...ECW2731 Managerial Economics Lecture 2: Demand & Supply 1 Outline • Lecture objectives: Demand Supply Market Equilibrium Comparative Statics • Unit objectives: Recognize and evaluate the various theories of the organisation Understand and analyze firm pricing strategies 2 Market Demand Demand is the quantity of a good or service that customers are willing and able to purchase during a specified period under a given set of economic conditions. Determinants of Demand Demand is determined by prices of other goods, income, expectations of price changes, consumer tastes and preferences , advertising expenditures and so on. 3 Basis for Demand • Direct Demand – Demand for personal consumption products. – The demand for products that directly satisfy consumer desires. – The value or worth of a g&s, its utility, is the prime determinant. 4 Basis for Demand • Derived Demand – Demand for all inputs is derived demand input demand. – Determined by the profitability of using various inputs to produce output. 5 Basis for Demand • Industry Demand Versus Firm Demand – Industry demand is subject to general economic conditions. – Firm demand is determined by economic conditions and competition. 6 Market Demand function 7 Demand Curve Demand Curve Determination –Demand curve shows price and quantity relation holding everything else constant. Change in Quantity Demanded –Quantity demanded falls if price rises. –Quantity demanded rises...
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...Problem 3.1 Demand and Supply Curves. The following relations describe monthly demand and supply conditions in the metropolitan area for recyclable aluminum QD = 317,500 - 10,000P (Demand) QS = 2,500 + 7,500P, (Supply) where Q is quantity measured in pounds of scrap aluminum and P is price in cents. Complete the following table: Price Quantity Quantity Surplus (+) or Supplied Demanded Shortage (-) (1) (2) (3) (4)= (2)-(3) 15¢ 16 17 18 19 20 SOLUTION Price Quantity Quantity Surplus (+) or Supplied Demanded Shortage (-) (1) (2) (3) (4)= (2)-(3) By putting the values of P in the QD & QS equations: 15¢ 115000 167500 -52500 16 122500 157500 -35000 17 130000 147500 -17500 18 137500 137500 0 19 145000 127500 17500 20 152500 117500 35000 Problem3.2 Demand and Supply Curves. The following relations describe monthly demand and supply relations for dry cleaning services in the metropolitan area: QD = 500,000 - 50,000P (Demand) QS = -100,000 + 100,000P (Supply) Where Q is quantity measured by the number of items dry cleaned per month and P is average price in dollars. A. At what average price level would demand equal zero? B. At what average price level would supply equal zero? C. Calculate the equilibrium price/output combination. SOLUTION A. From the demand relation,...
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...Tata Motor’s -Company Background Tata Motors was established in 1945 and is formerly known as Tata Engineering and Locomotive Company. It is India's largest automobile company, and a fortune 500 company. Tata Motors acquired Jaguar and Land Rover, a premium car brand in UK, in 2013. The company always worked in line the Tata Values to contribute to Indian society. Tata Nano - Origin Ratan Tata’s thought about a people’s car was a social concern. He wanted to give a car to middle class of the society. Accordingly Ratan Tata, former Chairman, Tata Motor’s, shared his vision of making Rs. 1 lakh car at the Geneva Motor Show, in 2003. A team was then constituted to build a car with a target price of Rs. 1 lakh. Subsequently, the car was launched with a tag line “A promise is a promise”. Executive Summary TATA Nano is the cheapest car in the world. It is manufactured by TATA Motor Limited, the largest automobile company in India. Its chairman, Mr. Ratan Tata envisions that Tata Nano to become a “People’s car” which is affordable by almost everybody. Tata Nano is scheduled to first be launched in India on 1st April 2009 and expected to be in Indian market by July 2009. From the first moment that Tata Nano project was published, a huge buzz has been created all over India. It has already received 3000 bookings. What makes Tata Nano so cheap? Basically, by making things smaller, lighter, do away with superficial parts and change the materials wherever possible without compromising...
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................................................................... 5 Demand and Supply ............................................................................................... 5 Elasticity ................................................................................................................. 8 Efficiency and Equity ............................................................................................. 10 Conclusion ............................................................................................................... 12 References ............................................................................................................... 13 1 Executive Summary The objective of this paper is to offer an in-depth analysis the economic situation of the newspaper publishing industry in Australia within the microeconomic scope. The paper analyses transformations of the industry brought by digitisation and the fast paced technology development. It discusses how digitisation and technology affects the demand and supply of printed newspapers. It also looks at the elasticity and efficiency and equity of newspaper in the current market. This paper is divided into four section. Following an introduction (Section 1.0), then Section 2 .0 introduces the economic concept which will be used through the paper. Section 3.0 analyses the economic state of the newspaper publishing industry using...
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...MANAGERIAL ECONOMICS ASSIGNMENT Table of Contents Assignment Question no: 1 3 Assignment Question no: 2 5 Assignment Question no: 3 7 Assignment Question no: 4 9 Assignment Question no: 5 11 Assignment Question no: 6 13 Assignment Question no: 7 16 Assignment Question no: 8 19 Reference 22 Assignment Question no: 1 a) Explain the concept behind the production possibilities frontier. The production possibilities frontier (PPF) or "production possibilities curve” shows a combination of two goods and services that can be produced with the full available factors of production and technology (Arnold, 2010). The production possibility curve is represented in the below diagram. Figure-1 Production Possibility Frontier * In the above diagram which indicates that at the production at point X the output of Product A is A2 and output of Product B is B2. * If suppose the product B is increased from B2 to B1 the product A will decrease. * In the production possibilities frontier W indicates that the resources are not fully utilized efficiently. * In the production possibilities frontier Z indicates that the additional resources are required to product at a point beyond or outside the curve. b) c) Analyze what it means for the PPF to be bowed out from the origin (curved), and what it means for the PPF to be a straight line According to Riley (2012) Production Possibility Frontier is in a straight line as the opportunity...
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...Whole Foods Case Analysis 1. (a) Whole Foods operates in the organic, or natural and specialty foods retail industry. Leading the industry, Whole Foods Market is the world's most successful natural foods grocery chain. Having recently acquired one of its main competitors, Wild Oats Market, Whole Foods currently competes with two other large grocery chainsKroger and Trader Joe's. The company also acquired Amrion, a company specializing in nutraceuticals (natural supplements with pharmaceutical-type benefits), creating considerable competition with General Nutrition Centers (GNC) nutritional supplements and dietary products. Additional competition is taking place in traditional grocery stores incorporating some organic products on to their shelves. 1. (b) The attractiveness of this industry and its potential for profit are functions of Michael Porter's five competitive forces model: barriers to entry, bargaining power of both suppliers and buyers, the threat of substitute products, and the depth of competition among rival companies. Barriers to Entry Currently, Whole Foods has no significant barriers to entry. Americans are becoming more food and health conscious and Whole Foods is catering to this demand by becoming the premier outlet for all-natural, organic food products, while creating a unique, cohesive brand. The company is growing a loyal customer base, and is offering the majority of its products at competitive prices. With more than 300 stores located in the US,...
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...its marginal cost because if price were above marginal cost, the firm could increase profits by increasing output, while if price were below marginal cost, the firm could increase profits by decreasing output. A profit-maximizing firm decides to shut down in the short run when price is less than average variable cost. In the long run, a firm will exit a market when price is less than average total cost. 3. In the long run, with free entry and exit, the price in the market is equal to both a firm’s marginal cost and its average total cost, as Figure 1 shows. The firm chooses its quantity so that marginal cost equals price; doing so ensures that the firm is maximizing its profit. In the long run, entry into and exit from the industry drive the price of the good to the minimum point on the average-total-cost curve. [pic] Figure 1 Questions for Review 1. A competitive firm is a firm in a market in which: (1) there are many buyers and many sellers in the market; (2) the goods offered by the various sellers are largely the same; and (3) usually firms can freely enter or exit the market. 2. Figure 2 shows the cost curves for a typical firm. For a given price (such as P*), the level of output that maximizes profit is the output where marginal cost equals price (Q*), as long as price is greater than average variable cost at that point (in the short run), or greater than average total cost (in the long run). [pic] Figure 2 3. A firm will shut down...
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...Economics Report and Demand & Supply curve Of cigarettes in Australia Introduction: Recently, there has been a new trend in the tobacco industry in Australian society due to the increased prices of cigarettes, mainly for the reason that “with more than 3.1 million people still smoking today, tobacco still being the leading cause of death by a wide margin… “ (Scollo & Winstanley, p.xiii, 2008). Therefore, this report will illustrate the market structure of Australia tobacco industry, and then make analysis about the price chances on the demand and supplies for cigarettes. The third and the fourth part of the report are about the impacts of this change and some government policies for the tobacco industry, respectively. The market structure: Table 1: Tobacco companies operating in Australia: summary table for 2006-07 | BATA | PMA | ITA | Total revenue ($m) | 1476.7 | 623.3 | 386.5 | Net profit after tax ($m) | 410.7 | 172.6 | 2.7 | Shareholders’ funds ($m) | 632.6 | 403.4 | 25.1 | Total assets ($m) | 2962.1 | 627.5 | 176.7 | Number of employees | >110019 | 691 | 299* | Approximate market share in Australia (%) | 4619 | 34* | 1820 | * Figure for 2006 ** Figure assumed on the basis of market share reported by BATA and ITA, and assuming that a small percentage of the Australian market is accounted for by imported brands. Source: The BRW 1000, BAT website, BATA website, Imperial Tobacco Group Website. The tobacco industry in Australia has been considered...
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...1)The following function describes the demand condition for a company that makes caps featuring names of college and professional teams in a variety of sports. Q=2,000-100p Where Q is cap sales and P is price. a.How many caps could be sold at $12 each? b. what should the price be in order for the company to sell 1,000 caps? c. At what price would cap sales equal zero? 2). Consider the following supply and demand curves for a certain product. Qs=25,000P Qd=50,000-10,000P a.Plot the demand and supply curves. b. what are the equilibrium price and equilibrium quantity for the industry? Determine the answer both algebraically and graphically. 3) The following relations describe the supply and demand for posters. Qd=65,000-10,000P Qs=-35,000+15,000P Where Q is the quantity and P is the price of a poster, in rupees. a. Complete the following table. Price | Qs | Qd | Surplus or shortage | 6.00 | | | | 5.00 | | | | 4.00 | | | | 3.00 | | | | 2.00 | | | | 1.00 | | | | b. What is the equilibrium price? 4). The following relations describe monthly demand and supply for a computer support service catering to small business. Qd=3,000-10P Qs=-1,000+10P Where Q is the number of businesses that need services and P is the monthly fee in rupees. a) At what average monthly fee would demand equal zero? b) At what average monthly fee would supply equal zero? c) Plot the supply and demand curves. d) What is the equilibrium...
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...Summer 2011-Practice for Final Exam 1. A monopoly firm is different from a competitive firm in that: A. there are many substitutes for a monopolist's product while there are no substitutes for a competitive firm's product. B. a monopolist's demand curve is perfectly inelastic while a competitive firm's demand curve is perfectly elastic. C. a monopolist can influence market price while a competitive firm cannot. D. a competitive firm has a U-shaped average cost curve while a monopolist does not. 2. If a monopolist increases output from 14 to 15 by lowering its price from $32 to $31, marginal revenue is: A. $ 1. B. $ 17. C. $448. D. $465. [pic] 3. Refer to the graph above. The maximum possible total profit this monopolist who charges only one price can earn is: A. $ 0. B. $ 60. C. $120. D. $240. [pic] 4. Refer to the graph above. The profit-maximizing monopolist would sell its output at price: A. P1. B. P2. C. P3. D. P4. 5. The DeBeers Company is a profit-maximizing monopolist that exercises monopoly power in the distribution of diamonds. If the company earns positive economic profits this year, then the price of diamonds will: A. be equal to the marginal cost of diamonds. B. be equal to the average total cost of diamonds. C. exceed the marginal cost of diamonds but be equal to the average total cost of diamonds. D. exceed both the marginal cost and the average total cost of diamonds. [pic] 6. Refer to the graph...
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...Q-1: a) Production Possibilities Frontier (PPF) is a curve showing how much two or more goods can be produced by limited resources available. According to (Riley, 2012) "(PPF) is a curve or a boundary which shows the combinations of two or more goods and services that can be produced whilst using all of the available factor resources efficiently". Following diagram shows Production Possibility Frontier: C A Output of good Y B Output of good X b) The PPF curve is bowed out from origin because when the company allocate more recourses to produce good Y, they reduce the same resources from the production of good X. The amount of resources forgone from X to produce good Y is called opportunity cost. When the extra output that will get from allocating more recourses to good Y may fall this is known as diminishing return. This sometimes happen because all factor inputs are not equally suited to produce all goods. However when the opportunity cost of producing two goods are constant the PPF curve will be a straight line. Following diagram shows straight line PPF curve. Output of good Y 200 Y 160 X 60 90 Output of Good X c) Opportunity cost is the next best value forgone in order to make a decision. According to (Wilkinson...
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... This is what Wii™ is all about.” Executive Summary Since its inception in 1952, the video gaming industry has grown tremendously in terms of game development, game complexity, and how the graphics look today, compared to the early years. In those early days of gaming, up until just a few years ago, there was really only one dominant market segment, comprised of young people (Males 19-24 years of age). These gamers up until Nintendo entered the console market were exposed to excessive violence, and over simplistic gameplay. Nintendo saw an incredible opportunity to offer gamers something more. They brought in captivating story lines, and complex characters in which gamers could get into, and relate with, all while playing Nintendo games. In November 2006, Nintendo emerged in the market with a home video gaming console of its own that created innovative enjoyable playing experiences for all, regardless of their age, gender or cultural background. Nintendo’s goal of expanding the gaming population by launching the Nintendo Wii video game console was a phenomenal success, and expectations vastly surpassed the company’s most optimistic sales projections. Due to its popularity, uniqueness and fun, playing video games was an enjoyable experience for all members of the household, and the Wii became incredibly popular and suffered extremely high demands and supply shortages shortly after it was released in the North American Market. George Harrison, Senior VP of Marketing...
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...Running Head: ECONOMICS OF SATELLITE DISH PROVIDERS Economics of Satellite Dish Providers Abstract The satellite dish industry follows the laws of supply and demand. Demand is associated with product pricing. Satellite dishes are considered to be price elastic because the demand varies with price. The following items will be discussed in terms of demand and product pricing: * Utility * The Law of Diminishing Marginal Utility * Determinants of Demand * Substitutes and Complements * Elasticity Costs of production are a basis for product pricing. A company cannot make a profit by selling a product below production costs. Costs also affect the supply of a given product or service. The following will be discussed in relation to costs and supply: * Costs * The Law of Diminishing Returns * Determinants of Supply The market structure in which a firm operates affects both price and non-price competition. The following components of market structure will be discussed: * Defining Characteristics * Implications * Non-price Strategies Economic forecasts affect all determinants of supply and demand. Being an elastic product, satellite dishes are vulnerable to economic forecasts. The following will be discussed about economic forecasts: * Supply Indicator * Demand Indicator * Implications Table of Contents Product Pricing....................................................................5-8 Costs.............................................................
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...support@accnerd.com. We can usually provide immediate custom support during normal business hours. 1) Concert ticket prices increase by 5%, while attendance decreases by 2%. What is the elasticity of demand for concert tickets? 0.4 Explanation: In this problem, elasticity of demand is calculated as 2 divided by 5. 2) How is microeconomics different from macroeconomics? Microeconomics covers the choices made by individuals. Macroeconomics covers the total economy’s performance. Explanation: Microeconomics is about individual choices, while Macroeconomics is about the overall economy. 3) What type of research contains the relationship between the money supply, interest rates, and inflation rates? Macroeconomic Explanation: Factors that affect massive groups of people are considered macroeconomic research. 4) Oil prices started rising in the 1990s. Much of the supply was met from sources that were non-OPEC. OPEC was not able to stop output among its members to lift oil prices. How would you describe this scenario? The increase in demand shifted the demand for oil to the right. When price went up, the quantity of oil supplied also went up. Explanation: As the prices of oil rose, it created a boom in supply from other suppliers wanting to get in on the action. When demand increases it shifts...
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...of Entering a market 2) Power of Input Suppliers 3) Power Of Buyers 4) Industry Rivalry 5) Substitutes and Complements 3) Understand Incentives • Paying an “Income” is not an Incentive • Bonuses are effective 4) Understand Markets • Three sources of Rivalry 1) Consumer-Producer Rivalry: • Consumer wants low prices while producer wants high prices. 2) Consumer-Consumer Rivalry: • Those who can pay the most for goods can only purchase 3) Producer-Producer Rivalry: • Firms with best quality and lower prices earn customer 5) Recognize the Time Value Of Money • Present value Analysis: The amount that would have to be invested today at prevailing Interest rate to generate given future Value. • Present Value Formula: PV= FV/(1+i)^n • Present Value Stream: (FV_t)/(1+i)^t • Net Present Value: Future Value – Cost • Perpetuity: (CF/i) 6) Use Marginal Analysis • Most Important Managerial Tool • N(Q)= B(Q) – C(Q) • Marginal Value Curves are the Slopes of the Total Value Curves Chapter 2 • Demand: As price goes up demand goes down; Vice-Versa • Changes in Quantity Demand: When price is the lead to a change in Quantity 5 Factors that Effect Demand A) Income: Effect how much consumers will buy at any price. • Normal good: Increase in income leads to increase in Demand for a good. (Name Brand Hot Dog) • Inferior Good: Increase in income leads to decrease in demand for a good. (Generic Brand Hot Dog) B) Price of...
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