AF Economics – Mr. Magnani

Semester #2  Project

“From Factory to Boardroom”

GOAL:  Students will understand and appreciate the economic principles of cost analysis and profit maximization that go into making rational business decisions. 

VALUE:  2 Test Grades Term 4

TASK:  Students will work in teams to create a fictitious factory that produces three outputs and derive the operational costs, quantities, price levels and revenues of the business.  Using knowledge and economic models covered in class, students will create a detailed report / power point presented to the class.  Your task in this report is to imagine you are presenting at the company’s boardroom meeting your recommendations on how the company can increase its profits.  Do so by first explaining the current profits of the company at the output levels and prices originally chosen then conclude by mentioning recommended changes to increase profits and show the projected outcomes.

PROCEDURES:  (you will need a calculator)

1.  Create project teams of no more than five members and enter group members on sign-in sheet.

2.  Invent a fictitious factory and give its company a name.  Select THREE outputs the company produces.  (It is recommended these are goods rather than services.) 

* Students must have step #2 approved by teacher before proceeding.

3.  Using the business template worksheets provided in class, determine the price level and quantities of each output produced.  Fill out the worksheets to determine all of your costs as well as marginal, average and total profits.  Use the data calculated to create economic graphs (profit maximization graph, S/D graph) for your presentation that represent the current profit margin of your company for each of the products.  Use this information to analyze where the strengths and weaknesses are in your company. 

*NOTE:  It is perfectly OK to start out with losses  - it merely indicates an area to fix.

4. Brainstorm as a group as to how to maximize profits.  Determine how costs could be lowered or efficiency increased.  Do price or quantity levels need to be altered?  Labor? 

5.  Add recommendations to report and create updated / revised graphs showing the improved figures.  The new levels can simply be superimposed over the original graphs if a power point presentation.  Be sure all recommendations make rational business sense!

6.  Present to class.  ALL STUDENTS IN GROUP MUST BE PRESESNT AND HAVE AN ACTIVE SPEAKING ROLE IN THE PRESENTATION FOR FULL CREDIT.

Note:  If doing a power point, your group is strongly recommended to test it one day prior to due date to ensure it’s format is accepted on WRHS computers!

ASSUMPTIONS:

In this controlled example, the following assumptions must hold:

(a) ALL businesses will rent factory space at the fixed cost below.

(b) all workers and business operations are legitimate and legal (no under the table pay, sub-minimum wage earners, trafficking, sweatshops, black market, etc)

(c) There will be a fixed cost of all business licensing fees ($600/yr).  Also, factory rents will be fixed at the following prices, depending on the size of your company:

• Small scale - $14,400/yr (approx. capacity = 0-2,000 units of total output / mo.) 
•  Average Scale - $24,000/yr. (approx. capacity = 2,000-10,000 units of total output / mo.)
•  Large scale - $35,400/yr. (approx. capacity = over 10,000 units of total output / mo.)

            Note:  All of these figures are divisible by 12 to convert easily into monthly costs.