Managerial Economics: OPEC Meeting, Demand Curve, Price Ceiling, Equilibrium Price, Perfect Competition

This report discusses the decisions of the OPEC meeting, changes in the demand curve due to changes in the number of entrepreneurs and customers, impact of price ceiling on heating gas price in Europe, equilibrium price and quantity after deducting $15 million at every cost, total cost, average variable cost, average total cost, and marginal cost, characteristics of perfect competition, and critical evaluation of equilibrium point in perfect competition.

Managerial Economics

Contents
INTRODUCTION...........................................................................................................................4
Main Body.......................................................................................................................................4
1. Discussion on the OPEC meeting and its impact on demand and supply...............................4
2. Explain the changes in the demand curve because of the changes in the number of
entrepreneurs and customers........................................................................................................4
3. Explaining the impact of price ceiling on the price of heating gas in Europe.........................5
4. Explain the equilibrium price and new equilibrium price and quantity after deducting $15
million at every cost.....................................................................................................................6
5. Find out the Total Cost, Average Variable Cost, Average Total Cost, and Marginal Cost.. . .7
6. Characteristics of perfect competition.....................................................................................8
7. Critical evaluation of equilibrium point in perfect competition..............................................8
a.) Description of shutting down point when marginal revenue is less than the average cost.. . .8
b.) Explaining the situation of equilibrium in the perfect competition market...........................9
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Managerial economics is the study and application of economic concept and theories. This
report contains the decisions of the OPEC meeting which was conducted recently. It also
contains the study of the equilibrium price and quantity on the restaurants. Price celling is a
concept introduced by government to safeguard the suppliers. It is a measure to control the
prices. The concept of the same is also discussed in the report. There are several forms of
market structure but specifically perfect competition and its equilibrium is elaborated in the
report.
Main Body
1. Discussion on the OPEC meeting and its impact on demand and supply
Due to the global health pandemic, every sector suffered a lot of problems. There was a
major decline in the revenue and profits of the industries (Mardnly, Badran, and
Mouselli,2021). Organisation for petroleum exporting countries is responsible for the
management of crude oil and other petroleum products. When world was suffering from
the health crisis there were major downfall in the export of the sale of oil. Due to the
reduced turnover, organisation has to store its stock in large quantities which creates the
issue of stock piling and increases the storage cost of the oil. Covid-19 block the
transportation between the different countries and introduction of new oil fields off the
coast of Africa is being done. Therefore, there was no increase in the demand and price
also increased and there is positive relationship between supply and quantity demanded.
2. Explain the changes in the demand curve because of the changes in the number of
entrepreneurs and customers.
Demand Curve shows changes in the Quantity Demanded with the change in price of a
commodity. Increase in the prices of a commodity is causes decrease in the Quantity
Demanded and if the price of a commodity decreases then quantity demanded of the
product increases. Increase in the number of entrepreneur implies that the buyers will get
more options toc choose from the market (Baker, Kumar and Pandey, 2020). This increase
in the options for the buyers so does for the sellers, more the sellers in the market the price

per unit will be less. In order to sell more in the market, the seller will provide the product
at a lower price than the other sellers. This will help the buyer in buying the product at the
cheaper price. The equilibrium price of the product will come down because of the
increase in the competition in the market (Pan, Liu, and Wang,2019.).
It is a tendency of buyer that if a product is available at cheaper rates than they will
demand more nevertheless it will consume over a period of time. In the following case the
number of entrepreneur have increased and so as the consumers because of the opening of
the economy. Thus, with the increase in the number of consumers and number of
entrepreneur the demand curve will shift towards right. Because it shows a positive
relationship among them. This shows that without the increase o0f prices of a commodity
the demand of the product increases. This factor is the determinant of demand curve.
Increase in the number of entrepreneur causes increase in the supply of product without
any increase in the price. These are the determinants of supply which indirectly affects the
supply of the product.
3. Explaining the impact of price ceiling on the price of heating gas in Europe
Price ceiling – It is the maximum point which is decided by the government to protect the
interest of suppliers. It indirectly benefits the consumers. It is defined as the situation
when the price changed is more than or less than the equilibrium price which is
determined by the market forces of the demand and supply. Government imposes a price
ceiling to control the maximum prices that can be charged by suppliers for the
commodity. this is also defined as the legal maximum price which pays for the products
or services. This is the most useful and great in the house rent market. This is imposed by
the government in order to control the maximum prices which can be charged by the
suppliers for the commodity.
Equilibrium price – It is a situation where quantity demand and supplied are matched at the same
point (Gack,, 2018.). In simple words, if 10 units are supplied and the same is demanded by the
consumers is known as equilibrium point.
4. Explain the equilibrium price and new equilibrium price and quantity after deducting $15
million at every cost.
Price Per Gallon Quantity Supplied Quantity demanded

$50 130 170
$60 135 150
$70 140 140
$80 145 135
$90 150 125
$100 155 110
Equilibrium is the point where the quantity demanded and quantity supplied of a commodity
equals, which means that it is a price where quantity required by the consumer equals the
quantity provided by the supplier of an item. The following equilibrium point is at price $70
where the quantity demanded by the consumers of the commodity equals the quantity demanded
by the supplier of the petrol ( Li, Monroe, and Coulton,2018). This is the position where the
buyer at the suppler of the product gets the maximum benefit from the consumption of the
product as well as suppler gets a point the supplier can supply their there product the most.
Change in the demand curve because of reduction in the price of petrol.
Price Per Gallon Quantity Supplied Quantity demanded
$50 130 155
$60 135 135
$70 140 125
$80 145 120
$90 150 110
$100 155 95
The impact of change in price of petrol can be seen by the changes in the quantity demanded by
the consumer as the price of the commodity decreases the demand of the commodity increases
and if the prices of a commodity decreases then the quantity demanded of the product decreases.
With the decrease in the quantity demanded of petrol, the equilibrium of the given set of data has
also shift to $60 which means the buyer will tends to purchase more at this price level (Khaki

and et.al., 2021). The Equilibrium is the price where any individual is ready to buy the product
as so as the seller maximise the return.
5. Find out the Total Cost, Average Variable Cost, Average Total Cost, and Marginal Cost.
Quantity Variable
Cost (VC)
Fixed Cost
(FC)
Total Cost
(TC)
Average
variable
Cost
(AVC)
Average
Total Cost
(ATC)
Marginal
Cost (MC)
0 100 100 0 -
100 100 100 200 1 2 100
200 300 100 400 1.5 2 200
300 500 100 600 1.67 2 200
400 700 100 800 1.75 2 200
500 800 100 900 1.6 1.8 100
600 120 100 220 0.2 0.37 -680
The following table shows that different types of cost which includes Variable cost, Fixed Cost,
Total Cost, Average Variable Cost, Average Total Cost and Marginal Cost. Fixed Cost remains
always fix irrespective of the level of production. Even at 0 output the Fixed remains the same.
Variable Cost varies with the level of production, increase in the quantity produced also causes
increases the variable cost (Youssef, and Teng, 2021). Total Cost is the combination of Fixed
cost and Variable cost. Marginal cost is difference between the two level of production. It
explains that if the organization moves to the next alternative the cost incurred on such process is
termed as Marginal cost. Average Variable Cost is a average cost incurred on a single unit and
Average Total Cost is a price that is allocated to a single product means per unit cost of a
product.
6. Characteristics of perfect competition
Perfect competition is a form of market in which there are many buyers and sellers, and
firms are the price takers, which is decided by the industry. The features of perfect
competition are given as below -

1. a Large number of buyers and sellers - In this form of market, it has a significant number of
buyers and sellers, but they are not able to influence the price and output of the whole industry
(Zhao, 2021).
2. Price taker - The sellers of perfect competition are price takers because the industry is
responsible for setting price and output.
3. Homogeneous products - The sellers used to sell similar goods, eliminating the differentiation
among the products.
4. Free entry and exit - In perfect competition, the firms are liberal in entering and exiting the
market at any point in time.
5. Perfect knowledge of the market - In this form of market, buyers and sellers are fully aware of
the price at which goods are being sold (Gao, and Han,2018).
Some factors restrict the perfect competition to exist in the real world. Some of the points can be
elaborated as given below -
Similar products - The main feature which is difficult to exist is the homogeneity of products.
There is some degree of differentiation always exist between the products. In reality, it is
rarer to observe identical goods.
Government regulations - The policies for starting a new venture restrict firms from free
entry because there are several start-up costs included in the commencement process.
7. Critical evaluation of equilibrium point in perfect competition.
a.) Description of shutting down point when marginal revenue is less than the average cost.
There is the situation of losses in perfect competition, which can be understood from the
following points.
In the short term, there are three situations such as-
 Expected profit- In perfect competition, average and marginal revenue remains constant.
Supernormal profit is when average income is more significant than average cost
(Ochinowski, 2021).
 Losses- In this situation, there is a point when the average price exceeds the average
revenue. This is a situation of loss.
 Shut down - It is a situation where a firm experiences no advantages for the continuing
operation of the business, and an enterprise is stuck in a situation where the enterprise is
not recovering short-term variable costs.

b.) Explaining the situation of equilibrium in the perfect competition market.
In the perfect competition market, there are broadly two situations of equilibrium, which
are as follows-
 MC=MR.
 MC Cuts MR from below
1.) MC=MR: It states that firms continue their production until marginal cost and marginal
revenue cut others at the same point (Wang, Huang, and Jiang, 2020).
2.) In a curve where marginal cost cuts Marginal revenue from below, a firm can attain its point
of equilibrium ( Analoui, 2018).
CONCLUSION
From the above report, it can be concluded that the worldwide events such as global pandemic,
OPEC meeting and introduction of new technologies increases or decreases the quantity
demanded and supply. With the help of identifying different market structures, an organisation is
capable to take various decisions such as identification of the existing market in which it is
operating and pricing policies of the business environment.

REFERENCES
Books and Journals
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Bu, Q., 2021. Mutual fund alpha: Is it managerial or emotional?. Journal of Behavioral Finance.
22(1). pp.46-55.
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Ochinowski, T., 2021. Character Strengths as a Tool of Resilience-Oriented Vocational Training
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Wang, Z., Huang, J. and Jiang, Z., 2020. Change in sales, managerial overconfidence and
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Analoui, F., 2018. Managerial perspectives, assumptions and development of the human resource
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