Assignment of Economic contexts for managers

 

Lecture code       500032

 

John Liu         （ox tendon 牛筋）

 

 

Scenario 1

 From the understanding of the theory of economics, perfect Competition Market is extremely high degree competition with very large number of firms producing identical products or service , there are few characteristics of perfect competition:( not perfectly competition )

1 the number of seller and buyers is very high ( very many to few to one in monopoly)

.2 the degree of product differentiation is nil ( very low to usually high to very high)

.3 the firm doesn’t have any cost competitive advantage and there is no entry or exit barrier for the industry as well ( little to high to very high)

.4 profitability of the industry is low( low to high to very high in monopoly)

5 information is complete for all consumers and producers.

,from the knowledge we learned and experience get from china market, I think farmer product and drinks industry are perfect competition examples. Both of them fit all the characteristics of the above, farmer product are competing with imported product after china enter WTO. Drinks market may divided into several segment, pure water is perfect competition while soft drinks is oligopoly and juice is monopolistic competition.

For example , The Rice industry in China is close to Perfectly Competitive Market. Before China’s Open Door policy, Rice supply and price are controlled by government and the supply volume and collected price from farmer are also determined by government. After China government open the Rice industry to private firms, the Rice industry becomes more and more dynamic. The private firms can purchase rice from farmer with negotiated market price and sell to anywhere without territory restriction. The rice selling price is almost the same in the market. The firm try to improve their competitive advantage and build up consumer loyalty by improving product variety and services, such as door to door service, telephone ordering etc.

The Pure Water industry is the examples that deviate from perfect competition market and gradually moves to monopolistically competitive market. Although the Pure Water industry’s entry barrier is very low and the price is similar, more and more companies are shifting to this industry as the attractive profit. In recent 10 years, not only local company but also international company such as Coco, Watson’s are entering this industry, they produce high quality product with low cost and sell at market price, they spend lots of money on advertising to build up consumer loyalty and brand awareness, they improve relationship with public and government by involving charity project such as “Hope Project”. All of these activities help the firms to compete away local rivals and dominate the market. As Chinese people pay higher and higher attention to healthy, they are also willing to buy these pure water product producing by international company. So under the “Push and Pull” force, the Pure Water industry is deviate from perfect competition market.

The case that similar with Pure Water industry is happen on most FMCG(fast moving consumer goods) product industry, such as Soft Drink, Toothpaste and Shampoo etc. The international brands dominate the whole market or rank top 1 or 2 market share in China.  

Scenario 2

Pricing Proposal for Electric Powered Motor Vehicle

Industry/Market analysis

The market competition is not keen for the time being, but we can assume that more and more firms will enter this industry as supernormal profit. And we assume government will also regulate some polices that help to boost this industry as the situation of lacking oil resource in China and higher and higher oil price in international market, Such as less tax or technology development support etc. Thus we can foresee that this market will be shifting from Oligopoly to Monopolistic competition market.

Competitor analysis

As Powered Motor Vehicle requires high technology, the entry barrier of this industry is high, thus at present few of company are producing this product and no one company can dominate the market. The product price is similar with transparent cost.

 

Product analysis

The new model your company produced improved the technology compared to old model and ahead of other firm’s in this industry. But in terms of production cost, there is no advantage compared with key competitor. 

Product positioning

Although the consumers know the advantage of Electric Powered Motor Vehicle, but most of consumer don’t know the exact technology and are not familiar this product. Thus at present this product is still restricted to those consumer with high income and high sense of environment protection. But we can foresee that target consumer will extent to middle income consumer in coming 5 years, say family income above rmb70,000 (after tax).

Recommendation for new model price

In short run, the existing market of Powered Motor Vehicle is not competitive, and consumer is not sensitive with the price, thus the price of new model can set at a 5% higher than average price of similar product in industry for the new model’s technology has been improved. This also reserve the room for further down price in future to match market price.

 

In long run, if we foresee the market will become competitive, that means the demand will be increased and price will toward to a downward trend. According to first-mover theory, your company should react quickly to this changes and has the capacity of reducing price to a level of 5% lower than average price of similar product in industry. That means you company has to start to consider how to cut down the cost to have this further down-price capacity. 

In addition, your company should improve customer service to increase consumer’s perceived value, if they think

the quality and services that your company provide is value-for-money, then will be loyal to your company’s product and help you to expand consumer network.

The proper investment in advertising is necessary to build up brand awareness, the image of high-tech and best customer service will help to offset the impact of 5% higher price.

Scenario 5

1   suppose supply and demand formulation are respectively

Qs =A+ B*Ps        Qd=C+D*Pd

Supply line through point E  (0, 0.5) and point D  (200, 1.5)

Qs = 100+ 200Ps

Demand line through point A  (0,3.5) and point B  (200, 2.5)

Qd = 700-200Pd

From the diagraph we know the intersection point of supply and demand is the equilibrium          so    Qs = Qd = Qe,   Ps=Pd=Pe

 that is            100+200Pe=700-200Pe,       

equilibrium price  Pe=2.0             

equilibrium quantity   Qe=300

 

2   Consumer surplus is the AGC area    that is     (3.5-2.0)*(300/2)=225

producer surplus is the ECG area      that is     (2.0-0.5)*(300/2)=225

social surplus is the ACE area        that is consumer surplus plus producer surplus     social surplus is  500

3 if the supply is 200,   

consumer surplus is ABH area   (3.5-2.5)*200=100

  producer surplus is EDF area    (1.5-.5)*200=100

  social surplus is    100+100= 200.

Scenario 7

From condition, we know the marginal cost is          MC= 8

                     Marginal revenue is      MR=(10,000/k)*0.1

When marginal revenue curve intersect with the marginal cost curve, in other words, MR=MC, the profit will be maximized. (10,000/k)*0.1=8

So                      K=125

The farmer should employ 125 casual fruit pickers

Scenario 8

From condition the marginal cost is MC=10

When marginal cost (MC) equal marginal revenue (MR). The profit is maximized. At this time     MR=p=100-5y

That is               100-5y=10

So                       y=9        MR=55

 The maximum of profit is total revenue (TR) minus total cost (TC)

That is                   55*9-10*9=405

When monopolists produce 9 units, the monopolist’s profit is maximized. The maximum of profit is 405

Scenario 9
For domestic market :
As	Pd=120-(Yd/10)
So	Yd =1200-10Pd
From above,we can know that when price is 120, demand is zero; and when demand is 1200,price is zero,
We can get the following (MC is on the assumption of producing same qty for domestic and export market) :
Yd	Pd	Revenue(d)	MR(d)	MC
0	120	0	---	---
100	110	11,000	110	70
200	100	20,000	90	90
300	90	27,000	70	110
400	80	32,000	50	130
500	70	35,000	30	150
600	60	36,000	10	170
700	50	35,000	-10	190
800	40	32,000	-30	210
900	30	27,000	-50	230
1000	20	20,000	-70	250
1100	10	11,000