## Course project

Very Important Information about the Format of Your Assignment

As I mentioned in the class, the course project for our class is designed to be submitted in lieu of

a term paper. Please read the following instruction extremely carefully and follow the guidelines

exactly, in order to receive full credit.

My expectation is that you work on the project diligently and present it as if you are presenting it

to the upper management of your company or potential investors for your product. This will

allow you to learn the art of presenting your research in a professional and presentable manner.

As such, I do assign points to the elegance and clarity of your presentation. As a manager in

your prestigious business, you should also carefully read this project and its instructions, as if

assigned to you by the upper management of the company and be sure you understand what is

being asked of you.

All submissions should be electronic. I dont accept paper copies. You should submit your work

on Blackboard in the form of a Microsoft Word, but you can add an Excel spreadsheet as an

addendum only if you want; it is not mandatory. University computers have MS Word and

should be able to convert files to Word. I DO NOT ACCEPT OTHER FORMATS. If you have

any question about how to submit your project electronically, please contact me prior to the due

date. Technical failure to submit your project electronically will not be accepted as reason

for late or no submission. Please do NOT take a photo of your presentation and post it. Also

your paper should not be hand-written as you would not make a presentation to your professional

organization in your handwriting.

Be sure to answer each section of the assignment clearly. Your answers should include the

Question Number and, when applicable, its section number. Your answers should be given in

the sequence in which the questions are posted. For example, do NOT answer section 1, after

having answered section 4, and then followed by section 2! Please clearly mark each section and

please dont expect me to guess what section your answers belong to. If your answer is not

placed within the pertinent and identifiable section, it will NOT receive any credit. Moreover,

your answers should contain explanation of what you are doing and why. A simple yes or no

answer, or simply providing the numerical answer without any explanation will not be

sufficient. This is NOT a math problem and your detailed work should be shown with

explanation. This means for every major calculation or formulation, you should show and

explain your work. Remember, you are presenting this to the VP of your company, for

example, who may not understand technical terms and you should explain everything you do.

Your presentation should follow APA, or other standard, formats. Information on this format

can be learned from the following YouTube video:

https://www.youtube.com/watch?v=8u47x2dvQHs

With this introduction, please proceed to read the relevant assignment

Economic 380 Course Project

This is your course project, and it is based on what we covered in Chapters 2 and 3. You

will do well to review those chapters and lecture notes.

Your assignment is to create a product (a real or an imaginary product, a new or a product

competing with an existing one) for your business and construct a demand equation for

this product. This demand function is supposed to help you arrive at a pricing strategy

that benefits your business. For this project, you should start with a general and brief

description of your product and its characteristics. You are considered to be the expert

for your product, and know the market very well. In order to construct the demand for

your product, please follow the following explanation very carefully.

As you recall, we discussed the inverse demand equation of the functional form:

?? = ?? ?? ??

Where P is the price of the product and Q is quantity demanded. There are two

parameters in this equation: the intercept a, and the slope b, with which you are now

very familiar. If you dont remember what these are, please refer to your notes and

refresh your memory. The assignment is asking that you to use this form of the demand

function [not the direct demand equation] to estimate the demand for your product.

To construct the demand for your product, you must come up with your best

guess/estimate of a and b. Your estimate should not be a random number or an

arbitrary number. Being the expert for your product, your estimate of the intercept a,

and the slope b should make economic sense and be consistent with the nature of your

product. You must show the reason(s) why you have chosen a specific value for a and

b for your product. Simply picking a number as your best guess, without giving an

economic justification is NOT sufficient. In addition, you must present an interpretation

of what these parameters mean as it relates to your product and why it would make sense

for your market. Once you show a reasonable estimate for a and b, you must specifically

and clearly show the inverse demand equation with your estimate of parameters of a

and b in your equation. Please do not leave me guessing what your equation is!

Based on this general overview, the assignment requires answering the following

questions. The format of your presentation should be based on the description given in

the document titled General Information and Requirements for Assignments.pdf.

Briefly, your submission must be highly professional and well-written. Following the

instructions described in that document is extremely important and your grade will be

based on presenting your project using this format.

Finally please identify each section as shown below and write the result of your work

within the specified section.

1. (10 Points) Describe your product and its characteristics (What is it, how is it used,

what is the competitive landscape for your product, what are the current market

prices, etc.). I emphasize that you are the one who knows the most about your

product. Therefore, if any description or estimation does not conform to common

sense, it indicates that you are not familiar with your product and with the

assignment. Your estimation of the demand parameters should be based on this

description.

2. (10 Points) As the manager of your product, you are in the best position to provide a

best professional guess for intercept a, and slope b. Describe the process by

which you estimated intercept a, and slope b. This description crucially depends

on fully understanding what these parameters mean and imply. Feel free to interpret

and describe them for your product. Simply stating that the numbers are the intercept

and slope will not give you any credit. Feel free to round the number so that you can

work with it easily and that your calculations dont get overly complicated.

Once you have specified these parameters, please be sure to explicitly write your

equation.

3. (45 Points) This question has five sections. Each section asks you to calculate a set of

numbers based on the following description. Specify a range of prices along the

demand curve for your product which must include several high and several low

prices. These prices do not necessarily imply that you would sell your product at

those prices. They are simply to give you insight on what your demand would look

like with high or low prices. Obviously, you can sell your product for any price you

want. However, you are asked to come up with a range of possible prices for your

product to verify the reasonability of your demand equation. I strongly suggest you

choose three high prices (in the elastic region of your demand) and three low prices

(in the inelastic region, and one in-between). You should identify at least 7 price

points. Enter these price points in column 1 of the table provided below.

a. (10 Points) For each price point, calculate the quantity demanded at that price

based on your demand equation. You should clearly show how this calculation

was done mathematically for at least one price. Input this quantity in column 2 of

the table below. You need NOT show derivation of this quantity in the table.

b. (10 Points) For every pair of price and quantity (question 3 and 3a), calculate the

point price elasticity of demand at that point (this is not an arc elasticity). As in

in section C(a), you should show your work for at least one calculation, but

include all the results in the table below. Write down these elasticities accurately

in column 3 of the table below.

c. (10 Points) Investigate the price-quantity combination at which the price elasticity

of demand for your product is -1? It is not sufficient to simply report such a price

and quantity, nor would it be sufficient to plug in a price and quantity and show

that at that point, elasticity is -1. You should show an algebraic derivation and

explanation of your work to indicate how you calculated this price and quantity.

If this combination happened to exist in one of your choices below, you should

still show mathematical proof of how these numbers can be algebraically derived,

as if you didnt know what they were.

d. (5 Points) Derive the revenue equation and calculate the revenue obtained at each

price and report it in column 4 of the table below.

e. (10 Points) Derive the marginal revenue equation and calculate the marginal

revenue obtained at each price and report it in column 5 of the table below.

1 2 3 4 5

Price Quantity Elasticity Revenue Marginal

Revenue

Price 1 (a High price)

Price 2

Price 3

Price 4

Price 5

Price 6

Price 7 (a low price)

It is important to complete this table with the numbers you calculated in sections

3a-3e.

4. This section has two parts asking you to draw some graphs. Using Excel significantly

facilitates these drawings, but you could also draw them on a professional graph

paper and include a high resolution scan of your work. Be sure your graphs are

labeled and titled.

a. (5 Points) Using the equation of your demand, please draw the demand curve

for your product with the price on the vertical axis and quantity on the

horizontal axis. Also draw the marginal revenue curve on the same graph. Be

sure to properly label each graphs. You are asked to draw the demand and

marginal revenue curves for your product in its entirety (not only a segment of

it).

b. (5 Points) On a separate graph, draw the revenue curve in its entirety (you

obtained the equation in part 4d above). This graph should be drawn below

the graph in part 4a so that you can show a link between them.

5. (15 Points) Now you present these results to your company executives (or investors).

What conclusions do you draw from the table and the graphs you created in questions

4 and 5? Specifically, what are the important conclusions you would definitely point

out to these company officers about youre a) pricing strategy, b) profitability, c)

price elasticity of demand, or any additional insight you might want to report. For

this part, you may assume your costs are all fixed.