BUSINESS ECONOMICS 545-PROJECT 1-MICROECONOMIC ANALYSIS
KELLER GRADUATE SCHOOL OF MANAGEMENT
Comments from Professor:
Need more content next time. no Elasticity calculation, No profit maximization, minimal on determinants
Cindy wants to invest in a new business that involves the installation of solar panels. In order to make an informed decision on this business venture, she will need to review potential profit/loss in the solar panel industry by considering future prospects for this type of business. Cindy also needs to decide whether she will invest her own funds or borrow the money to start the business.
The imminent growth of the solar photovoltaic (PV) industry is ...view middle of the document...
Further consumer incentives include lower utility bills, increased tax credits and higher resale values. “Homes with solar-power system using photovoltaic (PV) panels sell for an average of $24,705 more than homes without PV systems, research finds.” (Tanaka, 2014)
The government supports the concept of solar power and aims to make it a major energy source. “Solar power as cheap as coal… that is the holy grail of the solar power industry” (R. Glenn Hubbard, 2012) Government support includes generous subsidies to the consumer and producers of the PV industry. “Government agencies, utilities and others offer a variety of tax credits, rebates and other incentives to support energy efficiency, encourage the use of renewable energy sources, and support efforts to conserve energy and lessen pollution.” (Energy, 2014)
I see four main factors influencing the price elasticity of demand:
* Availability of close substitutes.
Are there many available close substitutes for solar panels? The demand will tend to be elastic if Cindy and her customer can switch among the various types of PV’s for the same desired feature.
* Are PV’s a necessity or a luxury?
Currently, PV’s would be considered an elastic form of energy because there are other forms of electricity (coal/power plants). We once considered personal computers a luxury and they are now a necessity. Perhaps PV’s will be viewed the same way in the future.
* How much of my income will PV’s consume?
A large portion of consumer’s income equals elasticity. What portion of income can your client devote to the cost of solar panels? If it is a large share (elastic), what tradeoffs will client need to consider to make it a worthwhile purchase?
* What is the time horizon when making decisions on PV’s?
PV systems have productive life cycles of 30-50 years. (Brownson, 2014) A longer time horizon is said to be elastic.