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Mary Weatherbee Leigh Sulkowski Ross Kelchner Gary Tan Table of Topics Leigh 7. Factors of Demand 8. Long & Short Run Costs 9. Implicit & Explicit Costs Ross 10. Profit Maximization 11. Elasticity 12. Market Analysis Gary 1. History 2. Factors of Production

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mary weatherbee leigh sulkowski ross kelchner gary tan
Mary Weatherbee

Leigh Sulkowski

Ross Kelchner

Gary Tan

table of topics
Table of Topics

Leigh

7. Factors of Demand

8. Long & Short Run Costs

9. Implicit & Explicit Costs

Ross

10. Profit Maximization

11. Elasticity

12. Market Analysis

Gary

1. History

2. Factors of Production

3. Target Market

Mary

4. Opportunity Costs

5. Substitutes

6. Complements

starbucks history
Starbucks’ History
  • 1971 - Opens its first location.
  • 1983 - HowardSchultz travels to Italy.
  • 1985 - Schultz founds Il Giornale.
  • 1987 - Il Giornale changes its name to Starbucks Corporation. Starbucks has 17 storefronts.
starbucks history4
Starbucks’ History
  • 1993 - Begins its relationship with Barnes & Noble, Inc.
  • 1994 - Awarded ITT/Sheraton account.
  • 2001 - Begins to offer high-speed wireless internet access in stores.
  • 2004 - Now has 7,569 locations worldwide.
what is starbucks
What is Starbucks?
  • Markets primarily through company-operated retail stores.
  • Roasts high-quality coffees.
  • Also sells espresso beverages, pastries, confections, and coffee-related accessories/equipment.
  • Committed to contributing positively to the environment.
the factors of production
The Factors of Production
  • Land
  • Labor
  • Capital
  • Entrepreneurial Activity
slide7
Land
  • The physical space where production occurs.
  • Starbucks owns land in 34 countries, including:
  • Austria
  • Germany
  • Japan
  • Turkey
labor
Labor
  • The time workers spend producing goods and services.
  • Characteristics:
  • Adaptable
  • Self-motivated
  • Passionate
  • Creative
  • Team player
  • Benefits
capital
Capital
  • The tools people use to produce goods and services.
  • Physical Capital
  • Over 7,600 stores and roasting plants around the world
  • Human Capital
  • Training & Education
entrepreneurial activity
Entrepreneurial Activity
  • Recognizing and taking advantage of an opportunity.
  • Howard Schultz
opportunity costs
OPPORTUNITY COSTS

The value of the best alternative which must be given up in order to get something.

=

  • You could buy you and 4 of your friends a tall Caramel Macchiato for the price of one large Starbucks tumbler.
  • Imagine how many you could buy for the price of aStarbucks Barista Digital Italia™ Espresso Machine(price-$995)
opportunity costs12
Opportunity Costs
  • Costs of Goods sold / year = $ 2.25 Billion
  • Starbucks could Sacrifice the amount spent on buying foreign coffee makers and spend more on coffee to increase quality or flavors
  • Advertising

For starbucks

substitutes
SUBSTITUTES
  • A good that can be used in place of some other good and fulfills more or less the same purpose.
  • Substitutes for Starbucks include:
    • Seattle’s Best
    • Gloria Jean’s Coffees
    • Small, independently owned coffee shops
      • Café Bean
      • The Barista Café
substitutes14
SUBSTITUTES
  • Starbucks sells many substitutes for coffee
      • ~Tea
        • ~Non-Coffee Beverages
        • ~Bottled Drinks
  • Substitutes for cream and sugar

~ Non-fat milk ~ Equal

~ Half and Half ~ Sugar

~ Whole milk ~ Sweet n’ Low

substitution effect
Substitution Effect
  • As the price of Starbucks coffee decreases relative to the price of its substitutes, then people will substitute Starbucks for the other goods

P

The demand for Starbucks coffee will increase, or shift to the right

S

D2

D1

Q

complements
Complements
  • A good that is used together with some other good
  • Coffee Cream/Sugar
  • Tea Scone/Muffin
  • Ground Coffee Coffee Makers / Mugs / CD’s
factors of demand
Factors of Demand
  • Input Prices
  • Number of Sellers
  • Expectation of Sellers
  • Prices of Alternate Goods
  • Technology
short run long run
Short Run & Long Run

Short Run~

A time horizon over which at least one of the firm’s inputs cannot be varied

Long Run~

A time horizon long enough for a firm to vary all of it’s inputs

fixed costs in the short run
Fixed Costs in the Short Run

Fixed Costs:

quantity remains constant, regardless of how much output is produced

  • Capital
  • Rent
  • Utilities
variable costs in the long run
Variable Costs in The Long Run

Variable Costs:

quantity can change as level of output changes

  • Labor
  • Natural Resources
  • Employees
explicit cost vs implicit cost
Explicit Cost vs. Implicit Cost
  • Explicit:

money actually paid out for the use of inputs

  • Implicit:

the costs of inputs for which there is no direct money payment

slide23

Price Elasticity

  • Measure of how responsive quantity demanded is to price

%Δ Quantity Demanded

% Δ Price

slide24

Price Elasticity

  • There are three basic determinants
    • Number and closeness of substitutes
      • The fewer substitutes, the more inelastic
    • The fraction of the budget of the buyer
      • The smaller the fraction, the more inelastic
    • The period of time
      • The shorter the period of time, the more inelastic
slide25

Profit Maximization

  • Goal of any company
  • Key to maximizing profit
  • MC = MR
  • Marginal Cost
  • Marginal Revenue
slide26

Profit Maximization

  • Profit = Total Revenue – Total costs

In 2003:

Revenues = $4,075,522,000

Costs = $3,807,176,000

Profit = $268,346,000

slide27

Market Analysis

  • Value of common stock
    • 2001: 380,044,042 shares valued at $1,374,865,000
    • 2002: 388,228,592 shares valued at $1,723,189,000
    • 2003: 393,692,536 shares valued at $2,082,427,000
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