Microeconomics - Global Automobile Industry

Running head: MICROECONOMICS
Microeconomics
Name of the student
Name of the university
Author’s note

1MICROECONOMICS
Table of Contents
Answer IV- a....................................................................................................................................2
Answer IV-b....................................................................................................................................2
Answer V-a......................................................................................................................................2
Answer V-b......................................................................................................................................3
Answer V-c......................................................................................................................................3
Answer VI-a.....................................................................................................................................3
Answer VI-b....................................................................................................................................3
Answer VI-c.....................................................................................................................................4
References........................................................................................................................................5

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Answer IV- a
Ford motors has variable cost such as cost of steel inputs, cost of raw materials such as spare
parts and components, labour cost in the short run. The company produce large number of
vehicles at the same time as it has greater economies of scale. This helps the company to
distribute its variable cost over large produced units. This helps the company to earn huge
revenue and profit.
Answer IV-b
The variable cost influences the output of the company. In ford motors, the variable cost includes
the expenses related to wages, duties, warranty costs and freight expenses. An increase the
variable cost increases the output. Therefore if company wants to increase the number of units
produced, then it must increase the variable cost. It will reduce the cost of rent of each vehicle.
The fixed cost do not directly affect the volume of output for a defined period. The fixed
expenses in ford motors includes cost of rent, furniture and equipment (Hashmi & Biesebroeck,
2016).
Answer V-a
The most consistent competitors of FORD are general motors company, Tesla Inc and Paccar
Inc.

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The table shows that the GMC is giving tough competition to Ford motors in terms of market
share and its market share is 21.03%. The market share of general motors is higher than the Ford
Motors. Paccar Inc. is on the second rank and its market share is 2.15%. The market share of
Tesla Inc is only 0.49% which shows it far behind with the market innovation and strategy that
other companies of its competition are using. The market share of Ford motors shows its
favourable position in the market.
Answer V-b
Highly regulated industry, high competition from big businesses, increased sunk cost to develop
new technology, huge requirement of capital etc are the major barriers to entry in the automobile
market. The entry of new firms in the automobile sectors can be threat to the company if the
company is bringing newer technology and cost effective vehicles with greater economies of
scale like Toyota did in the US market.
Answer V-c
Ford Company operates in an automobile industry which comes under the Oligopoly market
structure. The company competes with few companies in the same industry. The prominent
companies control the prices of the products as they operate as market leaders. In US automobile
market, General motors and Ford motors are market leaders who can dominate the market due to
existent of few firms in the market (Kumar & Choudhary, 2019).

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Answer VI-a
The company is able to produce the cost effective vehicles and this strategy have helped the
company to deal with its market competitors such as General Motors. The demand for the
reasonable cars by the middle income and lower income group is a great opportunity. The
company can improve its effectiveness and bring some more innovation to its reasonable priced
cars for its future production and can deal with the future competition too.
Answer VI-b
The firm position of the market shows that it is one of the significant market leader of the
automobile industry. The firm has only threat from innovation of newer technology which can
outdate his present manufacturing technology. The recommendation of improvement of the
technology with the changing demand will help the company to improve its sustainability. More
investment in R and D can be effective for achieving this (Orlova, 2017).
Answer VI-c
The price elasticity determines the quantity of goods purchased by consumers at different prices.
The firm of an oligopoly market structure has control over the prices due to the existence of
fewer businesses in the market. Thus price elasticity can be helpful for a company like FORD
Motors who is selling reasonable priced vehicles to sustain in the market for long by gaining a
competitive advantage of lower pricing.

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References
Hashmi, A. R., & Biesebroeck, J. V. (2016). The relationship between market structure and
innovation in industry equilibrium: a case study of the global automobile industry.
Review of Economics and Statistics, 98(1), 192-208.
https://csimarket.com/stocks/competitionSEG2.php?code=F
Kumar, N., & Choudhary, P. (2019). A Study of the Structure, Conduct and Performance of
Indian Automobile Industry. Empirical Economic Letters, 18(9), 303-310.
Orlova, N. V. (2017). Correlation of competitive market structure and innovative activity of oil
and fat companies. Ринкова економіка: сучасна теорія і практика управління, 16(2
(36)), 116-131.