Economics-for-Manage

Economics for Managerial Decision MakingEcon/GM 561University of PhoenixEconomics for Managerial Decision MakingIntroduction

In terms of competitiveness, the spectrum of market structures reaches from pure competition, to monopolistic competition, to oligopoly, to pure monopoly (McConnell & Brue, 2005). Quasar is a computer company that has designed a unique innovation through its optical notebook. Because the product is new in the market, deciding the right level of advertising expenditure, technology, and other investment proposals is important. To gain economic profits Quasar must produce output where MR=MC. The company is operating in a large market environment based on different market structures; this will affect the firm’s behavior in different ways. The purpose of this paper is to create a set of pricing and non-pricing strategies designed to enable Quasar to maximize its economic profits in each market structure, as global competitive forces work to transition from monopoly to oligopoly to monopolistic competition to pure competition pricing as a tool for optimizing profits.

Monopoly 2003 first cycle

Pure monopoly exists as in the case of Quasar, when a single firm is the sole producer of a product for which there are no close substitutes (McConnell & Brue, 2005). The company introduce the new notebook in this cycle, as CEO, the objective is to set a price for the notebook, allocate funds for advertising budget, and invest on internal processes improvements. Since the product is new, setting price that will maximize profits is critical. Advertisement play a great role in any product, with money invested in ad campaign, the company was able to target large corporations that spiked the sales and increase profits. In a monopoly market structure, down sloping demand curve means that the monopolist is a price maker the goal is to chase a cost reduction and demand stimulation strategy by increasing profit because the ATC would be reduced.

Oligopoly Second Cycle 2006

An oligopoly is made up of relatively few firms producing either homogeneous or differentiated products; these firms are mutually interdependent (McConnell & Brue, 2005). The second cycle brings in new entry to the market, Orion Computers, has captured 50% of the market share. As the CEO, stabilizing the market price at which Quasar makes the maximum profit in the number one priority. My first step is to decide on the price of the notebook at which the company will be able to compete for market share and profits, taking into account the new competitor reaction to any change in the price, output, product characteristics, or advertising. From the simulation, I was able to stabilize the price, but optimal profits were never achieved. To get optimum profits, I will have to evaluate the price relative to competitor’s reaction and my absolute price.

Monopolistic Competition Third Cycle 2010

Monopolistically competitive firms may earn economic profits or incur losses in the short run (McConnell & Brue, 2005). Because there is easy of entry and exit of firms, the company will only generate normal profits in the long run. In order to keep a strongly differentiated product, $200 million must be set aside for brand development. The focus in this cycle is to stimulate demand for Neutron and to capture greater market share. The goal is to make price less of a factor when customers are purchasing and focus more product differentiation. When implemented successful, Quasar’s demand curve will shift to the right and will become less elastic. As CEO, finding the right combination of price, product, and advertising in a monopolistic market will maximize profit for Quasar.

Perfect Competition fourth Cycle 2013

A purely competitive industry consists of a large number of independent firms producing a standardized product (McConnell & Brue, 2005). Pure competition assumes that firms and resources are mobile among different industries. In the fourth cycle, the market structure changes to a perfect competition market structure. In this market, the company will have to use cost reduction, and not price or quantity to make effective decisions. One way to reduce cost is by exploiting a component of its existing products. In this portion of the simulation, Quasar learned that the market governs the pricing of the product, and that in order to sell more, sometimes reductions in cost result in higher profits. Cost cutting measures do result in profit levels above that of the competition, but only in the short term. The maturity of the market in terms of its requirements and processes means that all manufacturers offer similar products.

Pricing and Non-pricing Strategies

To increase revenue and profit, Quasar has to use various but complementary strategies. To attract new and retain old customers the firm implements pricing strategies for the optical notebooks. Non-pricing strategies use other methods such as branding to maintain market share without altering price. During economically hardship, firms will use more of pricing strategies, but to gain an edge of over competitors, it is necessary to use both. As the CEO, I must take into account current market conditions when developing pricing strategies for the various market structures to ensure that the prices they choose fit market conditions. Furthermore, having an effective pricing strategy bring more new customers, reduce costs, and have a competitive edge over competition.

Identify Global Market

Regardless of their cost or their ability to achieve a desired objective, every nation uses trade barriers. Two countries where the company will face the greatest competition are the United States and Japan. In the United States, there are several forms of protection, the software industry in both countries are under protection, although the United States protection is stronger than that of Japan. There are various commercial policies in place to protect the computer industry from competition are: Specific tariffs, Ad valorem tariffs Licenses, Import quotas, Voluntary export restraints, and Local content requirements.

Conclusion

From the scenario we see that a business can fall into any of the four market structures, Quasar transition through all the structures as it develop a new product. As the product developed by the company matured, new competition was formed .As managers, lack understanding of the various market structures could result in the loss of market share, profit, and in some cases the death of the business.

References:

Economics for Managerial Decision Making: Market Structures (UOPM, 2012)

McConnell, C. R. & Brue, S. L.. (2005). Economics: Principles, problems, and policies. New York: McGraw Hill/Irwin.

Read more: http://www.investopedia.com/articles/economics/08/tariff-trade-barrier-basics.asp#ixzz21W9i6jHU