Starring

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(No Transcript)
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Fahima Chowdhury
Mike Colligan
Matt Kelley
Heather Piatt
Starring
and
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PIZZA OUTLET
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• Pizza Outlet
• Mike
• What is Economics?
• Changes in Supply and Effect on the Market
• Ceteris Paribus Factors

• Fahima
• A. Consumer Choice A Look Behind Demand
• B. Production and Costs
• C. The Perfectly Competitive Ideal

• Matt
• A. Advertising
• B. Price Discrimination
• C. Substitutes

• Heather
• A. Economic Profit Above Normal Returns
• B. Summary of Pizza Outlet and What We
  Have Learned

Picture acquired from http//www.pizzaoutlet.com/m
enu.htm
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Pizza Outlet Statistics
The Ablak Family started Pizza Outlet in Mount
Lebanon, Pennsylvania
Over 100 locations nation wide
The first Pizza Outlet was opened in 1988
Pizza Outlet is a Perfectly Competitive Market
Pizza Outlet Specializes in
Picture acquired from http//www.pizzaoutlet.com/a
bout.htm
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Catering
Specialties
Food Pictures acquired from http//www.pizzaoutlet
.com/specials.htm and /pizza.htm
Oven Picture acquired from http//www.pizzaequipme
ntworld.com/blodgett-961p.html
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What is Economics?
Land the physical space on which production
occurs and the natural resources that come with it
Labor the amount of time people spend on
producing goods and services
Capital long-lasting tools used in producing
goods and services
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The pizza market is in short-run equilibrium at a
price p. There are currently 1000 firms, and
the typical pizza firm can make economic profits.
The question we must ask ourselves is what will
happen in the long-run, that is, when additional
firms can come into the industry (assuming demand
remains constant).
/q
/Q
S (1000 firms)
LRAC
p
D
q
Q
q
Q
Typical Pizza Outlet
Industry
PIZZA MARKET
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The additional supply provided by newly entering
firms will cause the market supply curve to move
to the right.
Q rises and P falls.
/q
/Q
S (1000 firms)
LRAC
p
D
q
Q
q
Q
Typical Pizza Outlet
Industry
PIZZA MARKET
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Supply and Demand
Certeris Paribus Factors
Supply
Demand

• Input Prices

• Income

• Number of Suppliers

• Number of Consumers

• Expectation of Sellers

• Expectation of Consumers

• Price related to goods

• Price of Alternate goods

• Tastes

• Technology

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Total Production Cost of Starting a Store
Table acquired from http//www.pizzaoutlet.com/fra
nchise_application.htm Picture acquired from
http//www.pizzaoutlet.com/cater.htm
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Pizza Outlet Total Production Cost vs. Other
Competitors
Pizza Hut picture acquired from
http//www.pizzahut.com Pizza Outlet picture
acquired from http//www.pizzaoutlet.com/
Dominos picture acquired from http//www.dominos.
com Four Star picture acquired from
http//www.fourstar.pizza.com
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What is utility?
P S Demand
Q

• Pleasure for satisfaction obtained from
  consuming goods and services

Law of Diminishing Marginal Utility
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Market Structure

• Top Three Pizza Corporations
• Pizza Hut
• Domino's Pizza
• Papa John's Pizza
• Local Pizza Companies and other Pizza Palaces
  make up 33 of the market.

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What kind of market Structure is

• It is Perfectly Competitive

Picture acquired from http//www.pizzaoutlet.com/h
ome.html
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What are the costs in Pizza Outlet?

• Fixed Costs
• Rent
• Ovens
• Utilities

• Variable Costs
• Labor
• 19 Employees
• Natural Resource-such as food

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Opportunity Costs

• With the cheaper specials of cheese pizza over
  pizzas with any other toppings, the opportunity
  costs of pizzas went down significantly.
  
• Cheese
  
• 
  PPF
• 
  Toppings

Why make more cheese pizza?
And make more profit?
To maximize their profit
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Advertising
Newspaper picture acquired from
http//www.poisemedia.com/co/usatoday2/
Television picture acquired from
http//www.dealtime.com/xPP-Direct_View_Television
sKW-televisionCR-1
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What Advertising Does

• Informs (reduces search and opportunity costs)

• Promotes efficient resource allocation (allows
  company to get bigger)

• Promotes competition (people aware of the
  alternatives)

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Price Discrimination
The most basic example of Price Discrimination
are coupons.
The customers without coupons are discriminated
against because they have to pay full price.
Here is an example of a coupon that is used with
Pizza Outlet.
Picture acquired from http//www.leprinofoods.com/
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Substitutes
All prices are based on one large cheese pizza of
14 inches

• Dominos (9.99)

• Four Star (6.99)

• Papa Johns (10.99)

• Pizza Hut (11.97)

• Pizza Outlet (5.99)

Pizza Outlet has the best deal!
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ECONOMIC PROFIT- Above Normal Returns
Continued (Long-Run) Economic Profit Can Be
Explained in Three Possible Ways
Picture acquired from http//www.grande.com/
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Summary
Today We Learned
Pizza Outlet is in a Perfectly Competitive Market
In the short-run Pizza Outlet can make an
economic profit
Ceteris Paribus Factors of Supply and Demand
Total Cost of Production to Open a Pizza Palace
The Law of Diminishing Marginal Utility
Fixed and Variable Costs
Picture acquired from http//www.pizzaoutlet.com/s
pecials.htm
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Summary
Today We Learned
Opportunity Cost
Advertising
Price Discrimination and Substitutes
Economic Profit Above Normal Returns
Picture acquired from http//www.pizzaoutlet.com/s
pecials.htm
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Thats Amore
Any Questions?
Chef Picture acquired from http//www.allposters.c
om/gallery.asp?aid898556item331802
Moon Picture acquired from ftp//seds.lpl.arizona.
edu/pub/images/planets/moon/moon.gif