Following the instructions described in that document is extremely important and your grade will be based on presenting your project using this format. Finally, Please write up the questions as shown below and then provide your answers right under it with a different font color, so that I know what question you are answering. If you choose to skip a question (which I don’t recommend), simply write the question anyway, and leave the answer part blank. Please strictly adhere to this format. 1. (10 Points) Describe your product and its characteristics (What is it, how is it used, what is the competitive landscape for your product, what are the current market prices, etc.). I emphasize that you are the one who knows the most about your product. Therefore, if any description or estimation does not conform to common sense, it indicates that you are not familiar with your product and with the assignment. Your estimation of the demand parameters should be based on this description. Your professional presentation style is also graded here. 2. (10 Points) As the manager of your product, you are in the best position to provide a best professional guess for intercept “a”, and slope “b”. In two separate paragraphs, describe the process by which you estimated intercept “a”, and slope “b” (one paragraph for “a” and another paragraph for “b”). This description crucially depends on fully understanding what these parameters mean and imply. Feel free to interpret and describe them for your product. Simply stating that the numbers are the intercept and slope will not give you any credit. Feel free to round the number so that you can work with it easily and that your calculations don’t get overly complicated. Once you have specified these parameters, please be sure to explicitly write your equation. 3. (45 Points) This question has five sections. Each section asks you to calculate a set of numbers based on the following description. Specify a range of prices along the demand curve for your product which must include several high and several low prices. These prices do not necessarily imply that you would sell your product at those prices. They are simply to give you insight on what your demand would look like with high or low prices. Obviously, you can sell your product for any price you want. However, you are asked to come up with “a range of possible prices” for your product to verify the reasonability of your demand equation. I strongly suggest you choose three high prices (in the elastic region of your demand) and three low prices (in the inelastic region, and one in-between). You should identify at least 7 price points. Enter these price points in column 1 of the table provided below. Please enter the information asked in the table below (after subsection e). PLEASE DO NOT SHOW THE TABLE AFTER EACH SUBSECTION BELOW. ALL INFORMATION SHOULD BE IN ONE TABLE RIGHT BEFORE YOU ANSWER QUESTION 4. Please do NOT take a picture of the Table. Simply copy the blank table from this file and paste it into your project and fill it out. a. (10 Points) For each price point, calculate the quantity demanded at that price based on your demand equation. You should clearly show how this calculation was done mathematically for at least one price. Input this quantity in column 2 of the table below. You need NOT show derivation of this quantity in the table. b. (10 Points) For every pair of price and quantity (question 3 and 3a), calculate the point price elasticity of demand at that point (this is not an arc elasticity). As in in section C(a), you should show your work for at least one calculation, but include all the results in the table below. Write down these elasticities accurately in column 3 of the table below. c. (10 Points) Investigate the price-quantity combination at which the point price elasticity of demand for your product is -1? It is not sufficient to simply report such a price and quantity, nor would it be sufficient to plug in different prices and quantities until you get the answer where the point price elasticity is -1. You should show an algebraic derivation and explanation of your work to indicate how you arrived at this price and quantity. If this combination happened to exist in one of your choices below, you should still show mathematical proof of how these numbers can be algebraically derived, as if you didn’t know what they were. d. (5 Points) Derive the revenue equation and calculate the revenue obtained at each price and report it in column 4 of the table below. e. (5 Points) Derive the marginal revenue equation and calculate the marginal revenue obtained at each price and report it in column 5 of the table below. 1 2 3 4 5 Price Quantity Elasticity Revenue Marginal Revenue Price 1 (a High price) Price 2 Price 3 Price 4 Price 5 Price 6 Price 7 (a low price) It is important to complete this table with the numbers you calculated in sections 3a-3e. 4. This section has two parts asking you to draw some graphs. Using Excel significantly facilitates these drawings, but you could also draw them on a professional graph paper and include a high resolution scan of your work. Be sure your graphs are labeled and titled. a. (5 Points) Using the equation of your demand, please draw the demand curve for your product with the price on the vertical axis and quantity on the horizontal axis. Also draw the marginal revenue curve on the same graph. Be sure to properly label each graphs. You are asked to draw the demand and marginal revenue curves for your product in its entirety (not only a segment of it). b. (5 Points) On a separate graph, draw the revenue curve in its entirety (you obtained the equation in part 4d above). This graph should be drawn below the graph in part 4a so that you can show a link between them. 5. (30 Points) Now you are ready to present the results of your project to your company executives (or investors). For this part, you may assume your costs are all fixed. (See the subsections in the next page): a. (10 Points) What conclusions do you draw based on the table and the graphs you created in questions 3 and 4? Specifically, how do you present the relationship between pricing, sale (i.e. quantity demanded), and revenue? Fully Explain these relationships to the management of your company. b. (10 Points) Specifically, what are the important conclusions you would definitely point out to these company officers about your i. pricing strategy, ii. revenue stream, iii. price elasticity of demand. c. (10 Points) Now, provide an approximate estimate of your fixed costs. Reproduce the graph in part 4b here but add a drawing of your fixed cost along with the revenue curve. In what way, if any, would your answers to the three segments of question 5b change?