Subject: Economics / General Economics
Question
ECON545: Project 1—Microeconomic Analysis
The Microeconomic Paper tests your ability to apply economic principles to a business decision.
Select one situation from the items outlined below: A to D. Complete the paper on the selected
situation as specified below. The completed paper is a professional report and is due in Week 3
(230 points). See the grading rubric at the end of this document. Be sure to use the DeVry library
for finding data; avoid questionable sources, such as Wikipedia.
The following is a list of the specific required information, research, graphs, and math to be
included in each answer regardless of the scenario chosen.
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.
a.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.
a.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.
Situation A
Jenny, your niece, is a smart high-school student who wants to make intelligent choices for her
future. Hearing of your course in business economics, she has e-mailed you asking for advice on
whether to become a doctor and on the best location to practice it. She recognizes the high costs
of tuition and the years of study involved in becoming a doctor. She wants to evaluate if that
career choice is an optimal decision for her, so she has asked you for advice.
Having read the piece “Fewer Physicians Move, a Sign of Career Caution” on page 20 of the
textbook, you recognize the significance of such a career decision for Jenny. You decide to
educate yourself about the market for physicians in terms of supply and demand, elasticity, costs
of production, pricing, and economic or normal profit or loss. You want to provide Jenny with
the most informed advice possible.
Situation B
Your neighbor Cindy wants to start a contracting business for installing solar panels. She has
heard of the cost savings that households and businesses can make each year by installing solar
panels on their roofs. Cindy has also heard of government incentives for installing solar panels.
Being concerned about the environment and wishing to reduce pollution, Cindy thinks installing
solar panels also serves a good social purpose. But she does not want to risk her life savings on a
venture that might not succeed or become profitable enough. After hearing from you about
taking this course in business economics, she decides to ask you for advice.
At first you are hesitant to give investment advice. Then you read the piece “US boosts ‘gamechanger’ solar technology in bid for global market share” on page 374 of the textbook. You
realize there are more pieces to the decision than Cindy is considering. You decide to research
the market in terms of supply and demand, elasticity, costs of production, pricing, and economic
or normal profit or loss. You want to provide Cindy with the most informed advice possible.
Situation C
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.
Situation D
After hearing of you taking this course in business economics, Uncle Dan has e-mailed you
asking for advice on his 100-acre corn farm. He mentioned how, after 30 years of growing corn,
he wishes to leave that commodity’s market and enter a more profitable market instead. He is
thinking of planting some organic crop. But he is not sure which crop would be most profitable.
He already knows that going organic requires changing some of his practices to qualify for the
certification. Therefore he wants to know how much it costs to become a certified organic
farmer, and which crop would be best suited for him to grow given his current equipment.
Luckily before you can find time to answer Uncle Dan’s e-mail, you read the piece on organic
farming in the United Kingdom on page 422 of the textbook. Recognizing the costs and risks for
Uncle Dan in making the switch, you decide to research the market in terms of supply and
demand, elasticity, production costs, pricing, and economic or normal profit or loss. You decide
to educate yourself about organic farming so that you can provide Uncle Dan with the most
informed advice possible.
Microeconomic Paper as a Professional Report
Your paper should be organized into five parts as listed below.
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. 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 five sources alphabetically in APA format.
Grading Rubric
Section
Points
earne
d
Points
Paper Presentation
10
Relevant Data:
Demand: 70
points
180
Supply: 110
points
Description
Good format, citations, lack of spelling errors, etc.; correct
Title page and Reference pages
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
Total
230
What are your recommendations explained by your
analysis?
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