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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 l.jpg

Mary Weatherbee

Leigh Sulkowski

Ross Kelchner

Gary Tan


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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


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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.


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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.


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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.


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The Factors of Production

  • Land

  • Labor

  • Capital

  • Entrepreneurial Activity


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Land

  • The physical space where production occurs.

  • Starbucks owns land in 34 countries, including:

  • Austria

  • Germany

  • Japan

  • Turkey


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Labor

  • The time workers spend producing goods and services.

  • Characteristics:

  • Adaptable

  • Self-motivated

  • Passionate

  • Creative

  • Team player

  • Benefits


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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


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Entrepreneurial Activity

  • Recognizing and taking advantage of an opportunity.

  • Howard Schultz


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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)


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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


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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


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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


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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


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Complements

  • A good that is used together with some other good

  • CoffeeCream/Sugar

  • TeaScone/Muffin

  • Ground CoffeeCoffee Makers / Mugs / CD’s


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Factors of Demand

  • Input Prices

  • Number of Sellers

  • Expectation of Sellers

  • Prices of Alternate Goods

  • Technology


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Examples of Ceteris Paribus Factors of Demand

Price

D2

D1

D3

Quantity


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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


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Fixed Costs in the Short Run

Fixed Costs:

quantity remains constant, regardless of how much output is produced

  • Capital

  • Rent

  • Utilities


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Variable Costs in The Long Run

Variable Costs:

quantity can change as level of output changes

  • Labor

  • Natural Resources

  • Employees


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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


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Price Elasticity

  • Measure of how responsive quantity demanded is to price

    %Δ Quantity Demanded

    % Δ Price


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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


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Profit Maximization

  • Goal of any company

  • Key to maximizing profit

  • MC = MR

  • Marginal Cost

  • Marginal Revenue


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Profit Maximization

  • Profit = Total Revenue – Total costs

    In 2003:

    Revenues = $4,075,522,000

    Costs = $3,807,176,000

    Profit = $268,346,000


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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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ThankYou


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