In this essay, it gives a brief description on starting up an ice cream parlor and its relation to demand and supply. The ice cream parlor is called “You scream ice cream”. In Economics, supply and demand are one of the fundamental concepts. Market price for any commodity is determined by the outcome of demand and supply (Economics, 2010, Paul Anthony Samuelson).
A market is a group of buyers and sellers of a particular good or service. Quantity demanded is the amount of a good that buyers are willing and able to purchase. Demand is a full description of how the quantity demanded changes as the price of the good changes (Investopidea, 2011).
The demand of ice cream depends on various factors such as Price–the higher the price, the less you buy. Income–for normal goods, the higher your income, the more you buy. For inferior goods, the higher your income, the less you buy. Prices of related goods–frozen yogurt are a substitute for ice cream, so when its price goes up, more ice cream is demanded. Hot fudge is a complement for ice cream, so when its price goes up, less ice cream is demanded. Tastes–when tastes change, the quantity demanded changes. For example, our taste for ice cream might depend on the weather.
Expectations–expectations about future income or prices affect the quantity demanded today. The demand schedule and the demand curve show the relationship between the price of a good and quantity demanded of that good. Ceteris Paribus means “other things being equal”. All variables affecting demand other than price are assumed to be fixed when we are talking about a particular demand curve. A change in the price changes the quantity demanded, so we move along the demand curve. A change in income, prices of other goods, etc. increases or decreases demand, so the demand curve shifts. The market demand curve is the sum of the demand curves of all the buyers (Investopidea, 2011).
... for Ben & Jerry’s ice cream since everyone love to eat good desert with the cheaper price. The underlying mission of Ben & ... worldwide. As well as, they should change the consumer perception of having the ice cream only in summers or spring time to ... Singapore Udder’s ice cream which has grown rapidly fast and high demand from local customer in Singapore, Udder’s ice cream has some flavor ...
Quantity supplied is the amount of a good that sellers are willing and able to sell. The various factors that affect supply are Price–the higher the price, the more firms want to supply. Input prices–less ice cream is supplied when workers must be paid more, ice cream machines cost more, or ingredients like cream and sugar become more expensive. Technology–the invention of better ice cream machines can lower a firm’s costs and raise the quantity of ice cream it supplies. Expectations–expectations about future prices of ice cream and inputs can affect the quantity supplied today. For example, if the price of ice cream will be higher tomorrow, you may want to sell less today and keep more in storage. The market supply curve is the sum of the supply curves of all the producers (Economics, 2010, Paul Anthony Samuelson).
“You scream ice cream” provides various flavours and different kinds of ice cream. If we look at the price elasticity of the product, it is relatively elastic. Relatively elastic demand has numerous close substitutes-in-consumption. Buyers can easily switch between this good and other goods and receive about the same satisfaction. It takes very little change in the price to convince buyers to switch to a substitute good. For example, Banana Mush Ice Cream Sundaes. While this product has several distinctive features (the Banana Mush add a hint of clove extract to their hot fudge topping), it provides similar satisfaction to that of many other ice cream dessert treats. Should the price of Banana Mush Ice Cream Sundaes rise a little, buyers will opt for Sunny Strawberry Sundae, Creamy Hot Caramel Yogurt Treat, or hundreds of other alternatives. These do not provide exactly the same satisfaction, but they are close, very close. As such, the demand for Banana Mush Ice Cream Sundaes is relatively elastic. Relatively small changes in the price of Banana Mush Ice Cream Sundaes induce big changes in quantity. If the price rises a little, Banana Mush Ice Cream Sundaes buyers switch to Creamy Caramel Yogurt Treat. If the price falls a little, Sunny Strawberry Sundae buyers switch to Banana Mush Ice Cream Sundaes. These alternatives are close substitutes; it does not take much of a price change to induce buyers to switch (Principal of Microeconomics).
... I was actually paying. I now know that these consumer goods cost natural resources, valuable money, and so much more. The simplest ... adds what I believe to be the most interesting cost of the good life when it comes to affluenza. He argues that ... fewer jobs and wider poverty gaps. These are the costs of the good life. Our current global economy is a system striving ...
The key for relatively elastic supply is that a good has several substitutes-in-production that use the same resources. It is very easy to switch resources between the production of this good and others using the same resources. In most cases the good uses very common, easy to find resources like unskilled or semi-skilled labour (Principal of Microeconomics).
The determinants price elasticity of demand for “you scream Ice cream” are Necessities versus luxuries, availability of close substitutes, definition of the market and time Horizon. Demand tends to be more inelastic if the good is a necessity, if the time period is shorter, the smaller the number of close substitutes, the more broadly defined the market. Likewise demand tends to be more elastic if the good is a luxury, the longer the time period, the larger the number of close substitutes, the more narrowly defined the market (Elasticity and its application).
Explicit costs are the payments to non-owners reported by accountants. Implicit costs are opportunity costs (forgone earnings) of using resources owned by the firm. Accounting profits are total revenues minus explicit costs, but economic profits are total revenue minus both explicit and implicit costs. Economic profits are important for a complete analysis of profits or losses of a firm.
Explicit Costs are paid directly in money – money costs. A firm experiences explicit costs when it pays for a factor of production at the same time it uses it. Explicit Cost = payments by a firm to purchase the service of productive resources (wages, interest, rent, capital) whereas Implicit Costs are measured in units of money, but are not paid for directly in money. The costs of non-purchased inputs, to which a cash value must be imputed because the inputs are not purchased in a market transaction. A firm incurs implicit costs when it uses capital, inventories or owner’s resources. Implicit Costs = opportunity costs associated with a firm’s use of resources that it owns (wages foregone by owner, interest rates loss through purchases) (Accounting coach 2004-2011).
... about implementing a strategy such as cost-leadership. The firm has to analyse its situation, its resources and then decide on which course ... to settle for a substitute. A firm that aims to be the cost-leader in its market displays a few characteristics that are ... its products and the other products that exist in the market. Firms that decide to adopt this strategy need to keep improving ...
There are four different market structures. They are perfect competition, monopoly, monopolistic competition and oligopoly. “You scream ice cream falls under monopolistic competition in which all firms produce similar yet not perfectly substitutable products, all firms are able to enter the industry if the profits are attractive, all firms are profit maximizers, all firms have some market power, which means none are price takers (Investopedia).
The company’s proposed budget is as given below;
Contribution | Debit | Credit | Proforma |
Cash | 5,000 | 25,000 | | 30,000 |
Prepaid Expenses (Incl. architect Plans) | 10,000 | 12,000 | | 22,000 |
Grand Opening Contribution | 3,500 | | | 3,500 |
Inventory | | 12,000 | | 21,000 |
Total Current Assets | 18,500 | 49,000 | | 76,500 |
Equipment | | 91,000 | | 91,000 |
Equipment Installation | | | | |
Leasehold Improvements | | 110,000 | | 110,000 |
Signage (included in equipment) | | | | |
Franchise Fee | 35,000 | | | 35,000 |
TOTAL ASSETS | 53,500 | 250,000 | | 303,500 |
Liabilities &Net Worth | |
Loan (Current Portion) | | | 24,000 | 24,000 |
Total Current Liabilities | | | | 24,000 |
Long Term Debt | | | 226,000 | 226,000 |
Total Liabilities | | | 250,000 | 250,000 |
... premium ice cream brand and it has 800 franchises and 5800 eating locations in 28 countries around the world. Annual sales revenue for ... Jerry’s not only put much money into public every year, but also promise to produce eco-packaging. Their foundation awards ... of milk up, so Ben and Jerry’s has to cost more on raw milk. Meanwhile, more and more people focus ...
Net Worth | | | | 53,500 |
Total Liabilities & Net Worth | | | | 303,500 |
Working Capital | | | | $52,500 |
Net Worth | | | | 53,500 |
Debt to Worth Ratio | | | | 4.8 :1 |
Current Ratio | | | | 3 |
Years 1-5 |
Assumptions | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
Revenue Rate Increases | | 4.00% | 4.00% | 4.00% | 4.00% |
Volume Increases | | 4.00% | 4.00% | 4.00% | 4.00% |
Inflation Increases | | 4.00% | 4.50% | 5.00% | 5.50% |
Revenue % | | | | | |
Ice Cream | | | | | |
Other | | | | | |
Cost of Sales as % of Revenue | | | | | |
Ice Cream | | | | | |
Other | | | | | |
Direct Expenses as % of Revenues | | | | | |
Salaries | 17.00% | 17.00% | 17.00% | 17.00% | 17.00% |
Salary Related | 3.40% | 3.40% | 3.40% | 3.40% | 3.40% |
Controllable Expense as % of Revenue | 12.00% | 12.00% | 12.00% | 12.00% | 12.00% |
Interest Rate on Borrowings | 10.50% | 10.50% | 10.50% | 10.50% | 10.50% |
Cash Receipts as % of Revenue | 99.50% | 99.50% | 99.50% | 99.50% | 99.50% |
Lease Expense/Sq. Ft. (incl. CAM chg.) | $6.27 | $6.52 | $6.78 | $7.05 | $7.34 |
Square Footage | 556 | 556 | 556 | 556 | 556 |
Advertising Fees/Year | 3048 | 3048 | 3048 | 3048 | 3048 |
Royalty Fees as % of Revenue | 2% | 2% | 2% | 2% | 2% |
In short run, fixed costs are any cost that does not depend on the firm’s level of output. These costs are incurred even if the firm is producing nothing. There are no fixed costs in the long run. A cost that depends on the level of production chosen is variable costs. In long run Lower Price – The Company compete for customers by cutting prices. Higher Average Cost -As more firms enter market, eventually move upward along negatively-sloped portion of average-cost curve to higher average cost (fewer ice cream sold).
... directly afterwards. I dont feel that some lousy Carvel ice cream is befitting this most important occasion. No, I ... to tell my Uncle, back when we went for ice cream, that he was making me uncomfortable. The silence ... dessert. Jack! Common! We have already passed two ice cream places, when are we going to stop Relax, you ... being. For it is on this day, every year for as long as I can remember, that Uncle ...
Ice cream sold
Ice cream sold