Business Proposal
Objectives:
You will apply economic principles presented in Weeks One through Three in this week's assignment. Your assignment will be reviewed by your peers and by your facilitator in week five and should be revised as necessary based on feedback as the first part of the final assignment in week six. Select a new, realistic good or service for an existing industry. Write the economic analysis section of a business proposal. This will include statements about the market structure and the elasticity of demand for the good or service, based on text book principles. You need to create hypothetical data, based on similar real world products to estimate fixed and variable costs.

Required Elements: * Identify market structure * Identify elasticity of the product * Include rationale for the following questions: * How will pricing relate to elasticity of your product? * How will changes in the quantity supplied as a result of your pricing decisions affect marginal cost and marginal revenue? * Besides your pricing decisions, what are your suggested nonpricing strategies? What nonpricing strategies will you use to increase barriers to entry? * How could changes in your business operations alter the mix of fixed and variable costs in line with your strategy? * No more than 1400 words * Your proposal is consistent with APA guidelines

Business Proposal - Thomas Money Service, Inc. Scenario
The following pages will discuss the subsidiary of Thomas Money Service, Inc., Future Growth Inc. (FGI). It will be presented as a business proposal with an emphasis on product differentiation, increasing revenue, and maximizing profit. As there is an absence of historical data, many assumptions must be made. Although the scenario reflects 2007 as the time period, our current economic condition still presents a challenge for many industries. These factors will also be considered. FGI is involved in monopolistic competition. Given the rise in competition and decrease in market share, they face a number of important decisions. As a manufacturer of construction and forestry equipment, demand for their products is driven from several angles. Forecasting market fluctuations is the key to capitalizing on the ebb and flow of the market. Unless a successful market strategy is defined, remaining competitive may be a constant struggle.
FGI Business Proposal (Abbreviated)
Introduction
FGI is an established manufacturer of construction and forestry equipment. The company’s reputation is one of strength and longevity. In spite of the economy’s recent dismal track record, FGI intends to “weather the storm” just as it has been able to survive through these last few years. Although there are many other companies within the industry, it is somewhat a niche’ market as there is a specific need for the product line. Our competition, monopolistic in nature, is found not only in the United States but spans the globe as well. Becoming a stronger player in the global market is not our primary focus at this time. Instead, partnering with loyal domestic clients has seen a modest, yet consistent increase for the last two quarters.
As such, our market strategy focuses on setting FGI apart...
Thomas Money Service Inc.
Since the 1940’s TMS has been providing small loans to consumers. During that time TMS augmented its business to include the servicing of business loans, business acquisition financing, and commercial real estate loans. In 1946 TMS decided to finance forestry and construction equipment. The decision proved to be very profitable and resulted in TMS’s establishment of Future Growth Inc. (FGI). Consequently FGI also experienced an immense demand for equipment allowing FGI the capability to purchase its own equipment manufacturing company. This allowed FGI to sell, build, and finance its own equipment. For 67 years FGI’s business venture went well (UOP, 2010).
Currently FGI is faced with making various decisions due to the failing economy and several natural disasters that have occurred in various states. The sale of homes has also decreased. Much of the equipment is being repossessed by FGI, in turn FGI has decided to bundle it together and selling it at a discounted price. The purpose of this proposal is to provide business recommendations to Thomas Money Service Inc (TMS). In light of everything that is occurring in the economy TMS has requested recommendations addressing how TMS can increase revenue, its ideal production levels, maximizing profit through fixed and variable costs in addition to reducing costs.
Recommendations
Increasing Revenue
Increasing revenue is the goal and continuous effort of any organization regardless of how the economy is doing but it is most important in a declining economy. Thinking and planning strategically will assist any business in increasing revenue. Due to all of the natural disasters that have occurred, it will be most beneficial if TMS places their focus mainly on the construction of new buildings. There is a need for hospital and nursing homes, with all the..

his paper will provide an analysis of the airline industry’s overview, economic indicator, and economic indicator forecast. Second this paper will include an in-depth analysis on how the forecast will impact the airline industry. Third this paper will evaluate the impact of past and current fiscal policies, monetary policies, budget deficits or surpluses on the economy and on the industry. Last this paper will provide final recommendations and strategic initiatives.
In 1903, the Wright brothers’ first triumphant flight in Kitty Hawk, North Carolina indicated the introduction of the aviation industry. Prior to the Wright brothers’ flight the public did not support airplane travel as an option, thinking that it was too unsafe. The first main incentive that aided to create the industry was the United States’ partaking in World War I. Following the war, the government ceased granting research and development, just about idling advancement in the aviation industry. Charles Lindbergh effectively accomplished a solo flight across the Atlantic Ocean and formed enormous attention in flying with the public.
Following this, an assortment of air transport investment companies started, containing Aviation Corporation. The air transport department of the company named American Airways, and shortly developed into American Airlines, one of the biggest marketable transporters in the United States. In 1928, United Aircraft and Transportation Corporation grew to be another primary air transport company developed as an investment company as a result of Boeing and its air transport department. The four air transport departments of United Aircraft converted into United Airlines in 1931.
One of the largest aspects in the expansion of the air transportation industry throughout this era was the creation of a mail transport system by the United States Postal Service. The Kelly Airmail Act of 1925 bestowed private airlines the chance to act as mail carriers due to contribution in an aggressive bidding system. These private carriers because of the airmail revenue could grow in transporting other forms of cargo, including people. Charles Lindbergh in the role of “technical adviser” to Pan Am World Airways piloted that airlines first airmail flight to South America in 1929.
People targeted as a way to supplement the earnings of the airmail systems. Sluggish beginning due to the observation of below stellar safety function and elevated fare prices, passenger level produced extremely and carriers grew. The Air Commerce Act, approved in 1926, permitted Federal regulation of air traffic rules. The need for regulation grew visible because of disorganization of air traffic. The postmaster general took over the industry for a brief period preventing the number of carriers granted mail transport contracts. This exercise ruled uncompetitive and the industry reopened to an aggressive offering for mail contract.
Following major in air collisions in the 1950s, the Federal Aviation Act (FAA) approved in 1958. The FAA developed and charged to create an air traffic managing system. The 1970s witness a vivid boosts in the prices, mainly growths in fuel costs. The 1980s marked by the deregulation of the industry, which resulted in the enhancement of smaller carriers and the unifications of bigger carriers. The 1990s observed a dramatic elevation in the number of passengers, including first time passengers, as prices fell and the cities served by airlines grew.
Over the past few years the airline industry has been drastically affected by such events as the September 11, 2001 terrorist attack, growing oil prices and the shortage caused by Hurricane Katrina in August 2005. These actions were felt worldwide and the associations to micro and macro economics presented a dominoes effect that is still being felt today. The airline industry was struck globally with immense actions that influenced all economic indicators and almost shattered the industry.
In the beginning of economic studies, it was thought that economic issues were only caused by events that were outside of economics. Nevertheless, with the induction Keynesian economic theory, of “everything at once” economist and the public started to see that with one alteration, all things were impacted. The businesses begin viewing that the market seized an assortment of interest and the interest in one could severely impact the interest of another. The government and the government’s policies also added to how the airline industry improved or fell.
RSQE Forecast Accuracy: Real GDP Growth, 1971-2003 (Actual vs. RSQE Forecast from the Preceding November)

The differences between the forecast and actual are off by about 1.0 in 1972 the actual real GDP is 6.0 the forecast is about 7.1. The RSQE forecasting project, dating back to the 1950s, is one of the oldest in the United States. The above graph compares, for each of the years 1971–2003, the actual percentage change in real GDP (the economy’s growth rate) with the RSQE forecast published in November of the preceding year. There are several ways to characterize the quality of the RSQE forecasting record. Although the forecasts missed the actual percentage change by an average of only 1.1 percentage points (measured by the average forecast error without regard to sign), the forecast error was as small as 0.5 percentage point or less in thirteen of the thirty-three years shown. On the other hand, six years had forecast errors of 2 percentage points or more, and for 1982 and 1999, the forecast errors were 3.1 and 3.0 percentage points, respectively. But, despite some relatively large errors, there was never a boom year that RSQE forecast to be a weak year; never a weak year that RSQE forecast to be a boom year; and just a few instances—most recently, 1999 and 2001—in which the forecast really went “the wrong way” in the sense of missing badly on whether the economy’s growth rate was about to increase or decrease relative to the preceding year’s growth rate (Hymans, 2008, p. 1).
RSQE Forecast Accuracy: Real GDP Growth, 1971-2003 (Actual vs. RSQE Forecast from the Preceding November)

“Employment: Labor is the biggest cost item at any airline, and workers' desire for ever-higher compensation is at odds with customers' desire for ever-lower fares. Airline employees are expensive to hire and train, and difficult to replace. It takes years of flying to qualify to apply for a pilot's job at a major airline. The health, vision, education, background check and psychological requirements would disqualify more than 90% of adults. In the case of pilots, mechanics and flight attendants, federally mandated training is long and costly. Airline managers know that if they're struck, they would run out of cash in 30 days. That gives unions remarkable negotiating leverage” (Reed, 2002, p. 1B).

U.S. Civilian Unemployment Rate- Past Trend Present Value & Future Projection-Percent Unemployed Seasonally Adjusted.
(The financial Forecast Center)
Current Economic Indicators
December 05, 2009 (Close of Day)
Indicator Value
Inflation % -0.23
GDP Growth % 2.75
Unemployment % 10.00
Gold $/oz 1,190.25
Oil $/bbl 75.47
Prime % 3.25
(The financial Forecast Center)
The forecast for unemployment is about 10.5 the actual is 10.00%. The forecast is close to the actual percentage.
Per capita income means how much each individual receives, in monetary terms, of the yearly income generated in the country. This is what each citizen is to receive if the yearly national income is divided equally among everyone. Per capita income is usually reported in units of currency per year. When comparing nations per capita income reflects gross national product per person, but it is also used to compare municipalities within nations. When determining the per capita income of a community, the total personal income is divided by the population (Wikipedia).
Per capita income means how much each individual receives, in monetary terms, of the yearly income generated in the country. This is what each citizen is to receive if the yearly national income is divided equally among everyone. Per capita income is usually reported in units of currency per year. When comparing nations per capita income reflects gross national product per person, but it is also used to compare municipalities within nations. When determining the per capita income of a community, the total personal income is divided by the population (Wikipedia).
Gloomy headlines may proclaim oil around $150 a barrel, but Boeing says travel is so essential to the world's economy that airplane sales should top $3 trillion in the next 20 years. And, besides, it figures oil prices will average only half current rates (Mecham, 2008).
Fuel prices, acknowledged Randy Tinseth, Vice President of Boeing Co., that price of $150 per barrel are far higher than projected a year ago, but says forecasters consulted by the company, particularly Market Insights Corp., see them as a bubble. It states they should average $70-80 per barrel (Mecham, 2008).
"The global economic turbulence clearly shows in the 0.8 per cent drop in freight volumes compared to last year," said Giovanni Bisignani, director general and chief executive officer of IATA. "Although the passenger demand grew by 3.8 per cent, this is the slowest growth that we have seen since the industry was hit by the SARS crisis in 2003 (Davies, 2008).
With consumer and business confidence falling and sky-high oil prices, the situation will get a lot worse." Asia Pacific airiines led the contraction with a 4.8 per cent year on-year decline while Latin American airlines recorded the largest fall (12.7 %) as the region's cargo sector continues to restructure its capacity (Davies, 2008).
In that regard, he says, market fundamentals remain sound. The company projects the world economy growing an average 3.2% yearly in the 2007-27 forecast periods, up 0.1% from last year. Boeing projects airline traffic to exceed the baseline gross domestic product (GDP) numbers. As it did last year, it forecasts 5% annual airline growth, as expressed in revenue passenger kilometers (Mecham, 2008).
“If a stimulus package is desired and if tax elements are a part of the package, the tax elements should be designed with the current economic and budget outlook in mind. The short-term economic outlook is uncertain, as the terrorist attack on September 11, 2001 having disrupted the workings of an already slowing economy.” Although the short-term uncertainty, there is widespread agreement that long-term economic prospects remain strong (Gale, 2001 p. 1).
“In contrast, the long-term budget outlook has deteriorated rapidly. Based on data from a recent bi-partisan statement from the Senate and House Budget Committees, the 10-year baseline budget surplus outside of social security appears to have shrunk by about $3 trillion (or 98 %) since May, and currently stands at just $50-$100 billion, not counting any stimulus package or any other new proposals that Congress may wish to consider over the next decade.1 Reasonable allowances for new spending that is widely supported (including defense, education, and prescription drugs) the extension of expiring tax provisions, and providing a fix for the AMT puts the non-social security budget in deficit to the tune of about $1.5 trillion over the next decade” (Gale, 2001 p. 1).
Whatever the magnitude of the short-term problem, it is worth noting that a significant amount of economic stimulus has already been provided, including $40 billion in rebates during the summer, $40 billion in spending for defense, rescue and recovery, and the airline bailout. In addition, the Federal Reserve has cut interest rates 9 times and by several hundred basis points since the beginning of the year. More stimuli are on the way, even if Congress does nothing. The tax cut passed last spring provides for about $70 billion in individual tax cuts during fiscal 2002 (Gale, 2001 p. 4).
In the short run, the federal government has already committed substantial resources to defense, rescue, and recovery efforts, as well as the airline bailout, and additional stimulus measures seem likely. Second, the attack seems likely to have slowed the economy, which would result in lower revenue and higher spending. Third, the longer-term policy response to the attacks is likely to involve changes in the nature and level of government spending (Gale, Orszag, Sperling. 2001, Appendix A, p. 3).
The vast majority of the decline in the 10-year budget projection from August to early
October -- which does not incorporate the tax cuts that have been proposed as part of an additional stimulus package -- is due to increased spending since the attacks. This spending includes additional defense expenditures, the projected cost of an emergency anti-terrorism bill that was passed, and assistance for the airline industry. The rest of the decline in the projected surplus since August is due to economic and technical adjustments, mostly reflecting the slowdown in the economy (Gale, Orszag, Sperling. 2001, Appendix A, p. 3).
The budget outlook is affected by the need to respond to the terrorist attacks. There is significant talk now of a return to bigger, more active government. The first few weeks after the attacks showed new government initiatives for defense, rescue and recovery spending, an airline bailout, a push for new federal authority to regulate airport security, and expanded powers of law enforcement. All of these items have budgetary implications (Gale, Orszag, Sperling. 2001, Appendix A, p.6).
Congressional and Administration leaders are now examining the appropriate fiscal policy response to the recent terrorist attacks. Since the attack, the Federal Reserve has provided liquidity to financial markets, and has reduced its key lending rate twice, by a total of 100 basis points. Congress and the President agreed on a $40 billion spending package for defense, rescue and rebuilding efforts, and an airline bailout of $5 billion, plus additional loan guarantees (Gale, Orszag, Sperling. 2001, Appendix C, p. 1).
The board of directors of Midwest Air Group, Inc. (Amex: MEH), parent company of Midwest Airlines, today announced it unanimously recommends that Midwest's shareholders reject AirTran Holdings, Inc.'s (NYSE: AAI) revised offer to acquire all outstanding shares of Midwest for a combination of $9.00 in cash and 0.5842 of a share of AirTran common stock. The board advises shareholders not to tender their shares to AirTran (Midwest Air Group, Inc.).

Recommendations and strategic initiatives:
The board reached its conclusion after discussions with its legal and financial advisors and careful consideration - including a thorough evaluation of the revised AirTran offer, the various alternatives available to Midwest, and Midwest's long-term strategic plan.
"Our board determined that AirTran's revised offer does not take into account the long-term value of our strategic plan," explained Timothy E. Hoeksema, chairman and chief executive officer. "The board believes that Midwest's future holds great promise and that the best interests of all stakeholders lies in Midwest continuing to execute its plan. As the true owners of the company, Midwest shareholders should benefit from the company's long-term plans to continue to create value."
Midwest filed an amendment to Schedule 14D-9 with the Securities and Exchange Commission (SEC) today, which sets forth the reasons for the board's recommendation and related information. These reasons include:
• AirTran's revised offer is inadequate and does not fully reflect the long-term value of Midwest's strategic plan, including its strong market position and future growth prospects.
• The board received an oral opinion from Goldman, Sachs & Co. on April 12, 2007, that as of that date, the revised offer was inadequate from a financial point of view to Midwest's shareholders (other than AirTran and its affiliates).
• The board believes that Midwest's strong operating performance in 2006 provides clear evidence of the strength of the strategic plan. Achievements in 2006 include traffic growth of 21.5%, unit revenue growth of 12.5% and yield improvement of 5.4%. This strong revenue performance, combined with Midwest's successful cost-reduction efforts, generated a $66 million improvement in operating income for 2006 compared with 2005 (Midwest Air Group, Inc.).
• The board noted that the performance of Midwest stock was further evidence of the success of Midwest's strategy, as the price of the stock increased by 61% in 2006 prior to the public disclosure of the AirTran proposal.
• The board maintains that Midwest's strategic initiatives, both those recently implemented and those planned for the future, will provide the foundation for profitable growth in 2007 and the years ahead. Recent strategic initiatives include the establishment of a regional flying agreement with SkyWest, Inc.; the decision to put two additional MD-80s into service beginning in mid-2007; the hedge of approximately 90% of Midwest's 2007 fuel requirements; and numerous service enhancements implemented since the beginning of this year.
• In recommending rejection of the revised offer, the board considered Midwest's updated forecast, which reflects the preliminary results of the first quarter and other developments over the past three months.
• The board believes that the timing of AirTran's attempts to take over Midwest is opportunistic and the revised offer is disadvantageous to Midwest's shareholders. In particular, the board believes that:
• AirTran's attempts to acquire Midwest are timed to take advantage of the significant strategic initiatives undertaken and investments made by Midwest during the recent down cycle in the airline industry. The board believes that industry market conditions will continue to improve and increasingly favor high-quality carriers like Midwest, and that AirTran timed the revised offer to acquire Midwest before these factors are fully reflected in Midwest's share price.
• As of March 31, 2007, Midwest had approximately $171 million of cash, representing more than $6.50 per share. According to AirTran, the cash portion of the revised offer and related expenses is approximately $240 million. Therefore, Midwest's cash on hand represents more than 70% of the cash estimated by AirTran necessary to complete the proposed acquisition.
• If the synergies AirTran claims will result from the proposed combination are realized as AirTran projects, the resulting benefit to the combined company is not reflected in the value of the consideration that would be received by Midwest's shareholders under the revised offer.
• As of December 31, 2006, Midwest had approximately $23 million in net operating loss tax benefit. A change in control of Midwest could diminish or delay the realization of this benefit.
• The value of the consideration being offered by AirTran is uncertain and highly dependent on the value of AirTran's common stock.
• In assessing the potential consideration to be received under the revised offer, the board noted the recent stock price performance of AirTran. During the past 12 months, AirTran's stock price has declined by 29% compared to a 158% increase in Midwest's stock price and an approximate 22% increase in an index of network carrier stock prices (which consists of AMR Corp., UAL Corp., Alaska Airlines, Continental Airlines and US Airways).
• Under Wisconsin law and Midwest's Articles of Incorporation, the board is authorized to consider the interests of stakeholders of Midwest other than its shareholders - including employees, suppliers, customers and the communities it serves - when considering an offer of this type.
• The board believes that AirTran's plans to operate the combined company are not credible and would not serve the interests of all stakeholders. The lack of a credible plan creates uncertainty about how those interests would actually be served by the combined company (Midwest Air Group, Inc.).

References
Armstrong, D. (2005). Cloudy skies Airline industry expects losses to go even higher. San Francisco Chronicle, D-1.
Davies, M. Fear of empty bellies. Logistics Manager.October 2008. Retrieved December 7,2009, from EBSCOhost database. http://search.ebscohost.com.ezproxy.apollolibrary.com
The Financial Forecast Center. http://www.marketvector.com/leading-indicator/
Gale, W. (2001, October 17) Perspectives on the Tax Stimulus Debate; Committee on the Budget. Retrieved December 12, 2009 from www.economics.neu.edu/morrison/research/house050928.pdf
Heil, S, and Peck, T.W., The Encyclopedia of American Industry, 2nd ed. Detroit: Gale Research, 1998
Mecham, M. (2008, July 14). Global Wealth: Strong economies more important than oil prices in Boeing sales outlook. Aviation Week & Space Technology, 169, p. 78.
Midwest Air Group, Inc. (2007, April 13). Midwest Air Group Board Determines Revised AirTran Offer is Inadequate; Cites Strength of Long-Term Strategic Plan, Recommends Shareholders Reject Offer Retrieved December 12, 2009, from http://www.midwestairlines.com
Moran, L. R. (2001). Survey of Current Business. March 1 2001 http://www.amlife.us Reed, D. (2002, December 6). Why airlines have trouble turning profits. USA Today, p. 1B