Friday, May 29, 2009

Low Cost Logistics

My wife and I were looking for an exercise machine. After looking around we found that WalMart online had the best price. Shipping was also less than what the local sporting goods store wanted for home delivery. So, we ordered online and waited. Turns out Walmart shipped it directly from the manufacturer via Fed Ex ground. WalMart paperwork was attached to the boxes.

I'm not sure, but I suspect that WalMart doesn't carry any of this manufacturer's inventory in stock. That would keep inventory costs at a minimum. Since they ship direct from the manufacturer, shipping costs are also minimized.


Thursday, May 21, 2009

Phoenix Trolley Folly - Running the Numbers

Coyote Blog runs the numbers on the Phoenix Light Rail system.

The other day, Phoenix trumpeted that its daily ridership had reached 37,000 boardings per weekday. Since most of those people have two boardings per day (one each direction) we can think of this as 18,500 people making a round trip each day.

Well, if we bought each of these folks a brand new Prius III for $23,000 it would cost us just over $425 million. This is WAY less than the $1.4 billion we pay to move them by rail instead. We could have bought every regular rider a Prius and still have a billion dollars left over!

As they say - read the whole thing.

One of these days I need to run the numbers on their carbon footprint as well.

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Arizona Corporation Commission Goal Conflicts

The Arizona Corporation Commission regulates investor owned utilities here in Arizona. There are five commissioners elected by the public in a statewide election. One of the goals of the commission is to keep rates as low as possible for consumers. However, some of the commissioners seem to have other goals as well.

Salt River Project officials said they could outsource 40 to 50 information-technology workers' jobs after already offering severance packages to nearly 100 employees this year.

Utility officials said they are considering the move to cut costs amid sluggish customer growth and that they have to pursue any reasonable option to keep utility rates low.

Regulators who oversee other utilities in the state are concerned with the outsourcing, particularly because SRP is a political subdivision of the state.

They said that outsourcing jobs to other states or countries would not likely be allowed at other utility companies.


Commission Chairwoman Kris Mayes said that because SRP doesn't have to report to her commission like other state utilities, the company faces less scrutiny over such decisions.

She would be concerned if one of the utilities under her oversight outsourced, "particularly in this down economy," she said.

The commission can influence utilities' hiring through rate cases.

For example, when the commission approved an emergency rate increase for APS in December, commissioners directed the utility to cut at least $20 million in expenses and do it without layoffs.

So, do we keep rates low, reduce costs, or meet other social goals.


Finding the Equilibrium Price

When we study the laws of supply and demand, we come up with something that is usually called the equilibrium price. This is the theoretical price at which the quantity supplied equals the quantity demanded. We also assert that the price will move to this equilibrium point in some undetermined time period.

Here's an example of adjustments taking place in the Phoenix resort marketplace.

Last summer, Chaparral Suites Resort in Scottsdale packed plenty into its $109 special: a two-room suite, cooked-to-order breakfast, happy hour on the house and weekend pool parties with a band.

This year, guests get all that plus $50 toward another meal or drinks - for the same rate.

It's recession math, tourism style...

Note that resorts (hotels) have essentially a vertical supply curve in the short run. Hence as demand shifts (decreases in this case) the quantity supplied remains the same and the price adjusts (falls in this case.)

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Sunday, May 10, 2009

Asymmetrical Information

Making money off of what you know and they don't. Read the whole thing.

The street cops come across this kid standing by the side of the street holding up a big sign that reads ” Radar Up Ahead, Slow Down”.

HT Carnival of the Capitalists


Friday, May 08, 2009

An Exercise in Marginal Cost

An Exercise in Marginal Cost

OK, this is California, but given the way municipalities in Arizona compete with each other for retail sales tax revenue, one wonders how long it will be before this crosses the border.

Well, the small town of Tracy, CA is that place. The municipality is giving away 800 $500 gift certificates to any one of the city's car dealerships...

...the city is spending $800,000 in public money to fund (including advertising) the program...

Sales taxes from the sale of cars and trucks also make up 30% of the city's $45 million city fund...

There isn't any data on how many cars are sold each year in Tracy, but $500 is 2.5% of a $20,000 sales price. If the city sales tax rate plus what they get rebated back from the state is more than 2.5% it looks like they make money on this deal (before overhead.)

The overhead does seem a tad steep. Does it really cost $500 to give away each $500 gift certificate?

HT Instapundit.


Saturday, May 02, 2009

Expanding During the Contraction

Even during a recession, some businesses expand their operations.

What do you do if you own a big box store you can't rent out? Open a furniture superstore apparently.

McDonalds will now take on Starbucks. Note that the incremental investment is only $100K per store.

Although the Grand Canyon University campus is located in Phoenix, it's really an online operation now.

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Comparing Really Big Numbers

Really big numbers, like those we use in macroeconomics, are difficult to comprehend. A visualization is often useful.

HT Megan Mcardle at Asymmetrical Information.