hua 421 lecture+1
TRANSCRIPT
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AAE 421
AGRICULTURALMARKETS
Professor Jeremy Foltz
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Introduction to your professor:
Jeremy Foltz, PhD2
MA & PhD in Agricultural and AppliedEconomics from University of Wisconsin-Madison
BA in Economics and Political Science fromYale University
Specialist in the economics of technology, fromcradle to grave: R&D, adoption & diffusion,
consumer acceptance. Special interest in GM crops
Specialist in development in Sub-SaharanAfrica and North Africa.
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Overview of the course: 1
Chapter OneCopyright 2009 Pearson Education, Inc. Publishing asPrentice Hall.
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This course will be both
1) A managerial economics course in how tomanage an agri-business
2) A technical course in how to use Excel andstatistics to understand information about anagri-business.
Lectures from Keats Managerial Economics
text
Homework from Keat and from Hill et al.Econometricsand Ogunc and Hill Using Excel
for Econometrics
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Overview of the course: 2
Chapter OneCopyright 2009 Pearson Education, Inc. Publishing asPrentice Hall.
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Lectures:
Lecture 1 8am 9:30
Break 9:30 10am
Lecture 2 10am 11:30
Afternoons office hours and homework in the
computer lab.
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Overview of the lecture5
Economics and managerial
decision making
Economics of an agri-
business
Review of economic terms
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This lectures learning
objectives6
define managerial economics
cite important types of resource
allocation decisions
illustrate how economic changes affect afirms ability to earn an acceptable return
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Economics and managerial decisionmaking
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Economics
The study of the behavior of humanbeings in producing, distributing and
consuming material goods and
services in a world of scarceresources
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Economics and managerial decisionmaking
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Management
The science of organizing and allocating afirms scarce resources to achieve its
desired objectives
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Economics and managerial decisionmaking
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Managerial economics
The use of economic analysis to makebusiness decisions involving the best use
(allocation) of an organizations scarce
resources
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Economics and managerial decisionmaking
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Relationship to other business disciplines
Marketing: demand, price elasticity
Finance: capital budgeting, breakevenanalysis, opportunity cost, value added
Management science: linearprogramming, regression analysis,forecasting
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Economics and managerial decisionmaking
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Relationship to other business disciplines
Strategy: types of competition,
structure-conduct-performanceanalysis
Managerial accounting: relevant
cost, breakeven analysis, incremental
cost analysis, opportunity cost
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Economics and managerial decisionmaking
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Questions that agri-business managers mustanswer:
What are the economic conditions in ourparticular market?
market structure?
supply and demand?
technology?
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Economics and managerial decisionmaking
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Questions that agri-business managers mustanswer:
What are the economic conditions in ourparticular market?
government regulations?
international dimensions? future conditions?
macroeconomic factors?
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What is happening? Would youwant to invest in this industry?
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0
2000
4000
6000
8000
10000
12000
Years
Total Production
"Total Production"
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Would you invest now?15
0
2000
4000
6000
8000
10000
12000
Years
Vietnam Coffee Production
Coffee Production
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What changed?16
0
200000
400000
600000
800000
1000000
1200000
1400000
Coffee Production in Vietnam
Coffee Production
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Economics and managerial decisionmaking
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Questions that agri-business managers mustanswer:
Should our firm be in this business?
if so, what products should we be selling?
at what price should we be selling our
product? and at what output level?
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Economics and managerial decisionmaking
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Questions that agri-business managers mustanswer:
How can we maintain a competitiveadvantage over other firms?
as a low cost-leader?
by product differentiation?
by finding a market niche? by outsourcing, alliances, mergers?
through an internationalization of ourproduct or process?
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Economics and managerial decisionmaking
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Questions that agri-business managers mustanswer:
What are the risks involved in this business?
They could be due to
shifts in demand and/or supply conditions?
technological changes in the industry?
Ours and that of others the effect of competition?
changing interest rates and/or inflationrates?
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Economics and managerial decisionmaking
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Questions that agri-business managers mustanswer:
What are the risks involved? exchange rates (for companies in
international trade)?
political risk (for firms with foreign
operations)?
Risk is the chance that actual future outcomeswill differ from those expected
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Economics of an agri-business21
The economics of an agri-business refers tothe key factors that affect the firms ability to
earn an acceptable rate of return on its
owners investment
The most important of these factors are
competition technology
customers
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Economics of a business22
Example: Kodak
struggled to transition from
chemical-based film to digital imaging
responded by developing strong cash
flows in new product range: printers
now back to struggling because the productrange was not enough
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Global application23
Example: Western Union
began over 100 years ago huge changes in technology
to survive in the new market place thecompany branched out
now a global company with global reach andan internet presence
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Review of economic terms24
Microeconomics is the study of individualconsumers and producers in specific markets,especially:
supply and demand pricing of output
production process
cost structure distribution of income
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Review of economic terms25
Macroeconomics is the study of theaggregate economy, especially:
national output (GDP)
unemployment inflation
fiscal and monetary policies
trade and finance among nations
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Review of economic terms26
Resources are inputs (factors) of production,notably:
land
labor capital
entrepreneurship
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Review of economic terms27
Scarcity is the condition in which resourcesare not available to satisfy all the needs andwants of a specified group of people
Opportunity cost is the amount (or subjectivevalue) that must be sacrificed in choosing one
activity over the next best alternative
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Review of economic terms28
Allocation decisions must be made becauseof scarcity. Three choices:
Whatshould be produced?
Howshould it be produced?
For whomshould be produced?
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Review of economic terms29
Economic decisions of the Firm
What -begin or stop providing
goods/services (production)
How- hiring, staffing, capital budgeting
(resourcing)
For whom target the customers most
likely to purchase (marketing)
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Review of economic terms30
Entrepreneurship is the willingness to takecertain risks in the pursuit of goals
Management is the ability to organizeresources and administer tasks to achieve
objectives