NAME:________________________
Ec.2100-Tansey July 17, 2016
EXAM II
For each of the following Five articles, there is an underlined event that causes a shift in
demand or supply. In each of the five answer sheets provided for each article:
A.
Set up and write down the LONGEST POSSIBLE supply chain that uses ALL
BUT ONE of the markets and participants listed under the article. Each market
and participant can be used at most one time.
B.
In the market where the underlined event first has its impact, circle the letter of
the appropriate shift on the answer sheet:
"A" represents a leftward (upward) shift in supply.
"B" represents a rightward (downward) shift in supply.
"C" represents a leftward (downward) shift in demand.
"D" represents a rightward (upward) shift in demand.
C.
To indicate the vertical impacts of the initial event, place "X"'s on the answer
sheet over the appropriate letter in the rest of the markets in your supply chain based on
the rules of supply and demand transmission to vertical markets that we studied in class.
(Every market must have a shift that is circled or have an X, but no market should have
more than one circle (or “X”).
D.
On your answer sheet describe each market as monopoly, oligopoly,
monopolistic competition, perfect competition, monopsony, oligopsony,
bilateral monopoly, or bilateral oligopoly. Support your description first by
circling:
(a)
Circle the size of the market? Circle if it is international (“I”), national
(“N”), regional (“R”), statewide, or local (“L”)
(b)
Is there product differentiation? Circle “Y” if there is and “N” if there
isn’t. This determines whether there is monopolistic competition or
perfect competition for a competitive market.
(c)
How many buyers and sellers there are in the market area? Circle on the
answer sheet “m” if there are many, “f” if there are few, and “1” if there
is only one firm in the market place. Do this for both the buyers and
sellers in a market.
Article 1.
Corporate Earnings
Manufacturers May Take Cue From Alcoa
By ROBERT GUY MATTHEWS
April 5, 2008; Page A2
While the increase in commodity prices is buoying metals and mining companies worldwide, higher costs, including runaway energy prices, the weak U.S. dollar and a
slowdown in construction and consumer markets in the U.S. and Europe, are weighing
down profits.
1
On Monday, aluminum maker Alcoa Inc., one of the first of the 30 blue-chip stocks to
report first-quarter earnings, is expected to earn far less in profit on slightly less revenue
than it did in the same quarter last year. Earnings per share are expected in the 45-cent-to50-cent range, compared with 75 cents in the first quarter of 2007, according to
aluminum analysts.
The lower expected earnings come despite the fact that aluminum prices have been
climbing and are expected to increase this year because of outsize demand. China and
other developing countries still are strongly consuming aluminum.
Still, there is debate over whether commodities like aluminum are at their peak, as U.S.
automobile production is down, along with commercial construction. The aerospace
industry, another big user of aluminum, also is showing signs of slowing.
But big aluminum makers such as Rio Tinto PLC said appetite in developing countries
like China, India and Brazil is more than enough to offset softening demand elsewhere.
Construction of roads, bridges, houses and factories in those places is booming.
On the flip side, analysts said commodity prices aren't likely to climb much higher -- and
be sustained at higher levels -- because more supply is expected to come on line in
coming years.
Last year at this time, aluminum sold for about $2,800 a metric ton. Now the price is
hovering at about $2,850 a metric ton, having recovered from some dips in the second
half of last year. In the last three months, aluminum prices have climbed nearly 25%.
"UBS continues to believe that energy cost pressures and energy availability could
ultimately constrain supply growth within the aluminum market and result in higher
pricing," said analyst Brian MacArthur in a UBS research note. "Furthermore, power
challenges in key producer regions have the potential to meaningfully slow capacity
growth and potentially cause a contraction in global output."
That is good news for companies like Alcoa, which needs higher commodity prices to
offset its escalating energy and transportation costs.
Aluminum companies are huge users of energy, and the New York company will be a
bellwether for other energy-intense industrial manufacturers reporting first-quarter
earnings this month.
In the first quarter, Alcoa completed the sale of its packaging and consumer businesses
for $2.5 billion. Some of the proceeds from that sale are expected to show up in the first
quarter and boost earnings. But that may be offset by less revenue from the sales and
profits from those businesses.
Write to Robert Guy Matthews at robertguy.matthews@wsj.com
2
Markets and Participants
Airlines
Aluminum Producers
Customer
Airplanes
Aluminum
Travel Service
Labor Market
Participants
Travel Agency
Energy
Energy workers
Enegery Producers
UBS
Air service
Airplane manufacturers
Product
(m=many,f=few,1=one) Type of Market SHIFTS OF:
Differentiation SELLERS BUYERS (eg. Monopoly, SUPPLY DEMAND
competition,etc) Left Right Left Right
I=international,N=national, (Y= yes, N=no)
R=regional, L=local
Seller
Markets
Buyer
Extent: I N R L
Seller
Buyer
Extent: I N R L
Y Nm
f 1 m f 1 ___________
A B C D
Y Nm
f 1 m f 1 ___________
A B C D
Y Nm
f 1 m f 1 ___________
A B C D
Y Nm
f 1 m f 1 ___________
A B C D
Y Nm
f 1 m f 1 ___________
A B C D
Y Nm
f 1 m f 1 ___________
A B C D
Seller
Buyer
Extent: I N R L
Seller
Buyer
Extent: I N R L
Seller
Buyer
Extent: I N R L
Seller
Buyer
Extent: I N R L
Circle one for each
market
Circle One Circle
One
Circle
One
Write down
one market
Type
Circle One of the
four possibilities
3
Article 2.
GM Is Hit Hard by Parts Strike
By JEFF BENNETT
March 29, 2008; Page A10
A monthlong strike at an axle supplier will force General Motors Corp. to close a car
plant in Detroit on Monday, an indication the work stoppage may take a heavier toll on
the auto maker than previously believed.
The strike against American Axle & Manufacturing Holdings Inc. has crippled GM's
production of big pickup trucks and sport-utility vehicles, but GM has said it isn't overly
concerned because it has a large inventory of those models.
But now the impact of the strike is spreading beyond trucks. On Monday, GM will stop
production at its Detroit-Hamtramck plant, which makes Buick Lucerne and Cadillac
DTS sedans. All told, about 30 GM vehicle and components plants will have been
affected by the strike.
Earlier this month, Chief Executive Rick Wagoner had said the strike "is not a huge
issue" for GM. But the Hamtramck closure intensifies the pressure on the company as it
grapples with a slumping U.S. auto-sales market.
The more than 17,000 workers idled by GM because of the American Axle strike collect
an average 70% of their gross pay through GM layoff compensation and state
unemployment.
GM's shutdowns have also rippled through the parts-supplier industry, leading to layoffs
and other production-line shutdowns. One of the hardest-hit has been seat maker Lear
Corp., which has temporarily laid off about 1,200 of its workers.
Talks between American Axle and the United Auto Workers union continued Friday, said
American Axle spokeswoman Renee Rogers. The company contends it needs wage cuts
in the U.S. to be more competitive with rivals such as Dana Corp., which is paying its
workers less. The UAW opposes cuts.
Earlier this week, American Axle reported that it boosted Chief Executive Richard
Dauch's salary to $1.47 million in 2007 from $1.34 million in 2006, citing the company's
return to profitability.
GM notified about 1,850 hourly workers at its Detroit-Hamtramck plant Thursday that all
production, except some maintenance work, will cease, said spokesman Dan Flores. The
plant is the first car-assembly site GM has idled since 3,650 workers, represented by the
UAW, walked off the job Feb. 26.
4
Markets and Participants
GM Dealers
GM
Retail Automobiles
Auto workers
Axles
Participants
Consumers
Labor Market
American Axle and Manufacturing Holdings
Wholesale Automobiles
UAW
Product
(m=many,f=few,1=one) Type of Market SHIFTS OF:
Differentiation SELLERS BUYERS (eg. Monopoly, SUPPLY DEMAND
competition,etc) Left Right Left Right
I=international,N=national, (Y= yes, N=no)
R=regional, L=local
Seller
Markets
Buyer
Extent: I N R L
Seller
Buyer
Extent: I N R L
Y Nm
f 1 m f 1 ___________
A B C D
Y Nm
f 1 m f 1 ___________
A B C D
Y Nm
f 1 m f 1 ___________
A B C D
Y Nm
f 1 m f 1 ___________
A B C D
Y Nm
f 1 m f 1 ___________
A B C D
Y Nm
f 1 m f 1 ___________
A B C D
Seller
Buyer
Extent: I N R L
Seller
Buyer
Extent: I N R L
Seller
Buyer
Extent: I N R L
Seller
Buyer
Extent: I N R L
Circle one for each
market
Circle One Circle
One
Circle
One
Write down
one market
Type
Circle One of the
four possibilities
5
Article 3.
Kansas City Star, The (MO)
2008-04-05
Section: BUSINESS
Edition: 1
Page: C1
Food costs take a bigger bite, Missouri survey shows
VICTORIA SIZEMORE LONG, The Kansas City Star
Grocery prices for Missouri shoppers increased about 5 percent in the first three months
of this year, compared with the fourth quarter of 2007, a farm industry survey found.
According to a market basket survey by the Missouri Farm Bureau, the cost of 16 basic
food items in the state averaged $43.60 in the first quarter of 2008, up $2.26 from the
state average of $41.34 in the fourth quarter of 2007. Missouri's first-quarter average was
down $1.43 from the national first-quarter average for those same items. But Missouri's
2008 quarterly average was up $4.28 from the state's 2007 first-quarter average of
$39.32. This measure of "ag-flation" amounted to a nearly 11 percent year-over-year
increase.
The Missouri Farm Bureau participates with the American Farm Bureau Federation in the
quarterly surveys. The Kansas Farm Bureau does not. The 16 items surveyed represent a
cross section of agriculture commodities, including meats, dairy products, fruits,
vegetables, poultry and grains. Of the 16 items surveyed, 11 gained in price in the first
quarter and five declined. Items that rose in price included mayonnaise, vegetable oil and
corn oil. Foods that fell in price included a 5-pound bag of flour and a gallon of whole
milk. Surging grain and energy prices contributed to higher food prices generally over the
last year. Food prices increased nearly 5 percent in 2007, according to the U.S.
Department of Agriculture, more than overall consumer inflation.
Corn is trading near its record-high price of $5.70 a bushel, more than double the price of
two years ago. Soybeans are hovering around $12 a bushel, nearly double last year's
level. Meanwhile, U.S. farmers plan to cut back corn planting and boost soybean
production this year, a shift that could send further ripples from the farm belt to grocery
bills. Despite, these predictions, farm groups say the cost of grain is not the only factor
contributing to higher food costs. Surging transportation and packaging costs play
a large part in the rising food prices. In fact, farmers get only 22 cents out of every dollar
spent on food. "It is important to note the contribution of runaway energy prices to
the retail cost of food," said Jim Sartwelle, an economist for the American Farm Bureau
Federation. "Transportation, processing and packaging all cost significantly more now
than in prior years."
SHOPPING CART COMPARISONS
** Mayonnaise showed the largest price increase at $2.61 for 32 ounces, compared with
$1.55 in the fourth quarter of 2007.
** A gallon of whole milk showed the biggest decrease at $3.36 a gallon, compared with
$3.95 a gallon in the fourth quarter of 2007.
6
Markets and Participants
Oil
Grocery stores
Food Packaging Services
Trucking Companies
Mineral rights
Wholesale corn oil
Food Processor
Oil companies
Corn market
Participants
`
Markets
Seller
Buyer
Food Processing
American Farm Bureau Federation
Wholesalers
Food packager
farms
Customers
Retail market
Transportation services
land owners
Product
(m=many,f=few,1=one) Type of Market SHIFTS OF:
Differentiation SELLERS BUYERS (eg. Monopoly, SUPPLY DEMAND
(Y= yes, N=no)
competition,etc) Left Right Left Right
Extent: I N R L
Y Nm
f 1 m f 1 ___________
A B C D
Extent: I N R L
Y Nm
f 1 m f 1 ___________
A B C D
Extent: I N R L
Y Nm
f 1 m f 1 ___________
A B C D
Extent: I N R L
Y Nm
f 1 m f 1 ___________
A B C D
Extent: I N R L
Y Nm
f 1 m f 1 ___________
A B C D
Extent: I N R L
Y Nm
f 1 m f 1 ___________
A B C D
Extent: I N R L
Y Nm
f 1 m f 1 ___________
A B C D
Seller
Buyer
Seller
Buyer
Seller
Buyer
Seller
Buyer
Seller
Buyer
Seller
Buyer
Seller
Buyer
Y N m f 1 m f 1 ___________A B C D
Article 4.
7
Intel CEO Vows to Repair
Ailing Flash-Chip Business
By DON CLARK and RIVA RICHMOND
March 6, 2008; Page B4
SANTA CLARA, Calif. -- Intel Corp. Chief Executive Paul Otellini vowed that its foray
into a volatile segment of the memory-chip market won't drag down the company.
Speaking at a two-day analyst meeting at Intel headquarters here -- two days after issuing
a profit warning blamed on the chips known as flash memory -- Mr. Otellini said, "We
are going to fix it or make sure it is profitable one
way or another."
Mr. Otellini and other executives also disclosed new
details of plans to expand beyond Intel's core business
of microprocessors for personal computers and server
systems.
The company recently joined manufacturers that sell
chips known as NAND flash memory, which are used
to store data in portable devices including digital
cameras and music players. But pricing for those
chips has recently plunged.
In response, Mr. Otellini said by midyear Intel will
"drive into" the market for what are called solid-state
drives, which use NAND chips instead of disk drives to store data. That new market
should help provide insulation against the brutal ups and downs of the commodity parts
of the NAND market, he said. The company is also evaluating whether to moderate its
investment in NAND flash production capacity, Mr. Otellini said.
Monday, Intel reduced its gross profit margin forecast for the first quarter to 54% plus or
minus a point from 56% plus or minus a point. It said the cause was lower prices for the
NAND chips, which Intel makes in a joint venture with Micron Technology Inc.
Prices for NAND chips have been dropping rapidly because of oversupply, pressuring
industry profits. Otellini said prices have fallen in the first quarter from the fourth quarter
at a rate of 53%, about twice Intel's forecast of 27%. Prices fell 28% between the third
and fourth quarters, he said.
Mr. Otellini other executives spent most of the meeting making a case that Intel's current
business remains strong and that the company's new initiatives are gaining momentum.
…As semiconductor circuitry keeps shrinking, Intel plans to begin combining
microprocessors with other functions, creating what the industry calls a "system on a
8
chip." Besides features that Intel engineers design, Mr. Otellini said, Intel will allow other
companies to design and add sections of such multifunction chips. "This is not an area
where we have to design every module ourself," he said….
http://online.wsj.com/article/SB120475785587914887.html
Markets and Participants
Flash-based Electronics Wholesalers
Consumers
Labor Market
Mr. Otellini
Flash Memory Chip Manufacturers
Participants
Retail Electronics
Flash Drive Retailers
Flash Memory Chips
Wholesale Electronics
PC market
Product
(m=many,f=few,1=one) Type of Market SHIFTS OF:
Differentiation SELLERS BUYERS (eg. Monopoly, SUPPLY DEMAND
competition,etc) Left Right Left Right
I=international,N=national, (Y= yes, N=no)
R=regional, L=local
Seller
Markets
Buyer
Extent: I N R L
Seller
Buyer
Extent: I N R L
Y Nm
f 1 m f 1 ___________
A B C D
Y Nm
f 1 m f 1 ___________
A B C D
Y Nm
f 1 m f 1 ___________
A B C D
Y Nm
f 1 m f 1 ___________
A B C D
Y Nm
f 1 m f 1 ___________
A B C D
Y Nm
f 1 m f 1 ___________
A B C D
Seller
Buyer
Extent: I N R L
Seller
Buyer
Extent: I N R L
Seller
Buyer
Extent: I N R L
Seller
Buyer
Extent: I N R L
Circle one for each
market
Circle One Circle
One
Circle
One
Write down
one market
Type
Circle One of the
four possibilities
Article 5.
Tokyo Steel Stops Exports Amid Rising Scrap Prices
Associated Press
9
April 4, 2008 6:38 a.m.
TOKYO -- Tokyo Steel Manufacturing Co. has stopped all exports because soaring steel
scrap prices and the strong yen are making such contracts unprofitable, a company
spokesman said Friday.
Japan's top maker of steel girders has ceased signing any new contracts from February,
said Nobuaki Nara.
Exports, mostly to South Korea and Southeast Asia, made up about 20% of the Tokyobased manufacturer's sales, Mr. Nara said. He added that exports may be resumed if they
start to produce a profit.
After several years of moderate growth, Japan's economy is at risk of falling into
recession amid the global credit crisis, soaring commodity prices and a rising
yen.
Prices of raw materials, including steel scrap, have surged in recent months. And the
dollar in March dropped below ¥100 for the first time since 1995. Although it has
recovered and was trading above ¥102 Friday, that is well below levels of around ¥120 at
the start of 2007.
A strong yen hurts Japanese companies by eroding the value of any overseas earnings
when repatriated and converted into the domestic currency.
Shares of Tokyo Steel dropped 2.7% in Tokyo. Shares in other steelmakers also ended
lower, with Nippon Steel Corp. falling 2.4% and JFE Holdings Inc. losing 3.1%.
Copyright © 2008 Associated Press
Markets and Participants
Steel girders
Scrap mongers
Buildings
Steel scrap
Labor Market
Associated Press
Construction companies
Steel scrap businesses
Consumers
Steel companies
10
Participants
Product
(m=many,f=few,1=one) Type of Market SHIFTS OF:
Differentiation SELLERS BUYERS (eg. Monopoly, SUPPLY DEMAND
competition,etc) Left Right Left Right
I=international,N=national, (Y= yes, N=no)
R=regional, L=local
Seller
Markets
Buyer
Extent: I N R L
Seller
Buyer
Extent: I N R L
Y Nm
f 1 m f 1 ___________
A B C D
Y Nm
f 1 m f 1 ___________
A B C D
Y Nm
f 1 m f 1 ___________
A B C D
Y Nm
f 1 m f 1 ___________
A B C D
Y Nm
f 1 m f 1 ___________
A B C D
Y Nm
f 1 m f 1 ___________
A B C D
Seller
Buyer
Extent: I N R L
Seller
Buyer
Extent: I N R L
Seller
Buyer
Extent: I N R L
Seller
Buyer
Extent: I N R L
Circle One Circle
One
Circle one for each
market
Circle
One
Write down
one market
Type
Circle One of the
four possibilities
II. (40 points)
Following is a production table showing how many pairs of jeans
can be produced with sewing machines (vertical axis) and labor (horizontal) axis:
Labor
Sewing Machines
0
2
4
6
A.
B.
0
2
4
6
0 10.0 16.0
20.0
0 20.0 32.0
36.0
0 36.0 50.0
60.0
0 40.0 60.0 80.0
What is the marginal physical product of 4 units of labor when there are two
sewing
machines?
(Show
how
you
get
your
answer):__________________________
What is the marginal physical product of 6 sewing machines when there are 4 units
of labor? (Show how you get your answer):__________________________
C. Suppose a unit of labor cost $2 and each sewing machine costs $3 to use. In the
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following table, show the cost of using different combinations of sewing machines
and labor:
Labor
0
Sewing Machines
2
4
6
0
2
4
6
D. Suppose fixed costs are $20.00. Fill in the blanks of the following table based on the
above two tables of information and the fixed cost (you don’t have to make the final
numeric calculation but just show what computations with what numbers would
have to be made):
Jea
n
output
0
Total
Variabl
e
Cost
Fixed
Cost
Tota
l
Cost
Average
Tota
l
Cost
Average
Variable
Cost
Average
Fixed
Cost
Mar- Pri
gina ce
l
Cost
20
$4
$3
36
$2
60
$1
80
$.5
Total
Revenue
Mar
-ginal
ReVenue
Note: the prices are given to you so that you can finish the rest of the table?
E. Graph the Demand, marginal revenue, average total cost, average variable cost, and
average fixed cost in the following graph. Make sure you label each axes:
12
Profit
yaxis:
____
____
x-axis:________________________
F. If this a graph of a firm in long run equilibrium which of the following markets is
most likely represented (circle only one):
(a) Natural Monopoly
(b) Monopoly
(c) Oligopoly
(d) Monopolistic Competition
(e) Perfect Competition..
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