Chevrolet Corvette

1. Chevrolet Corvette

2. Group 17 Erica Gray Zach Gray Nate Hopkins Mike Howley

3. Corvette’s Market • Price starts at $44,000 for 2004 Corvette • Largest market is middle aged men • Buyers are in the upper middle class of the economy • The Corvette is in an Oligopoly because the market composed of a few firms producing a homogeneous product

4. Corvette History • The Corvette was first designed in 1951 • It has gone through many makes and models not only in the body but in the engine • The Corvette has been Chevrolet’s marquis sports car for a half century

5. Factors Of Production • Land • Labor • Capital • Physical Capital • Human Capital • Entrepreneurial Activity

6. Land The physical space at which production takes place, as well as natural resources found under or on the firm. Corvette Land Car Dealerships Manufacturing Plants Aluminum, Coal, or other resources Factors Of Production

7. Labor The time human beings spend producing goods or services Corvette Labor Car Salesmen Factory Workers Factors of Production

8. Capital Long lasting-tools people used to produce goods and services. Human Capital Skills and training for workers Physical Capital Buildings, material and Machinery Human Capital Skill for factory workers and Car Salesman Physical Capital Machinery and Tools used in factories Factors of Production

9. Entrepreneurial Activity Recognizes opportunity and then takes advantage of that opportunity Factors of Production

10. Supply Is a relationship showing the various amounts of an item that sellers are willing and able to make available for sale at various possible alternative prices, during a given period of time, Ceteris Paribus. Ceteris Paribus Factors for Supply 1. Input Prices 2. Prices of Alternative Goods 3. Technology 4. Number of Suppliers in the Market 5. Expectations of Sellers

11. Supply • When Corvette Raises the price of their cars, and all other factors remain constant, the quantity supplied of those goods will increase.

12. Supply Price • Change in Quantity Supplied • A Movement along a supply curve in response to a change in price. • Price increase– Rightward movement, increase in the Quantity Supplied. • Price decrease– Leftward movement, decrease in quantity supplied. S Quantity

13. Supply Change in Supply • A change in any Ceteris Paribus factor of supply, except price, causes a rightward or leftward shift. Sell more Corvettes -Rightward shift or an increase in supply Sell fewer Corvettes - Leftward shift or a decrease in supply S3 Price S1 S2 Quantity

14. Demand The Law of Demand states… Demand is the relationship between different amounts of an item which buyers are willing and able to purchase at various prices, during a given time period~ Ceteris Paribus

15. Quantity Demanded Price • Inverse relationship between price and demand • Graph will slope down to the right • P D ; P D • Inverse relationship between price and demand • Graph will slope down to the right • P D ; P D Demand Quantity

16. Quantity Demanded Price • Movement along the demand curve occurs in response to a change in price • When price increases, there will be a leftward movement along the demand curve • When price decreases, there will be a rightward movement along the demand curve D Quantity

17. Ceteris Paribus Factors for Demand • Besides the price, there are other factors that influence how much of an item someone is willing and able to purchase at various prices during a given period of time • What are these factors and why are they held constant?

18. Income • Do you have enough to afford a Corvette? • Prices of related goods • Is there another sports car for less? • Taste • Are Corvettes appealing to you? • Number of consumers • Are there more people willing and able to buy Corvettes? • Expectation of consumers • Corvette receives high ratings will raise expectations

19. When any of the ceteris paribus factors change, the result is a shift of the entire demand curve Price Quantity

20. Opportunity Cost • The value of the next best alternative which must be given up in order to get something. • The summation of explicit and implicit costs.

21. Explicit and Implicit Costs • Explicit Costs=The money actually paid for a choice. • Implicit Costs=The value of something sacrificed when no direct payment is made; returns to self-owned factors of production.

22. Explicit and Implicit Costs • Explicit Costs of Manufacturing a Corvette • Salary paid to labor • Expense to purchase supplies (inputs) • Depreciation expense • Property or rent expenses • Taxes

23. Explicit and Implicit Costs • Implicit Costs of Manufacturing a Corvette • The time and money that could be spent, saved, or earned on something else. • Examples: • Money that could be earned working at a Mercedes dealership. • Time that could be spent patenting a new idea.

24. Explicit and Implicit Costs • Explicit Costs of Owning a Corvette • Payments made to purchase the vehicle: Principle Cost + Interest • Insurance payments • Gas and maintenance expenses

25. Explicit and Implicit Costs • Implicit Costs of Owning a Corvette • Garage space • Any other good or service that could have been purchased with money used to purchase Corvette

26. Short Run • Corvette employs an input in order to produce and output and earn a profit • Short Run is the period in which some inputs are fixed • In the short run, Corvette could produce more Corvettes by hiring more workers

27. Long Run • Long Run is the period in which all inputs are variable • Corvette must decide what combination of inputs to use in producing any level of output • In the long run, Corvette may increase their production by building a new plant

28. Substitutes • Any good that can be used in place of another good to fulfill the same purpose. • Examples: • Mercedes-Benz sports cars • BMW sports cars

29. Substitutes • A rise in the price of a substitute increases the demand for your good.

30. Economies of Scale • Lower ATC as Quantity increases

31. Economies of Scale • Specialization and division of labor with assembly lines increases output • Corvette pays less for their raw materials than a smaller firm would

32. Economies of Scale • Large firm allows more money for research and development for more efficient running Corvettes • Better use of by-products such as burning for heat

33. Price Elasticity for Demand • Price elasticity is the percentage change in the quantity demanded divided by the percentage change in the price

34. Price Elasticity of Demand • If the price of Corvettes rises and the price of it’s competitors stays the same the quantity demanded will decrease.

35. Profit Maximization • Profits are maximized when: • Distance between total revenue and total cost is the greatest (when TR>TC) • Marginal Revenue = Marginal Cost

36. Advertising • Advertising is used by Corvette to differentiate their cars from other competitors • It informs and persuades buyers Why is advertising an important input for a firm to consider?

37. Advertising • Affects the demand • If Corvettes are more desirable, more people will demand them • The ads must reach out to the correct target market.