Business Microeconomics: Analyzing Market Structures and Elasticity

This report analyzes the internet service market in Hong Kong, identifying reasons for its monopolistic competition, including discounts for new customers, cost-effective online registration, and price differences between public and private buildings. It defines economies of scale and explores factors contributing to natural monopolies, such as inter-company investment and market protection. The report also elaborates on the relationship between price elasticity of demand and total revenue, explaining how elastic, inelastic, and unit elastic demand affect revenue based on price and quantity changes. It concludes by summarizing the key aspects of market structure, economies of scale, and the impact of price elasticity on revenue.

Business
Microeconomics

Table of Contents
INTRODUCTION ..........................................................................................................................3
MAIN BODY...................................................................................................................................3
1. Discuss the three reasons why the market of internet service in Hong Kong belongs to
monopolistic competition? ....................................................................................................3
2. Define the economies of scale and how it gives rise to natural monopolies?....................3
3. Elaborate the relationship between the price elasticity of demand and total revenue?......4
CONCLUSION ...............................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Price Elasticity of demand is measuring unit of the change of the utilization of a product
which is related to change in the price. When there are substantial change in demand and supply
than it is considered as good elasticity (Cao and et.al 2020). This report consist of the reasons of
market of the internet service belonging to monopolistic competition in Hong Kong. Economies
of scale and the factors which boosts the monopolistic competition and relationship between the
elasticity of demand total revenue are also included.
MAIN BODY
1. Discuss the three reasons why the market of internet service in Hong Kong belongs to
monopolistic competition?
 Always discounts for new customer: every company which is in the field of the
telecommunication is offering the discounts to its new customers so that it can attract
more no. of customers.
 Online registration is the best: for companies,the way of electronic medium is very
much cost effective, the reason is that a lot of money can be saved specifically
commissions. Moreover, they will convert this type of price to attract the customers for
online registration (Renwick and Archibald, 2018).
 Cost of the public and private buildings are mostly different: Most of the operators in
these companies conceive the strategy of imposing public housing flat in less price than
private flats.
2. Define the economies of scale and how it gives rise to natural monopolies?
The economy of scale indulges in the economy like a scale which is use to measure
height or weights. It analyse the relation between the price of the products of a company and how
large an industry is. It is accepted that the when company with large capacity grows the cost of
the products of the company reduces.
Reasons for giving the rise for the new monopolies will be -
 Inter company investment- It is assumed as a crucial factor for growth of the big
industrial houses and rise in the economic power of the concentration. By this method,

large industrial houses and the involvement of the directors of multiple companies and
monopolies in the making the decisions of the company.
 Protection in the market and import duties– Industries are always conserved by the
government of the countries from the direct competition by the foreign companies by
striking of the heavy import duties and also by prohibiting the imports of the
commodities. This type of conservation has lifted the power of the big companies in the
domestic markets (Imani and et.al., 2018).
3. Elaborate the relationship between the price elasticity of demand and total revenue?
Elasticity of demand elucidate the changes of the price of goods and the demand. As the
variables interrelate they have an effect on the total revenue of the firm. There is an inverse
relationship between the price of the product and the quantity demanded. The upward and
downward movement of the total revenue depends on the price, quantity and slop of the demand
curve. Price and total revenue possess a direct relation, when the demand is inelastic price and
total revenue increases. They also have an negative relation between them which means, when
the price will increase total revenue will decrease.
In case of unit elastic demand change in price will not affect the total revenue of the
product. When the elasticity of demand is one, maximum total revenue is achieved. For instance,
total revenue will increase due to rise in quantity if the percentage increase in quantity demanded
is more than the percentage decrease in price. The determination of elastic or inelastic demand of
a product can be done with the help of percentage in the price and quantity. In elastic demand,
the percentage change in quantity demanded is greater than the percentage change in price,
which represents that the percentage increase in price will be greater than the balance of a
percentage fall in quantity demanded which leads to reduction in the total revenue. The
percentage decrease in price will be more than the balance of a percentage increase in quantity
demanded which results in the rise of total revenue. In unit elastic, the percentage change in the
demanded quantity is equivalent to the percentage change in price (Feng and et.al., 2019). The
percentage increase or decrease in the price level will equally balance the percentage change in
quantity which results in constant total revenue. In inelastic demand, the percentage change in
the demanded quantity is less than the percentage change in price. In case of inelastic demand,
the percentage change in quantity demanded is lower in comparison to percentage change in the
price of the commodity. This implies that the percentage change in price of product will result in

lesser percentage fall in quantity demanded of the goods which results in the rise in the total
revenue. On the other hand, the percentage decline in price of the goods will create a increased
percentage changed in the quantity demanded of the product but in a smaller proportion and
therefore it resulted in the decrease in the total revenue.
When there is elasticity demand in the level of the price, then a company would have to
cut the price of the product and the decrease the price which will affect the even in the more
percentage increase in the quantity that is sold which indirectly increase the total revenue of the
company. Moreover, if the demand is inelastic at the original level then the company has to
increase the prices. The outcome of the increased percentage in the price will be a smaller
decline in the percentage of the quantity and then the total revenue will rise. There are some
factors which affect the elasticity of demand also they can be substitute of any product, basic
necessities could be replaced by the luxuries, share of the income of the consumer, time duration
of demand it could be short term or long term.
CONCLUSION
In the above report, the three reasons of the market of internet service in Hong Kong
belonging to monopolistic competition, economies of scale and reasons that assists in the growth
of new monopolies such as Inter company investment, Protection in the market and import duties
have been concluded. This report also concludes the relation between the price elasticity of
demand and the total revenue of the products and services.

REFERENCES
Books and Journals
Cao, Y. and et.al., 2020. Coordinating joint greening efforts in an agri-food supply chain with
environmentally sensitive demand. Journal of Cleaner Production. 277. p.123883.
Renwick, M.E. and Archibald, S.O., 2018. Demand side management policies for residential
water use: who bears the conservation burden?. In Economics of Water Resources (pp.
373-389). Routledge.
Imani, M.H., and et.al., 2018, February. Running direct load control demand response program
in microgrid by considering optimal position of storage unit. In 2018 IEEE Texas Power
and Energy Conference (TPEC) (pp. 1-6). IEEE.
Feng, C., and et.al., 2019. Smart meter data-driven customizing price design for retailers. IEEE
Transactions on Smart Grid.11(3). pp.2043-2054.