MBA 5010 Week 6 Assignment (Rev 2)
The weekly assignments are intended to be completed individually. It is important in an online program that you pay careful attention to when it is and is not appropriate to work with peers. Misunderstandings can have significant consequences. By submitting this assignment, you are attesting that you completed this work without assistance from another current or former student of this class. Exceptions can be made for tutors, but only with prior consent from your instructor.
Your answer will be evaluated based on correctness, completeness, and clarity. Be attentive to your writing. You have until midnight CST Sunday to submit both parts of this assignment.
Part A (25 Points)
Joe’s Plain-o Bikes makes and sells a single model of a basic single speed bike. Joe sells the bike to low-end bike shops for $75. They in turn retail the bike for $150. Joe’s cost of making each bike is $25 and his overhead averages out to around another $25. Answer the following:
Question 1 – What is Joe’s profit (or margin) per bike?
Respond here
Question 2 – What is Joe’sproducer surplus per bike?
Respond here
Question 3 – What happens to consumer and producer surplus if he lowers the price to zero?
Respond here
The bus service the Meanwells began is the only one in their small city. We’ll also assume there’s no other alternative form of public transportation.
Question 4 – For each of the determinants of elasticity, speak directly to its impact on the price sensitivity of the bus service.
Respond here
Question 5 – Outline one proactive step the Meanwells might take to reduce the price sensitivity of their bus service so they can increase the price charged?
Respond here
Part B (25 points)
This week you are to complete a FINAL response to the following questions. The class will be divided into groups so you and your peers may collaborate on Part B of this assignment. This final response will be evaluated on content as well as completeness and clarity.
In week 1, we analyzed the sharing economy. This week, you’re going to build on the knowledge you gained. Your assignment is to deconstruct the economics underlying AirBnB. Specifically, I want you to answer the following questions:
• What resources are being shared?
• What is the opportunity cost of the resources “consumed” to facilitate this sharing?
• How does this create value for customers?
• Does the value created for customers outweigh the opportunity cost of the resources consumed?
• Does AirBnB capture a sufficient amount of any value generated to remain a viable business?
The purpose of this question is to provide you an opportunity to demonstrate your understanding of the economics of value creation. So, emphasize this aspect of your answer. Shoot for 500 words, although no one is going to count so long as you’re close.
Respond here
Expert Solution Preview
Introduction:
This assignment consists of two parts. In Part A, we will calculate the profit and producer surplus of Joe’s Plain-o Bikes and analyze the impact of lowering the price to zero on consumer and producer surplus. In Part B, we will analyze the economics underlying AirBnB, including the resources being shared, opportunity cost, value creation, and viability as a business.
Answer to Part A:
Question 1 – Joe’s profit (or margin) per bike is $25 ($75 – $25 – $25).
Question 2 – Joe’s producer surplus per bike is $25 ($75 – $25).
Question 3 – If Joe lowers the price to zero, the consumer surplus will increase to $150 (the retail price), while the producer surplus will decrease to zero.
Answer to Part B:
AirBnB is a sharing economy platform that connects travelers with hosts who share their homes or other properties for a fee. The resources being shared include space, amenities, and local experiences. The opportunity cost of the resources consumed to facilitate this sharing includes the cost of maintaining and cleaning the property, preparing it for guests, and providing customer service. However, these costs are typically lower than the cost of operating a traditional hotel or rental property, which creates value for both customers and hosts.
AirBnB creates value for customers by providing affordable and authentic travel experiences that are not available in traditional hotels. Customers can choose from a wide range of properties in different locations, interact with locals, and customize their travel itinerary. Moreover, AirBnB facilitates trust between customers and hosts through its review system, insurance policy, and customer support.
The value created for customers outweighs the opportunity cost of the resources consumed, as evidenced by the growth and popularity of AirBnB worldwide. However, AirBnB captures a significant amount of the value generated by charging a commission on each booking. The commission ranges from 3% to 5% for hosts and 6% to 12% for guests, depending on the type of booking and the region. AirBnB also charges a service fee to guests that can reach up to 14.2% of the booking subtotal.
AirBnB’s business model is viable as long as it continues to attract customers and hosts, maintain their trust and satisfaction, and comply with relevant regulations and taxes. AirBnB has faced criticism and regulatory challenges in some jurisdictions regarding its impact on housing affordability, neighborhood character, and competition with hotels. However, AirBnB has also invested in partnerships, social impact, and sustainable tourism to address these concerns and enhance its long-term sustainability.
