Mary Weatherbee

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• 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 - Howard Schultz 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 a
  Starbucks Barista Digital Italia Espresso
  Machine(price-995)

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Opportunity Costs
For starbucks

• 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

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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
• Seattles Best
• Gloria Jeans 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
• Coffee Cream/Sugar
• Tea Scone/Muffin
• Ground Coffee Coffee Makers / Mugs / CDs

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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
  firms inputs cannot be varied
• Long Run
• A time horizon long enough for a firm to vary
  all of its 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
• ? Quantity Demanded
• ? 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