HND Micro and Macro economics outcome1 report

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Introduction

Richard Branson which was established virgin mobile in 1999, and after three year’s treading, it has make a profit. The report is to identify different market structures and characteristics. Furthermore, we analyze two roles that profit has played to attract Richard to enter into mobile market. Then, we identify two other alternatives to profit maximization as a goal of the firm. Finally, we identify the factors that have a impact on the shape of the total cost, average cost and marginal cost curves in the short run in a firm.

Discussion

1. The mobile phone market is believed to be an oligopoly – what are two characteristics of this market structure?

An oligopoly is a market form in which a market or industry is dominated by a small number of sellers (oligopolists).

An industry dominated by a small number of large firms, each of which is

relatively large compared to the overall size of the market.

This characteristics gives each of the relatively large firms substantial market control. While each firm does not have as much market control as monopoly, it definitely has more than a monopolistically competitive firm.

Firms sell either identical or differentiated products.

This characteristic might seem to be a bit wishy-washy, taking both sides of product differentiation issue

2. Illustrate with an appropriate diagram and describe the price and output behavior that may be seen in an oligopolistic market structure.

Short-run production activity of an oligopolistic firm is often illustrated by a kinked-demand curve, such as the one presented in the exhibit to the right. A kinked-demand curve has two distinct segments with different elasticities that join to form a kink. The primary use of the kinked-demand curve is to explain price rigidity in oligopoly.

The two segments are:

(1) a relatively more elastic segment for price increases

(2) a relatively less elastic segment for price decreases. The relative elasticities of these two segments is directly based on the interdependent decision-making of oligopolistic firms.

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The kink of the demand curve exists at the current quantity (Qo) and price (Po).

3. Choose another market structure and suggest two characteristics of this market structure.

In economic theory, perfect competition describes markets such that no participants are large enough to have the market power to set the price of a homogeneous product.

① Large Number of Small Firms

A perfectly competitive market or industry contains a large number of small firms, each of which is relatively small compared to the overall size of the market. This ensures that no single firm can exert market control over price or quantity. If one firm decides to double its output or stop producing entirely, the market is unaffected. The price does not change and there is no discernible change in the quantity exchanged.

② Perfect resource mobility or the freedom of entry into and exit out of the industry

Perfectly competitive firms are free to enter and exit an industry. They are not restricted by government rules and regulations, start-up cost, or other barriers to entry. While some firms incur high start-up cost or need government permits to enter an industry, this is not the case for perfectly competitive firms. Likewise, a perfectly competitive firm is not prevented from leaving an industry as is the case for government-regulated public utilities.

4. For your chosen market structure and with the aid of an appropriate diagram describe the price and output behavior in it.

In the Long Run firms in perfect competition will make normal profits. The price is set by the industry supply and demand.

But, then firms are price takers. If they set a higher price nobody would buy because of perfect knowledge. Therefore firms have an elastic demand curve.

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5. What two roles would profit have played in attracting Richard Branson to the mobile telephone market?

6. Analyze two other alternatives to profit maximization as a goal of the firm.

① Growth Maximization Theory

This theory is propounded by Robin Marris.

Managers look for perks, status, salaries but want to grow their own firm.

If firms want to sell more they must produce more. Productive capacity must also

grow.

If market or product is ‘mature’ and has little growth potential firms might have

to diversify into new areas. Growth can occur because of amalgamation, merger, and takeover.

Managers can never ignore their shareholders. They must keep them on board.

This will only occur if shareholders believe there is increasing value for them in his growth.

② Sales revenue maximization theory

Managers get better perks and salaries from sales than profit. Market share is considered a better sign of progress of a firm.

Because of the above, heavy advertising will take place to maximize sale. Profit may be reduced to pay for advertising

Firms will still profits- to keep shareholders happy

Firms operate on this philosophy will attempt to sell more but at a lower price

than a firm looking for maximum profit.

7. Discuss what influences the shape of the total cost, average cost and marginal cost

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curves in the short run in a firm.

Conclusion

The report is to identify different market structures and characteristics，two roles that profit has played to attract Richard to enter into mobile market，two other alternatives to profit maximization as a goal of the firm and the factors that have a impact on the shape of the total cost, …… 此处隐藏：3573字，全部文档内容请下载后查看。喜欢就下载吧 ……