Question

1. Describe the effects of each of the following managerial decisions or economic influences on the profits of Ford Motor Company (Ford), one of the leading firms in U.S. auto manufacturing, referencing basic supply and demand analysis in each case. Use graphical analysis to supplement your explanations.

a. The U.S. government issues a rule mandating a higher fuel economy standard.

b. Dyson (yes, the maker of Vacuum Cleaners) enters the electric vehicle market with a tested, high quality, product.

c. The U.S. government eliminates fuel taxes.

d. The U.S. government closes the border to trade with China.

e. GDP Per Capita in the United States increases by 2%

Answer 1

The F motor company is a leading fuel run car manufacturing company in the US. Any changes in the government policy or market situation either increase or decrease their demand. The shift in demand, in turn, changes both the price and quantity consumed of the car made by this company. The change in quantity and price at the same time in the same direction also changes the total revenue and given the cost of manufacturing the profit of the company.

d.

China is a significant competitor of fuel run cars produced domestically. The ban in the trade with China decreases foreign competition for the domestic firms. This increases the demand for the US made cars and demand faced by the F company rises. The rise in demand increases price and quantity and hence the total revenue. The increase in revenue increases the profit of the company.

Figure 1

e.

The increase in income per capita of the country increases the demand for luxury good such as cars. The rise in demand as explained above increases quantity, price, total revenue and hence profit of the company.

Figure 1