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Avocado High School
Transcript of Avocado High School
First Memo Synopsis
Faculty advisor Ronnie Johnson's first memo congratulates his students in Avocado Highs School's School-Based Enterprise (SBE) for receiving an award from the Secretary f the US Department of Education. Johnson notes the need to expand production and profits an dasks students to explain "the economics behind our prices, costs, and profits over the past two years," and to "predict revenue and profit for the next year." Students are cautioned that "venture capitalist have strong backgrounds in economics and will expect your explanations to be grounded in demand and supply."
Framing the Inquiry
What Do We Know?
We belong to a SBE
We produce and sell low-calorie avocados
Ronnie Johnson is our faculty advisor
We want profits to pay for scholarships
We got a national award from the US Secretary of Education
Our goal is to expand profit
We are the first in the market (we created it)
Increased demand for low-fat avocados increased our profit
We need money from a venture capitalist to build more facilities
Venture capitalist capitalist to build more facilities
We have one minute in an elevator to convince a venture capitalist that we're profitable
We need to write a summary before giving our elevator talk
What is the general problem you are being asked to solve?
Develop a "driving question"
A succinct declaration of the general problem your are being asked to solve. It takes the following form:
"How can we, as . . .
[the role(s) you are assuming],
do . . .
[the specific task(s) you must complete],
so that . . .
[the specific result or goal(s) to be accomplished].
Analyze the tables that accompany the memo
The memo says profits have increase dramatically with the increase in demand for avocados, the attached tables show the numerical basis for this statement.
Avocado High School's
How does the quantity of avocados sold vary with the price?
How did demand for avocados change between 2008 and 2009?
How did the demand change between 2008 and 2009 affect profit?
The information in the tables can be used in a number of ways:
Illustrate demand curve:
How the Qd for avocados varies with P;
Show growth in D for avocados between 2008 and 2009;
Describe the changes that occur over time.
Show costs vary over the course of the year
Costs fluctuate between quarters;
Why do costs (price) fluctuate between quarters?
Calculate total revenue, total cost, and profit each quarter
TR = PxQ in the sales grid;
TC = per unit cost ("cost" in the tables) x sales;
Profit = TR-TC
Three other high schools are now producing and selling similar avocados. The memo points out that, while consumers appreciate the lower prices and increased availability of avocados, the entrance of new producers into the market cause profit for the SBE at AHS to fall, even though sales are still robust.
Summary of Second Memo
The tables accompanying the second memo show the drop in prices and profits in 2010
How can we, as students at AHS, prove that
we will still turn a profit and remain competitive, if we have capital to develop method to get rid of the bug.
What you need to know:
Is their product the same?
If so how is it the same?
How is it different?
How can we market to differentiate from the competitors?
Can you afford to lower you price?
Can you trim your costs?
What is the threat the persea presents?
Can the persea be eliminated?
How are you going to make the presentation?
What Are the Characteristics of a Competitive Market?
How do firms respond to profit and losses in an industry?
What are the benefits of monopolies; What are the benefits of competition?
What happens to price, quantity, and profit when a competitive market becomes a monopoly market with a patent?
Final Project Log:
Monopolies (Imperfect Market)
Monopolies increase price and profits by decreasing output of the good. These actions are made possible because entry into the market is restricted e.g. with patents.
The incentive to create patents that block the entry of competing firms into the market is how the government stimulates innovation. Without patents, and resultant monopoly profits, less research and development, which leads to innovation, would occur.
Monopoly prices are higher and output is lower than they would be in competitive markets where free entry into the market forces prices to their lowest possible level.
Write a position paper on joining a monopoly.
Follow the guidelines in the final memo and rubric
Stay focused on the pros and cons of monopolies from an economic point of view
Do not just base your decision on the promise of a high-salaried job.
no competition/receives all profit
many buyers in market
seller controls prices
product does not have many substitutes
a lot of profit = research and development
can afford to invest in latest technology and machinery
creates incentive to develop new products
A Competition Market is one where there are:
Multiple buyers and sellers(producers/consumers).
Few restrictions on entering or leaving the market.
Homogenous products - Products that are similar to others.(Market becomes less competitive when there is more diversity between products).
Profit maximization : marginal costs=marginal revenue(most profit)
No buyers or sellers influence the price of a product.
Mobility of resources.
All consumers and producers are knowledgeable about the product.
No transaction costs during seller-buyer interactions.
Motivation to improve and develop products
Improve customer service in order to maintain a good consumer base
Encourages employees to improve
Focus on core audience/market
Can provide outside input to improve business
When an industry experiences profits it in turn leads to more suppliers entering the market which causes an increase in supply and a decrease in price.