HUA 421 Lecture+1

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    AAE 421

    AGRICULTURALMARKETS

    Professor Jeremy Foltz

    1

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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.

    3

    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.

    4

    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