Economics Report: Market Equilibrium, Exit Barriers and Lump-Sum Tax

This report delves into various aspects of economics, starting with how a perfectly competitive market adjusts to long-run equilibrium when firms face short-run losses. It explores how barriers to exit can also act as barriers to entry, detailing different types of exit barriers. The report further examines the effects of a lump-sum tax on face mask companies, identifying who bears the tax burden. It also analyzes the impact of the COVID-19 pandemic on the microphone headset market due to increased remote work and health regulations. Finally, the report discusses product differentiation strategies, particularly in the context of the tobacco industry before plain packaging rules, and touches upon collusion, its incentives, and market features that facilitate it. It concludes with real-world examples and considerations for Rolls Royce's global market strategy. Desklib provides access to this and other solved assignments for students.

Economics
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Contents
Explanation of how perfectly competitive market adjust long run equilibrium from position
where individual firm is making small loss in shot run...............................................................3
Explanation of how barrier to exit can considered to be barrier to entry and also outline
different types of barrier to exit that can exist in market.............................................................4
Effects of a lump-sum tax on companies selling face masks, clearly outlining who ends up
bearing the burden of the tax.......................................................................................................4
Explanation of how the market for microphone headsets (for use with computer based
videoconferencing) has been changed by the recent Covid-19 pandemic that has resulted in
increased working from home for many industries and also greater government Health &
Safety regulations affecting how companies can make and sell products...................................5
An increasing numbers of countries…….. and how it might have been utilised in the tobacco
industry before the introduction of these new rules.....................................................................6
-6. It is well known ……soft drinks industry in the UK.............................................................8
-7. In 2016 the European Commission …………how collusion might have taken place in the
market for Trucks (i.e. large commercial vehicles....................................................................10
What is collusion.......................................................................................................................10
Why firms want to engage in it..................................................................................................10
What features of a market determine the ease and extent of collusion?....................................11
-8. Wessex Water………………..real-world of business does each model give us?..............12
Imagine that Rolls Royce………. addressed globally...............................................................15
REFERENCES..............................................................................................................................17
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Explanation of how perfectly competitive market adjust long run equilibrium from position
where individual firm is making small loss in shot run
In long run, perfectly competitive market is different in compare to short run. In a long
run, all types of inputs can be variable and as a result firm may enter or exit in an industry. In
long run, if business is facing profit in short term, it will get incentives through expansion of
existing factoring or building new factories (Anderson, Asche and Garlock, 2019). In situation
where new companies starting different types of production in order to get higher profit, this
situation is called enter. In opposite manner, at time when companies are facing loss in short
term, in this situation, it will result in shut down of company that is depend on revenue along
with variable cost. But in long term loss faced by company can results in cease of production.
Companies leaving that industry can have called this situation as exit.
In long run, an organisation which are facing losses in short run will leave industry in
long run. It results in increase in prices of products as well as reduction in cost of industry. These
changes take place on regular basis in industry that includes both total cost as well as normal
profit.
Short term loss will result in decreasing demand of products and service with which
market price of product is also started to decrease (Andor and Fels, 2018). Existing companies
needs to provide their products at lower prices as it is lower than average cost curve that results
in economic losses. But there is some organisation which are continue their production that
results in P=MR=MC. These firms are production until they are covering their average variable
cost. There are some firms that will shut down their business immediately after they are unable
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to cover average variable cost and in this situation they only need to bear fixed cost and can
minimise their losses.
Explanation of how barrier to exit can considered to be barrier to entry and also outline different
types of barrier to exit that can exist in market
Barrier to entry can be described as obstacles as well as hindrances which make it
difficult for organisation to enter in market. These can be a technological challenge, government
regulation, education requirement, licensing requirement, patent and other things.
Contestable market theory is known as economic concept which states that companies
with few rivals behave in competitive manner when they are operating in has weak barriers for
entry. As per this theory, it is evaluated that in a monopoly or oligopoly market, incumbents are
acting competitively when there are lack of barriers like government regulations and high cost
entry. This theory states that companies which are having few rivals are behaving in competitive
manner in the market they are operating.
These regulations which does not allow firm to enter in firm is mentioned below:
Tax breaks and regulation: There are different types of benefits which an organisation
get from government like tax breaks, grants from government and other things that is encouraged
with incentives but it may turn into high penalties at time when companies are making attempt to
move their operation before fulfilment of obligation (Baldwin and Milner, 2019). Government
regulation create various difficulties for a business to exit in market. For instance, bank is
important for lending as well as promoting economic growth in a specific region and if there are
no enough bank, government might result in block of sales of bank through other party.
Costly equipment: There is increasing barrier on exit of a company in a market which
create force over company to compete in market and also results in intense competition in
market. There is some manufacturing industry which is a facing high barrier to exit as these
industry is requiring large investment in equipment which are made for purpose of performing a
specific task. If these companies operating in specific manufacturing switch to other business,
they need to face financial loss as money invested in this industry is large sum capital. They
cannot expand new line of business until they are able to cover cost of company.
Impact on environment: Company which are operating in specific industry and making
decision for exit of industry needs to face clean-up cost that is considering a closing factors as
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well as production facilities used for purpose of production of material that is left for
environmental hazards (El-Emam and Özcan, 2019).
Effects of a lump-sum tax on companies selling face masks, clearly outlining who ends up
bearing the burden of the tax.
Lump sum tax refers to a special form of tax that is based on fixed amount instead of real
circumstances of taxed entity. It is a form of tax in which entity is unable to do something for
purpose of making changes in their liability. It creates impact on companies who is selling face
mask to people as it creates burden of tax on companies which results decrease profit of
company in market place. Due to covid-19 situation, there is increasing demand of face mask by
people in order to avoid disease that create opportunity for business to earn more profit but with
effect of lump sum tax, companies has increased price of tax which create impact over demand
of mask (Garrick, Hanemann and Hepburn, 2020).
These tax burden is later on imposing by business to their customers. With increasing tax over
business, prices is also increased by companies to overcome of tax burden. It creates burden of
tax on people due to which they are less demanding mask in market and preferring to use
homemade masks.
There is increase in prices due to lump sum tax imposed by government results in decreasing
demand of facial mask in marketplace. It also results in increasing supply of facial mask in
market which create opportunity for company.
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Explanation of how the market for microphone headsets (for use with computer based
videoconferencing) has been changed by the recent Covid-19 pandemic that has resulted in
increased working from home for many industries and also greater government Health &
Safety regulations affecting how companies can make and sell products
Due to situation of Covid-19, corporate organisation is working from home as government has
imposed restriction over their organisation (Lakdawalla, 2018). This work from home create new
environment in which employees needs to work. For this, employees require video conferencing
and microphone headset which can results in increasing demand microphone headset. It results in
increasing demand that provide opportunity to companies to expand their market share and
selling of their products at higher price. Due to covid-19 situation, business is facing issues that
can create impact over corporate world for which they are working virtually (Baker, Kumar, and
Pandey, 2021). In order to carry out operation smoothly without creating impact over it, business
is incensing demand of work from home which allow employees to work from their home and as
a results, it increases demand of microphone headset. Below mentioned diagram showing that
increasing threat of covid-19 pandemic results in increasing demand of microphone headset.
An increasing numbers of countries…….. and how it might have been utilised in the tobacco
industry before the introduction of these new rules.
Product differentiation:
It is a marketing strategy that is designed to differentiate the products and services of the
company from the products and services of the competitors. Successful differentiation of the
products and services consists of recognising and interacting the attractive as well as unique
features or characteristics of a product or service and highlighting the various differences
between the product and service of the competitors at the same time. Product differentiation
helps in building strong value proposition so that a service or product is attractive to targeted
audience within the market. When the countries like UK, France, Ireland, Norway, Canada and
Australia will introduce their plain packaging rules in respect of tobacco products, then they will
bring differentiated tobacco products within their respective market. According to new
packaging rules, these countries are requiring tobacco products to be sold in standardised drab
packaging which will be free from all colourful branding. If this product differentiation can
create a competitive advantage for the seller of the product then ultimately, it will develop brand
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awareness among the customers. The strategy of product differentiation also helps in increasing
the level of competition within the market and also control the prices for the customer base.
Product differentiation is basically a strategy of the marketing that helps in encouraging the
market share to make selection of one brand over another brands in the crowded field of
competitors. It also helps in identifying the qualities that set one product apart from other similar
products like of Tobacco and uses those differences to drive the choice of the target base.
Implementation of product differentiation in different markets by companies:
The process of product differentiation allows a company to offer high value to customer base at
an affordable price and creating a win-win scenario that can enhance the entire productivity as
well as profitability of the business. There are various ways to implement product differentiation
in different markets and some of them are described as under in context to packaging of
Tobacco:
Distribution differentiation: Channels of distribution can be considered as an effective way to
differentiate the products like tobacco. Distribution can offer availability or coverage, greater
ease of ordering of tobacco, immediate access to expertise as well as greater level of technical or
customer service. For many manufacturers who are facing fragmented market, it is not possible
to reach out to the final user without the function of distribution. Even in a non-exclusive
relationship, a committed distributor can create advantage through joint promotions, warranty,
technical service, bundling and service support. It is highly expensive as well as time-consuming
for a competitor to pre-empt or duplicate this differentiation level.
Relationship differentiation: Employees, team members or associates with interface of the
market share can offer as well as demonstrate credibility, competence, reliability, courtesy and
responsiveness. These personnel are the linkage between the tobacco and the customer for
executing client-facing communication on a regular basis. If that linkage breaks down, the
business of the tobacco will be destroyed. Within the business of tobacco, CSR, sales
representative becomes a trusted member of the customer's team ensuring that the product is
delivered on time and works as it is supposed to, while resolving any issue in a quick and
appropriate manner. Performance likes this helps in creating emotional bonds between the
market share and the customers.
Brand image/ reputation differentiation: Some businesses set themselves apart by their image
either as part of another differentiation avenue or as a separate strategic path. Generally, the
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image of the brand is created by other forms of the product differentiation like extreme levels of
the services, high quality products or performance of the company. Reputation or an image of the
brand can be a discouraging hurdle for the prospective new entrants within the industry. Brand
does not automatically differentiate a company from its competitors that are available in the
market. The brand has to stand for something and be identified its potential customers along with
conducting unique interaction which is different from the rivalries in the market.
Price differentiation: Price recognition identifies that the value of the products is the subjective
reality that is varied by the customer base and opening environment. Successfully competing on
price needs recognition that each customer has a different price they would be willing to pay for
the product. The processes of segmentation and differentiation permits the businesses to come
close to earning and maximising the level of revenues or profits by providing each segment a
differentiated product at a different price. The method of price discrimination also allows an
organisation to attract surplus of customer-base which is referred to the difference between the
amount that the consumers are willing to pay for the tobacco and the amount that is actually paid
by the market share.
Why companies want to engage in Product differentiation:
Product differentiation is necessary in today's financial climate and allows the company to
differentiate its own products with the competitor's products within the market place and also
emphasizes the unique prospects that make the product superior. The companies want to engage
in product differentiation because this strategy helps the company in gaining competitive
advantages over the rivalries that are actively taking participation in the market.
How product differentiation might have been utilised in the tobacco industry before the
introduction of these new rules:
Before the introduction of the new rules, product differentiation might have been utilised in the
tobacco industry by making differentiated tobacco products through introducing the new flavours
within the tobacco. The tobacco industry might have introduced the products of tobacco by
adding some additional or unique features or ingredients within the existing product. Another
way through which tobacco industry might have been used the strategy of product differentiation
can be related to the aspects of labelling. By modifying the process of labelling of tobacco
products, the companies might also chase the competitive advantages over the competitors in the
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market place at this process might help the organisations in differentiating their tobacco products
from the products of the competitors.
-6. It is well known ……soft drinks industry in the UK
It is well known that the UK market for soft drinks is dominated by Coca-Cola and Pepsi-Cola
that have operations all over the world. Amazon is one of organisation which is an e-commerce
company that is providing their products and service at online platforms (Norris and Vaizey,
2018). It is one of large organisation chain which is providing different types of products and
service to their customers. In order to enter in food service, this company needs to understand
market trends (Bell, 2020) . Market of UK related to soft drink is captured by Pepsi and coca
cola. In order to successfully launching new products, Amazon needs to understand theoretical
model of economics which provide them success in market and provide them profit in
marketplace.
Business economic model refers to those which allow business to understand different
ways in which it work in economic perspective. It helps them to understand different ways in
which people, resources, cost, activities required by market to create customers as well as
revenues. It is essential for business to understand relationship from cash as it provide them key
understanding of economics in business an also allow them to gain insights for purpose of
improving economic performance.
In order to start a new business, entrepreneur needs to work hard for purpose of building
product that provide them product market fit and allow them to grow customer base which is
important for purpose of developing competitive advantage for business (Parsons, 2021). In this
ways, valuable companies are building and provide economic model performance. There are
great values are provided by great companies which is through their economic model. In order to
successful, Amazon is one of organisation which needs to understand different things which are
mentioned below:
How to become large: It is one of component which provide understanding to business
about how to get a large market share without consuming capital in market. It allows
entrepreneur to owning great among of their business in market.
How to make a lot of money: It is another important component which allow business to
understand about ways to earn more money. It can be on basis of finally valuation that is based
on gross profit, top line, bottom line.
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How to grow economic result: In this, business needs to understand ways in which
business can get economic results in long term. It allows business to get benefits to economic of
sales in business which results in decrease in cost of company.
There are different types of theoretical model that can be used by managers of Amazon
for purpose of successfully enter in food industry (Saviotti and Metcalfe, 2018). IN this
managers of Amazon can be using Neoclassical economics model which is broad approach that
is making attempts for purpose of explanation of pricing, production, income distribution,
consumption of goofs and service through demand and supply. It is important as it integrate
production cost from classical economic that helps in maximisation of utility as well as
marginalisation (Castillo-Vergara, Alvarez-Marin, and Placencio-Hidalgo, 2018) . It is a theory
that ids emerged at time of 1900s which includes different tools like marginal revenue curve,
indifference curves and other things. These tools can be used for purpose of improvement in a
mathematical approach that helps for boosting of economic development. This theory is based on
different types of assumptions of economics which are mentioned below:
 There is rationality among people for making choices between valuable association as
well as identifiable outcomes.
 Purpose of an organisation is to maximisation of profit whereas individual purpose is to
increase utility.
 People can work in independent manner in order to get perfect information.
Adoption of this theory in Amazon allow them to focus on different supply and demand
driving forces being production, consumption and pricing of products and service (Sharma,
Rajpurohit and Singh, 2018). It is important for managers to understand concept of this theory
which allow them to get success in market and get profit for their business.
-7. In 2016 the European Commission …………how collusion might have taken place in the
market for Trucks (i.e. large commercial vehicles
What is collusion
Collusion is defined as the manner when rival firms agree for working together. This includes
setting higher prices for ordering and making great profits (Cleff, 2019). This is defined as the
way for making higher profits at the expense of consumers and minimising the competitiveness
of market. There is a competitive industry which is having price and competition. When
companies collude then they are restricted for output to other price.
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Why firms want to engage in it
There are companies which have to involve in collusion and this consists of some form of
agreement for seeking higher prices. It consists of agreeing and increasing price faced by
consumer. It is involved in dealing between retailer and supplier. There is need for collusion
among firms because it helps to exclude new firms from dealing and preventing market from
becoming more competitive. There are basically two types of collusion including formal
collusion and tacit collusion (Demel, Mariel, and Meyerhoff, 2019) . When there is development
of formal agreement for sticking to one price then it includes creation of cartel. On the other
hand, tacit collusion is one in which firms make formal agreement or collude while avoiding
actually speaking to rivals.
What features of a market determine the ease and extent of collusion?
Collusion is an illegal and non-competitive agreement between rivals that is involved in
attempting to disrupt equilibrium of market (Devine, Lee, Jones, and Tyson, 2018). Collusion
consists of companies or people that are competing against each other and they are conspiring for
working together.
What features of a market determine the ease and extent of collusion?
Collusion is an illegal and non-competitive agreement between rivals that is involved in
attempting to disrupt equilibrium of market. Collusion consists of companies or people that are
competing against each other and they are conspiring for working together. There are various
features of a market that determine the ease and extent of collusion and some of the are described
as under:
Concentration: Collusion tends to be more likely as there are fewer firms that are available
within the industry. For instance, there are many firms of same size and of huge capacity within
the same industry. In a collusive situation, each firm sets a high price and gets a very small share
of total profits. Besides this, concentration facilitates the coordination of firm on a collusive
outcome, not only its enforcement, that means,if there are fewer firms in industry then it would
be easy for them to coordinate their behaviour.
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Entry: If there is easy entry into an industry, then it is more difficult to sustain collusion. High
prices and revenues capture new firms into an industry and it tends to disrupt collusive outcome
through two mechanisms. Firstly, entrant may not want to pursue a collusive strategy and acts
aggressively. In this mechanism, the incumbents have to reduce prices for customer retaining and
thereby breaking collusive equilibrium. Secondly, entrant and incumbent accommodate with
entrant taking part in collusion. In this mechanism, as there are more firms, less likely that
collusion can be sustained and entry might break the collusive outcome.
Links among competitors: If a firm takes participation in competitors even without controlling it,
then the scope for collusion is enhanced. With a representative of a firm on the board of a
competitor firm, coordination of pricing and marketing policies is easier. Overall, it would
therefore seem sensible not to allow a firm to have minority shareholding in a competitor.
How collusion might have taken place in the market for Trucks
Collusion occurs when competitive firms agree to work together and sets higher prices in order
to make large amount of profits within the business. Collusion generally includes some form of
agreement to seek greater prices. In the market of commercial vehicles, collusion might have
taken place as each firm within the industry are pricing their products and services at different
amount. Price differentiation is the main cause of the collusion that might have taken place
within the market place. Within this strategy, every firm is setting different prices of the
products.
-8. Wessex Water………………..real-world of business does each model give us?
Explanation of three assumption of monopoly model: Monopoly is a market structure in
which only a specific person is the supplier of goods. It is one of market structure in which there
is lack of competition in market for production of goods and service (Spulber, 2019). It is basis
mainly on three assumptions which are mentioned below:
 There is a single firm which is providing output in industry. As Wessex water is a single
supplier in UK that is providing water service of bath areas.
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