The Marginal Revenue Rule

Running head: Microeconomic Theory
Microeconomic Theory
Name of the Student
Name of the University
Student ID

Microeconomic Theory1
Table of Contents
Task 1................................................................................................................................2
Introduction.....................................................................................................................2
Discussion......................................................................................................................2
Demand......................................................................................................................2
Supply.........................................................................................................................6
Conclusion......................................................................................................................8
Task 2................................................................................................................................9
Introduction.....................................................................................................................9
20th century economics..................................................................................................9
21st century economics................................................................................................10
Contrast between the theories and application of 21st century theories in business...10
Conclusion...................................................................................................................11
Reference........................................................................................................................12

Microeconomic Theory2
Task 1
Introduction
The report studies the microeconomic theory of demand and supply with
reference to Tesco, one of the largest retail business in the world. Tesco is the largest
retail business in the United Kingdom. Tesco is the only supermarket chain business
with British origin that operates overseas. The retail company operates in 13 other
countries worldwide other than the United Kingdom. The countries The countries in
which the company operates are Hungary, Malaysia, Poland, South Korea, Slovakia,
Turkey, Czech Republic, Republic of Ireland, China, Japan and Thailand report
discusses the changes along the supply and demand curve based on the market aspect
of Tesco (Birkin, Clarke and Clarke 2017). In addition to that, the report includes the
discussion on the movement of demand and supply curve depending on the similar
market factors as considered in the case of changes along the demand and supply
curve.
Discussion
Tesco under the retail business has 6800 stores around the world including
super markets and departmental stores (Byrom and Medway 2018). The company
mostly deals in groceries, electronics and fashion garments. In aggregate, it can be said
that the company sells consumer goods and thus the demand generated for the
products of the company is from the individual customers who do not have price
negotiation power. On the other hand, the competitors of Tesco in the retail business
are Walmart, Kroger Company, the Home Depot, Target Corporation, Metro Group and
few others (Nguyen et al. 2017). Thus, it can be understood from the market structure
that Tesco operates in oligopoly market. Therefore, the supply and demand of the
market is influenced by the oligopoly market structure of the retail industry.
Demand
The law of demand states that with increase in price of a good the demand of the
same decreases given the others things constant (Cerreia et al. 2016). Tesco operates
in an oligopoly market and faces the demand curve as shown in figure 1.

Microeconomic Theory3
Price Factor
In the figure, it can be seen that the demand curve is downward sloping and thus
demand shares inverse relationship with price (Mauersberger and Nagel 2018). It
indicates that with increase in price, the demand of the product that the company sells
would fall and alternatively with fall in price the demand would rise. Therefore, it can be
said that movement along the demand curve occurs mainly due to price fluctuations.
More is the price fluctuation more is the movement along the demand curve. In addition
to that, change in demand depends on consumer preferences, availability of substitute
products and impact on health of the consumers. Price fluctuations might occur due to
various reasons. Tesco depends on its competitors to set price for its products in the
market as it operates in an oligopoly market. This, is one of the reason of price
fluctuation. Other factors that causes price fluctuation are availability of the product in
demand. The more is the availability of product less will be the price.
Figure 1: Movement along
demand curve due to price fluctuation
Source: (Created by the Author)
In figure 1, A is the initial point where price is P* and quantity is Q*. Tesco in
order to earn more profit increases the price from P* to P1. Consequently, the product
become more expensive and as a result, with given amount of income consumers could
afford lower quantity of the product (Dupraz 2016). Therefore, the demand falls from Q*