UC Davis ARE 130 – Storage Consider a two-stage storage
ARE 130, Fall 2016Timothy K. Beatty Homework 2Due Tuesday, 10/25/2016 IN LECTURE. Please type your final answers. You should attach handwritten work showing how you got to your solutions and any graphs you choose to include, but yourfinal solutions are expected to be typed.Q1. Storage Consider a two-stage storage problem with the following supply, demand, and storage cost specifications: Supply:Demand: Period 1 Period 2 Storage Cost Function 200q1d = 150 ? p1 50q2d = 200 ? p2 SC = 10 + .05p1 Answer the following questions:1. First, solve the storage problem for a competitive firm.2. Now, assuming a discount rate of r = 0.01, solve the storage problem for a monopoly firm. How do the prices,quantities, and total present value compare to your previous answer?3. Finally, extend this problem to the three period case using the following information: Supply:Demand: Period 3 Storage Cost Function 100q3d = 300 ? 2p3 SC2 = 5 + .1p2 Solve this problem for a competitive firm.Q2. Coors Case Study Read through the Coors case study posted on Smartsite carefully and answer the followingquestions:1. Describe the value chain activities related to Coors malting barley program. The value chain encompasses allthe activities and costs in procuring the materials needed to make beer (malt, water etc.) and also includesSales and Marketing.2. What quality aspects of barley are most important to Coors? How can the barley research and developmentprogram meet these needs?3. Is vertical coordination the best method for achieving the desired quality results? To answer this question,make a list of the pros and cons associated with vertical coordination production in terms of efficiency, risk etc.4. Please comment on Coors vertical integration scheme in the context of Agency Theory, Transaction Cost Theoryand Contractual Incompleteness concerns.Use the excel sheet provided to answer the following questions:5. Use the following information: (from the case study) it takes 22,222 lbs of barley to produce 750 barrels ofbeer, and there are 48 lbs of barley per bushel. Then, using table 4, estimate the price that Coors pays perbushel of barley from 1998-2002. Using table 7, how does this compare to the market prices? How does themalting barley contracting program impact Coors input costs compared to companies buying at the marketprice?6. Compare the net profit margin of Coors (table 3) to the net profit margin of Anheuser-Busch (table 8), givetwo potential causes of the large difference between their profit margins. 1
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