Mattel, Inc'

1
Mattel, Inc.

• Jessica Wolff
• Matt Puckett
• Elizabeth Bucci
• Matt Kubacki
• Ashley Shellenberger

2
Overview

• History and Scarce Resources Jess
• Opportunity Costs and Supply and Demand Matt
  Puckett
• Elasticity of Demand and Budget Constraints
  Liz
• Short Run, Long Run, and Profit Maximization
  Matt Kubacki
• Perfect Competition, Monopoly, and Monopolistic
  Competition Ashley

3
Products
4
History

• 1945 Mattel is founded
• 1948 Mattel is incorporated
• 1959 Barbie debuts
• 1961 Ken and Barbie become an item
• 1968 Hot Wheels rolls off production line
• 1999 Happy 40th Birthday Barbie!
• 2004 Barbie and Ken split

5
Scarce Resources

• Less of something freely available from nature
  than we would choose to consume
• Land
• Labor
• Capital
• Entrepreneurial Activity

6
Land

• The physical space on which production takes
  place, as well as the natural resources found
  beneath or on it
• Mattels Corporate Headquarters are located in El
  Segundo, CA
• Divisions in 42 countries!

7
Labor

• The time human beings spend producing goods and
  services
• Mattel employs 2,000 people at World Headquarters
  alone!

8
Capital

• Physical capital buildings, machinery, and
  equipment
• Factories, Office Buildings, and Stores in 42
  countries and 3 states
• Human capital the skills and
• training that workers possess
• Engineers, Designers, Marketing Teams and
  others who combine their skills to create the
  product

9
Entrepreneurial Activity

• Recognizes opportunity and then proceeds to take
  advantage of that opportunity
• Elliot and Ruth Handler provided the spark behind
  Mattel.
• Barbie was created by Ruth Handler as a combo of
  Paper Dolls and plastic dolls

10
Opportunity Cost

• A basic Barbie doll is 14.99
• Opportunity cost includes
• 14.99
• Time it takes to shop and choose (1.5 hours)
• Gas money (10)
• The price of what Mom gave up to buy Barbie (15)
• Barbie can cost as much as 40!
• Barbie ranges in price from 14.99 to upwards of
  200 in some cases

11
Supply

• Is a relationship showing the various amounts of
  an item that sellers are willing and able to make
  available for sale at various possible
  alternative prices, during a given period of
  time.- ceteris paribus
• Ceteris Paribus factors
• Input Prices
• Number of Sellers
• Expectations of Sellers
• Prices
• Technology

12
Demand

• Is a relationship showing the various amounts of
  an item which buyers are willing and able to
  purchase at various possible alternative prices,
  during a given period of time.- ceteris paribus
• Ceteris Paribus Factors of Demand
• Income
• Number of consumers in the market
• Expectations of Buyers
• Prices of Related Goods
• Tastes

13
Substitutes

• As the price of a substitute good increases,
  demand for our good increases
• Substitutes for Mattels Products
• PlaySkool for Fisher Price
• Brio for Hot Wheels / Matchbox

14
Compliments

• As the price of a complement increases, the
  demand for our good decreases
• Compliments of Barbie are clothing, houses,
  friends, cars, pets, etc.

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Normal and Inferior Goods

• As income increases, the demand for normal good
  increase
• As income increases, the demand for inferior
  goods decrease
• Barbie, American Girls dolls, Matchbox cars, and
  Fisher Price products are all Normal goods
• Increases in parents income causes increased
  demand for these goods

16
Elasticity of Demand

• A measure of the responsiveness of markets
• When demand is inelastic price and total revenue
  are directly related
• When demand is elastic, price and total revenue
  are inversely related

17
Determinants of Elasticity

• Availability of Substitutes
• More narrowly defined, more inelastic
• Importance in the Buyers Budget
• More of the total budget, more elastic
• Time Period
• Longer time period, more elastic

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Which type of curve does Mattel Face?

• Neither an elastic or inelastic curve
• Reasonably Elastic

19
Budget Constraints

• A locus of points which represents all possible
  combinations of goods and services which a
  consumer could purchase with a given income and
  set prices
• Our consumer, Tom, has a maximum toy expenditure
  of 56 per month
• Hot Wheels Incredible Hulk Monster Truck costs
  6.99
• Cali Girl Barbie costs 7.99

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Budget Constraint
21
Toms Budget Line
22
Changes to Toms Budget Line

• Changes in Toms income
• A new budget line is created
• Changes in the price of one or more goods
• There will be a change in the current budget line

23
Profit Maximization

• Marginal Costs Marginal Revenue
• In Short Run firm may earn Economic Profit
• In Long Run there is a tendency towards 0
  Economic Profit

24
Short Run

• Period in which some inputs are fixed
• In the short run, Mattel may
• Produce more Hot Wheels only by bringing in more
  workers

25
Long Run

• All inputs are variable
• Mattel can build a new plant
• In the Long Run, Mattel may
• Increase the production of Hot Wheels by building
  a new Hot Wheels production facility

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Very Long Run

• The production function itself may be changed
• In the very long run, Mattel can actually build
  people sized Hot Wheels that run!

27
Accounting Profit Economic Profit

• Accounting Profit Total revenue Accounting
  costs
• Also known as Normal Profit
• Economic Profit Total revenue All costs of
  production Total revenue (Explicit costs
  Implicit costs)
• Note when Economic Profit is zero Accounting
  Profit is NORMAL

28
Mattels Market

• Mattel is Monopolistically Competitive
• They earn accounting profit AND economic profit
  in the short run
• Economic profit is incentive for new firms to
  enter the market so..
• Mattel has a tendency towards ZERO economic
  profit in the long run

29
Monopoly

• One seller of a product with no close substitutes
• Monopoly can be
• Strategic
• Natural
• Legal/Governmental
• Patent

30
Perfect Competition

• Characteristics of Perfect Competition
• Large number of Buyers and Sellers
• Homogenous Products
• Easy Entrance/Exit
• Perfect Knowledge

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Monopolistic Competition

• Characteristics of Monopolistic Competition
• Heterogeneous products
• Firms face downward sloping demand curve
• Large number of actors
• Relatively easy entrance/exit

32
Mattels Market

• Is Mattel a monopoly?
• NO!
• American Girls dolls can be substituted with
  Porcelain Illusions dolls and Cabbage Patch Kids
• It is a Monopolistic Competitive Market!

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What Did We Learn?

• Barbie can cost more than 40 when you factor in
  opportunity costs.
• Mattel has a relatively elastic demand curve.
• In the long run, Mattel could make people-sized
  Hot Wheels.
• And, Mattel is NOT a monopoly!!!