Applying Microeconomic Theory to Business Issues & Influences

This report explores the influence of microeconomic concepts on the business environment, focusing on how external and internal elements impact a company's functioning. It highlights the usefulness of microeconomics in competitive environments, particularly concerning labor and productivity decisions. The report examines how businesses determine the types of services and commodities offered based on customer willingness to pay, influenced by microeconomic principles. Key issues such as demand and supply dynamics, including the impact of pricing strategies and opportunity costs, are analyzed. Additionally, the report delves into market structures, differentiating between perfect competition, monopoly, and monopolistic competition, and assessing their effects on business operations. The analysis concludes that understanding microeconomic concepts aids in predicting a company's market position and making informed decisions to improve business performance, with Desklib providing access to similar reports and study tools.

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Table of Contents
INTRODUCTION.......................................................................................................................3
TASK........................................................................................................................................3
State the main influences with the help of microeconomic concepts.................................................3
Referring to the theory implement it two main issues being chosen..................................................4
CONCLUSION...........................................................................................................................5
REFERENCES............................................................................................................................6

INTRODUCTION
The report prepared as under takes in account Business environment which can be explained
with the mixture of external and internal elements which are connected with business and has a
direct impact on better functioning of company (Furceri and Ostry, 2019). Business environment
is observed to cover factors such as customers, suppliers, legal, government, competitors, socio-
cultural and technological. Studying facts about business environment can prove to be helpful for
a business and company which in future would help in identifying risks and related opportunities
as well. Providing assistance in planning and at last improving the overall performance as well as
growth and expansion of a business enterprise. The report explains the usefulness of concept
Microeconomics when applied for efficient and effective running of a company in competitive
environment. There are two topics chosen for explaining the essence of Microeconomics in a
explanatory manner.
TASK
State the main influences with the help of microeconomic concepts.
Microeconomic concept explains ways in which goods can be used and taken into account
for rendering various values, how respective persons and businesses would be conducted and can
serve benefit from efficient exchange and productions and in what manner individuals would be
able to carry out cooperation and coordination in a fruitful manner (Jankovic, 2020 Lowes and
Montero, 2021). Microeconomic is helpful to develop economic policies which would be useful
in enhancing productive efficiency and resulting in higher social welfare as well.
Microeconomics can be explained as a working of a capitalist economy where a certain unit is
free to take their own decisions. It can also be defined as a study of households, individuals and
firms behaviour in decision making and allocation of scarce resources. It is usually applied to
markets of goods and services and also deals with respective person and economic related issues
as well. Microeconomics is helpful to investigate about various economic concepts such as
supply and demand, scarcity, cost and benefits and incentives which would help to explain many
decisions which are being taken by humans. There re many decisions which are being affected
by Microeconomic concepts, such are defined as under:
1. Labour decisions: Individual business are observed to demand labour and such demand is
being heavily impacted by wages. Wages can be defined as what companies are paying to
its workers which considers benefits such as vacation time, professional development and
types of insurance being given. Enterprise must decide how many labour hours to be
demanded for giving certain wages.
2. Productivity decisions: Productivity is explained as the output of a good or service on
which time is being spent, it could be for example the number of widgets being produced
and manufactured in a labour hour. Productivity can further be defined as a function of
relation prevailing between input and output given the present technique. It also convey
that business would be setting productivity at highest level of economic efficiency where
the production related to one good or product cannot be made better without declining the
production of other product.
3. Types of services and commodities being offered: The sort of goods and services which
are being offered by a business enterprise are being influenced by what customers are

willing to pay for them. As price would rise for one product or services, business would
switch production of that particular service or good, often declining the production of less
profitable sort of goods and services. Microeconomic principles would convey that all
sort of other things being equivalent, as the price level of service or good would increase,
business increase the supply of that particular product or service and decrease the supply
of other products.
Referring to the theory implement it two main issues being chosen.
 Demand and supply: It can be examined that demand of a product would depend on
pricing strategy being chosen for that certain product and it can also be said that if there
is any increase in demand of toy commodities then it would result in price of trampoline.
But when seen on other hand there are many other elements as well which would have a
impact on demand of commodities (Marku, Ocampo and Tondji, 2022). This might lead
to decrease in demand of goods with the increase in cost of products in coming future. As
it has can be noticed that when the demand of a commodity increase it would lead to
increase in rise of price as well which would also be connected to suppliers supplying
more and more goods for their economic benefit. The reason behind it could be
involvement of opportunity cost as well which is being available to a supplier at
additional units which they tend to sell. The law of supply and demand is a type of theory
which defines the interaction between the vendors of a resource and buyers for that
source. The theory further helps to have an idea about relationship between the price of a
stated product and the person’s willingness to buy or sell it in the market.
 Market structures: It can be explained in economics as a term which depicts how
enterprises can be categorised and differentiated based on the sort and types of
commodities and goods which they sell and how their operational are being affected by
external elements and factors. Market structure turns to be make it more easier to
understand the characteristics of diversified marketplaces in economic areas. There are
various market structures which can be bifurcated in Monopolistic competition,
oligopoly, perfect competition and monopoly.
1. Perfect competition: In case of perfect competition market structure, there are a
larger number of sellers and buyers. All of sellers present in marketplaces are
observed to be smaller sellers in competition with each other focused in same type
of business activity. There are no big sellers promoting business in the economy
thus there is no significant impact on the market. Hence all the enterprises in such
an economy are price takers. There are many assumptions such as homogenous
products which are observed to be identical, all business enterprises have a sole
motive of generating revenues, profit maximization. There are no barriers
observed in such businesses and there is free entry and exit from market areas.
2. Monopoly: In such cases market has only one seller thus single enterprises is able
to have full control over the entire market. It can set up any price which it wishes
to put and can access all the market power. Customers may not have any
alternative and are required to pay the prices that are being set by the sellers
(Marx, 2022 Risjord, 2019). In such cases market has no competition and lesser
threats as one company has the full power to change and alter the prices being
charged in a related market thus it is beneficial for sellers and vendors and not
fruitful for consumers because they cannot bargain for prices in such cases thus it

is beneficial for business persons point of view in long run keeping profit
maximization in mind.
3. Monopolistic competition: It can be explained as a more realistic scenario which
actually takes place in real world. In case of such competition and situations, there
are larger number of buyers as well as sellers. The products are observed to be
same but all sellers seem to sell slightly different goods and commodities (Shive
and Forster, 2020). Users in such cases have a preference and choice to choose
over other products. The sellers are able to charge a marginally higher rates and
they might even enjoy some power in the market as well.
CONCLUSION
From the report prepared as above it can be asserted as well as concluded that economic
concept such as Micro economics would help to understand how change in demand and supply
would help to predict positioning of a company or business in market. It also renders an idea
about working of demand and supply and market structure being assessed for a firm. From the
above prepared report one can have a better understanding about economics and in what ways it
would help to investigate areas in which business is dealing and would get affected keeping long
run-in mind. The report helps to have a better understanding of decisions being made taking in
account various areas and key factors which would affect smooth running and efficient
functioning of the business. It is helpful to have a better understanding about where the firm is
lacking and lagging behind and which concept or theories would serve the requirements in best
possible manner.

REFERENCES
Books and Journals
Furceri, D. and Ostry, J.D., 2019. Robust determinants of income inequality. Oxford Review of
Economic Policy, 35(3), pp.490-517.
Jankovic, I., 2020. Menger and Bohm Bawerk and Their Discontents. In Mengerian
Microeconomics (pp. 15-48). Palgrave Macmillan, Cham.
Lowes, S. and Montero, E., 2021. Concessions, violence, and indirect rule: evidence from the
Congo Free State. The Quarterly Journal of Economics, 136(4), pp.2047-2091.
Marku, K., Ocampo, S. and Tondji, J.B., 2022. Robust contracts in common agency (No. 20222).
University of Western Ontario, Department of Economics.
Marx, P., 2022. An absolute test of racial prejudice. The Journal of Law, Economics, and
Organization, 38(1), pp.42-91.
Risjord, M., 2019. Middle‐range theories as models: New criteria for analysis and
evaluation. Nursing Philosophy, 20(1), p.e12225.
Shive, S.A. and Forster, M.M., 2020. Corporate governance and pollution externalities of public
and private firms. The Review of Financial Studies, 33(3), pp.1296-1330.