M3.2 Discussion: Full Speed Ahead

No unread replies.No replies.

Focus on analyzing the issues rather than on purely describing information. Analysis requires you to focus on explaining and predicting the implications of trends rather than merely describing trends. With this in mind, analyze the firm's economic vulnerabilities given its current product selection and considering the role of demand and supply elasticity. Develop a working hypothesis describing the demand characteristics of the goods you consider here. You are not required to provide precise elasticity estimates.

Initial Post

You will need to select a small to mid-cap firm listed on the New York Stock Exchange Links to an external site.and acquaint your peers with your chosen firm. Focusing on the journey ahead, review the firm's financial information found in its most recent Quarterly Report (10-Q) published electronically on the firm's website or the Securities and Exchange Commission's (SEC) EDGAR Database Links to an external site.. For most companies, this information can be accessed by browsing the "investor relations section," where you will be able to find the financial statements, including, in this case, the 10-Q (and the 10-K for more details). Help your peers understand this firm's line of business to address the following questions:

• What is the business model of this organization (some companies might not provide this information in the 10-Q, in which case you can refer to the 10-K under the heading "Business")?
• Do you expect recessionary falls in income to affect demand for these products or services? Using an estimated (or theoretical) price, income, or cross-price elasticity measure, explain why by referencing your experience as a consumer (Hint: See pp. 128-131 of our required text. You may utilize elasticity estimates that are more precise; however, these are difficult to locate for most products.)
• What other concerns disclosed in financial documents may affect the demand for these products or services? (Hint: See pp. 124-125 of our required text.)
• Given the business line this firm is in, describe one complement and one independent good that could feasibly be added to this firm's product line to diminish the economic risk(s). For instance, hand soap and dish soap are independent but could feasibly be produced in a single facility. (Hint: Assume that feasible means "given the nature of production facilities," and review pp. 126-128 of our required text.)

(Additional Hint: During a recession, total revenue rises when additions to a firm's product line are less price and income elastic than the firm's current productsbecause (a) percentage price decreases that might be expected during a recession result (by comparison) in a larger percentage rise in quantity purchased and a rise in total revenue and (b) percentage income decreases that might be expected during a recession result in a lower (by comparison) percentage fall in quantity purchased. Both types of products, therefore, result in a rise in total revenue. Independent products characterized by low or zero cross-price elasticity may also be considered because the demand for these goods is unrelated to demand for existing products.)