Management Economics Report: TSG Pharma & Sainsbury

This report delves into the application of economic principles in business management, focusing on two distinct case studies: TSG Pharma and Sainsbury. For TSG Pharma, the report assesses the impact of population changes on sales, evaluates price elasticity, and examines the importance of income elasticity for management decisions. It also calculates cost and profit levels, analyzes price/output combinations, and determines profit-maximizing and cost-minimizing strategies. The second part of the report explores Sainsbury's background, its current monopolistic market structure, and its past oligopolistic structure. It also considers Sainsbury's nature within the retail sector, highlighting its strategies and challenges. The report concludes by emphasizing the importance of profit maximization and strategic planning in business management.

Management
Economics
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TABLE OF CONTENTS
INTRODUCTION ..........................................................................................................................3
PART A ..........................................................................................................................................3
a. Assessing the changes which take place in the predicted sales level ......................................3
b. Evaluating the changes if elasticity level is -1.1 .....................................................................4
c. Identifying the level to which information regarding income elasticity is important for
management ............................................................................................................................6
d. Calculating cost and profit level according to the concepts of economics .............................7
e. Assessing price / output combination .....................................................................................8
f. Determining profit-maximizing and average cost-minimizing combinations .........................9
TASK B.........................................................................................................................................10
Company's background..............................................................................................................10
Market structure of Sainsbury....................................................................................................11
Past market structure of Sainsbury............................................................................................12
Consideration of the nature of Sainsbury in retail sector...........................................................14
CONCLUSION..............................................................................................................................16
REFERENCE.................................................................................................................................18
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INTRODUCTION
In the present scenario, there are several business organizations which make use of
economic theories and concepts with an aim to make suitable decisions. Now, economic theories
and practices are highly significant which in turn helps in developing competent and effectual
framework in the near future. Demand and supply are the major elements whose appropriate
estimation is highly required for getting the desired level of outcome or success.
The present report is based on TSG pharma which offers caplets and antibiotic products
to the customers. In this, report will develop an understanding about the concepts related to
elasticity of sales and demand aspect. Further, it will also shed light on the extent to which
information in relation to income elasticity is highly required for ensuring high management.
Report will also present the combination through which cost can be minimized and profit will be
maximized. Along with this, it will describe the characteristics of different market structures.
This assignment will also provide deeper insight about the factors due to which market structure
gets affected.
PART A
a. Assessing the changes which take place in predicted sales level
In the pharmacy sector, sales aspect of firm is highly influenced with the level of
population rather than price factor. The rationale behind pharmacy products is related to the
health aspect of people (Askari and et.al., 2015). Thus, customers give more priority to the
quality of product in comparison to price factor. However, company is required to offer high
quality pharmacy products at affordable prices. Moreover, income level is the biggest factor that
influences decision making of customers. Thus, by taking into consideration such aspect, it can
be said that population is one of the main elements which influences the sales and profit margin
of firm. Thus, manager of TSG pharmacy must have ability in relation to make proper prediction
of sales revenue. Along with this, company also needs to make focus on employing effectual
strategies which may result into reduction in the cost level. In this way, by making control on
cost business unit can enhance its sales revenue and profit margin.
Elasticity showcases the sensitivity of variables which occur due to the changes take
place in other factors (Naoum and Egbu, 2015). In this regard, by making evaluation of the
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factors such as revenue and population, company can assess the extent to which change will
occur in sales in terms of percentage. Hence, by evaluating the elasticity aspect, business unit can
take suitable decision in relation to the products or services offered. Hence, it clearly presents the
quantitative expression of business issue and thereby, aids in decision making to a large extent.
By making assessment of the level of elasticity, business unit can assess the impact of price level
on unit sales. Through the means of elasticity, prices can be easily altered.
On the basis of cited case situation, TSG pharmacy is required to evaluate the changes
take place in sales level with regard to the level of population (Meara and et.al., 2015). Thus, by
applying the economic theories and concepts, manager of the firm can take suitable decision
which in turn helps in achieving success.
Computation of changes in sales revenue:
Particulars Formula Outcome
Changes in population (%) New population – old *100 =(140000-130000)/
130000*100
=7.69%
Elasticity of sales % change in sales / % change
in population
0.80= %change in sales/7.69%
% change in sales= 7.69*0.80
= 6.15%
From the above table, it has been assessed that both the variables are highly associated
with each other. On the basis of this aspect, it can be said that population has high level of
impact on the sales revenue (Coale and Hoover, 2015). As per the calculation, it has been
identified that sales revenue will be inclined by 6.15% in the near future with rise in population
level such as 7.69%. Thus, with an aim to enhance the customer base and profitability level, TSG
pharmacy needs to make focus on satisfying the needs, wants and expectation level of customers.
In this regard, business unit needs to place emphasis on offering a wide range of pharmacy
products that overcome issues which are being faced facing by the people.
b. Evaluating the changes if elasticity level is -1.1
Price elasticity exhibits the relationship that takes place between changes take place in
price and quantity demanded (Ashraf and Galor, 2013). Through this, sensitivity of the price
level can be measured effectually. Price can be said to elastic only when large quantity is
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demanded by the customers due to small changes take place in the worth of product. Hence, such
measure helps in evaluating the extent to which one variable is dependent on another. Economist
or manager of TSG can assess the level of price elasticity by using the following formula:
Price elasticity of demand = % change in quantity demanded / % change in price level
In the real world, there are several factors that have high level of impact on the price
elasticity. Some of them are as follows: Availability of close substitutes: Elasticity of demand increases when closer substitutes
of product are available in the market (Ghamkhari and Mohsenian, 2013). Moreover, in
this, there is possibility that customers will switch on the products and services that are
offered by others. The rationale behind this is that customers always look for the low cost
producer or manufacturer who provide them with highly effectual products. Income level fluctuations: Living or spending pattern of the people is getting changed in
accordance with the changes take place in income level (Ashraf and Galor, 2013).
Moreover, customers prefer to purchase high quality product when they have more
disposable income. Hence, patients seek for the high quality medicines when their
income level increases.
 Price level: Inflation and deflation are the major two conditions which have high level of
impact on the price of products and services offered by business organization (Zhao and
et.al., 2014). Moreover, during the period of inflation, price of products get increased and
vice versa.
Computation of % changes in quantity demanded
Particulars Formula Outcome
Changes in price (%) New price – old price *100 =(£8.50-£7.50)£7.50*100
=13.33%
Price Elasticity % change in quantity
demanded / % change in price
-0.85 = % change in quantity
demanded/13.33%
% change in quantity
demanded= -0.85*13.33
=-11.33%
Increase or decrease in the
level of revenue
EP= % change in quantity
demanded/13.33%
1.1=% change in quantity
demanded/13.33%
% change in quantity
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demanded= -1.1*13.3%
=-14.66%
According to the calculation, it has been assessed that price elasticity of demand of TSG
is negative. This aspect shows that management of Pharmacy Company fails to meet the demand
of customers from one period to another (Cina, 2013). Moreover, customers are highly differing
in relation to their needs, wants and expectation level. Thus, due to this, negative price elasticity
has been occurred. Along with this, it has been identified that negative price elasticity of demand
will negatively affect the sales revenue of company. In addition to this, quantity demanded for
pharmacy product reduced significantly in the current year. Due to this, TSG suffered loss which
in turn closely influenced its financial position and performance. Thus, company needs to place
emphasis on reviewing the existing strategic and policy framework. By considering this,
company can reduce the burden of cost and thereby, become able to satisfy the expectation level
of customers to a large extent.
c. Identifying the level to which information regarding income elasticity is important for
management
Income elasticity implies for the changes that take place in quantity demanded for goods
or services in relation to variations take place in income level and by dividing the percentage
change in quantity demanded from the proportion to which income level vary (Sorescu and
Sorescu, 2016). Hence, by taking into consideration such aspect, business unit can develop
competent and effectual framework for the near future. Income elasticity > 1: When quantity demanded increases at a high pace as compared to
the income level then it is said to be more elastic. EY>1 occurs when quantity demanded
increases by 20% irrespective of the aspect that sales revenue has inclined by 10%.
 Income elasticity = 1: Unitary elasticity level implies for the situation when changes take
place in quantity demanded and income level are equal. The below mentioned situation
presents unitary elasticity:
Changes in quantity demanded = 15%
Changed take place in income level = 15%
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 Income elasticity < 1: It presents the situation where quantity demanded is lower than the
enhancement that takes place in income level (Greenwood, Sanchez and Wang, 2013).
For example: elasticity can termed to be less than 1 when 10% increase takes place in the
quantity demanded due to 20% rise in income level.
Thus, positive income elasticity implies for the one in which changes take place in
quantity demanded in accordance with the level of earnings (Zhao and et.al., 2013). Hence,
by using such measures or aspects, TSG can take suitable action for attaining success in the
near future. On the other side, when demand falls on the rise of income level then it is
considered as negative income elasticity. The rationale behind this is that customer’s
preference is shifted from inferior goods to luxury one when their income level increases. In
the present time, high standard of living is the major aspect that is considered by customers at
the time of making purchase. In this way, income elasticity helps company in assessing the
purchasing pattern or trend.
The given case situation presents that income elasticity is .75 which is lesser than 1.
Hence, it can be said that there is no high level of increase that takes place in the quantity
demanded irrespective of the aspect that income level of people increases. There are mainly
two reasons behind such aspect (Bell, 2015). Moreover, customers spend money in the
pharmacy product according to their level of requirement. They do not start to consume more
caplets on the rise in income level. This is one of the main reasons due to which income level
does not affect the quantity demanded by customers. Along with this, customers demand
shifted from inferior to high quality caplets when income level rises. Thus, such information
is highly valuable for management which in turn helps them in developing suitable policies
for enticing both sales and profit aspect.
d. Calculating cost and profit level according to the concepts of economics
Cited case presents that:
 TR: $800 Q - $0.2Q2
 TC: : $3800 + $2500 + $0.2Q2
Computation of cost and profit level
Number Price Total sales Addition Total Marginal Averag Total Marginal
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of units
produce
d (Q)
(per
unit)
revenue (in
000)
al
Revenue
(MR)
expen
diture
(in
000)
cost
(MC)
e
amount
profit (In
000)
profit
(MP)
0 800 0 800 38 250 0 -38 550
100 780 78 760 65 290 650.05 13 470
200 760 1520 720 96 330 480.03 56 390
300 740 222 680 131 370 436.68 91 310
400 720 288 640 170 410 425.05 118 230
500 700 350 600 213 450 426.02 137 150
600 680 408 560 260 490 433.35 148 70
700 660 462 520 311 530 444.28 151 -10
800 640 512 480 366 570 457.51 146 -90
900 620 558 440 425 610 472.23 133 -170
1000 600 600 400 488 650 488.01 112 -250
The above presented table shows that revenue level of TSG increased significantly in
accordance with the rise that took place in quantity demanded. Along with this, during such
period, cost level of the firm decreases which is a good indicator (Callan and Thomas, 2013).
Hence, above presented table clearly presents the relationship between price and quantity
demanded. In this regard, demand of price sensitive customers will be increased in accordance
with the decline in charges of caplets. Hence, TSG pharmacy needs to make focus on reducing
the price level which in turn helps in enhancing the sales revenue and profit margin.
e. Assessing price / output combination
From the graphical presentation, it has been assessed that high level of changes take
place in the current position and performance of business (Hoppe, 2015). Thus, by taking into
account all such aspects, it can be said that high level of control is required on the cost level for
achieving the growth and success. Marginal cost and revenue as well as average cost clearly
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presents that company needs to reduce the level of expenses. Along with this, the above
presented elements show that on the production of one additional unit, TSG will incur loss.
Profit maximization may be defined as a long and short run process which helps in
determining the suitable price and output level that offers more profit. From such graph, it can be
said that TSG can maximize the profit by producing 600caplets.
Along with this, cost minimization techniques are employed by companies which operate
in the pharmaceutical sector. Such theory places high level of emphasis on reducing the burden
of cost to a high extent. Thus, from the derived output, it has been assessed that business unit can
reduce its obligations by declining the price level from 680 to 600.
f. Determining profit-maximizing and average cost-minimizing combinations
On the basis of economic theories and concepts, business entity needs to make focus on
reducing the cost level (Cleland and Revenue, 2013). This in turn helps business organization in
making control on both; sales revenue and profit margin. Hence, according to such theory, both
marginal cost and revenue are equal. The above mentioned graph clearly presents that profit can
be raised by firm through the means of equalization of cost and revenue level. Thus, by
achieving such level, business unit can fulfill its goals and objectives. Thus, by using the amount
of surplus in latest technologies, business unit can reduce the cost level to a large extent. In this
way, by using the profit amount in right direction business, organization can make contribution
in the attainment of organizational goals and objectives.
Given that:
Particulars Outcome
Cost function (Total cost) $800Q - $0.2Q2
Revenue function (Total revenue) $38,000 + $2,50Q + $0.2Q2
Marginal cost (MC) $800 - $0.4Q
Marginal revenue (MR) $250 + $0.4Q
Calculation of marginal cost and revenue as well as maximum profit
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Particulars Outcome
MC $800 – (0.4*687 units)
= $800 – ($274.8)
= $525
MR $250 + $0.4Q
= $250+ (0.4*687)
= $525
Maximum profit (MP) Zero MP = (MR = MC)
MP = ($525 = $525)
= Nil
The above mentioned aspect shows that by assessing the marginal cost and revenue, TSG
can attain the goal of profit maximization and cost minimization.
TASK B
Company's background
Sainsbury is one of the largest supermarkets in United Kingdom and operating as a public
limited company. It accepts challenges to sustain firm’s position in highly competitive market.
At present, its head office is in Holborn Circus, London which is employing millions of workers
to make the business entity effective. Moreover, Sainsbury provides grocery items and fresh food
products to a large number of customers at international level as per the market demand (Zhao
and et.al., 2013). Therefore, organization aims to produce and supply adequate services through
offline and online means to increase profit earning capacity.
Sainsbury’s objective is to be a highly trusted retailer To achieve customer satisfaction
and profit at maximum level.Hence, firm utilizes systematic steps to offer as well promote its
groceries. It leads to effective qualitative position in global market. Including this, it concentrates
to present products attractively regarding marketing elements like product quality and quantity as
well additional factors which affect efficiency of organization (Dhangwatnotai, Roughgarden
and Yan, 2015). The entity researches to facilitate services to fulfill consumer needs.
Furthermore, Sainsbury sets goal to provide different quality and types of products on the basis
of economic condition of buyers. Thus, industry seeks to offer products at affordable price and
discounts.
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Effective business environment is able to face competition with other retail insdutries
like Tesco, ASDA. Implementation of business activities includes market research and focusing
on fulfilling needs and demand of consumersto gain profit with rendering high customer
satisfaction (Meara and et.al., 2015). However, Sainsbury produces secured and healthy fresh
food items including groceries worldwide. It meets almost all targets to improve productivity and
profitability to sustain its position in the competitive market. Thus, satisfied services of the
company attract societies and communities to gain consumer satisfactions through physical and
online mediums. Company tries to reach out the products through easy and convenient manner
during electronic transactions of groceries and food items.
Market structure of Sainsbury
Market structure involves company's goodwill and its product value (Askari and et.al.,
2015). It affects the satisfaction level of target customers related to demand and seeks to fulfill
expectations of buyers. There are different kinds of market structures to analyse sustainability of
Sainsbury's products. As per the demand and targets, market is recognized where price
determination is obtained. However, some markets decide to fix the costs of product through
market research while other markets fix their price according to production and raw material
qualities.
At present, market structure of Sainsbury is monopolistic in which many sellers and large
number of buyers are there. It comes under pull strategies to attract customers effectively
(Naoum and Egbu, 2015). Therefore, price determination of grocery items and food are
identified by analyzing the quality demand. Further, costs for items are determined by company
regarding government intervention in production and distribution services. It is because;
Sainsbury is a public limited entity where government interference is there in quality and
quantity of products and services provided. Including this, at initial stage, company conducts
market research about the user’s needs and demand and further makes plans for optimum
utilization of raw material including goods involved during production.
Thus, market structure is related to determination of price regarding buyer behavior and
affordability to purchase items. However, firm focuses to provide secured and healthy products
to gain trust and loyalty of societies and communities they are serving. In addition to this, public
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entity focuses on long term stability of organization and product value through providing
comfort services to users. Under this market structure, best qualities of facilities are concentrated
to gain effective demand for further transaction of resources in an optimum manner (Ashraf and
Galor 2013). Therefore, Sainsbury fixes price for products by focusing on the demand and
produces effective qualitative services to grab a strong position in the market for long term
stability and maintaining good relationship with other business organizations of other countries.
Furthermore, Large number of purchasers and sellers: - Different entities are in competition of
grocery items and food products like Tesco Thus, monopolistic market structure involves
large number of buyers ansellers where compaetition between two entities can
determined effectively. (Melitz and Redding, 2015) . Government intervention: - As Sainsbury is a public limited retail industry, government
interference in production and distribution of groceries as well fresh food items is there.
Government makes policies and imposes certain rules and regulations which serve as the
limitation on quantity of production and supplement of resources (Coale and Hoover,
2015). Thus, it is an essential characteristic of retail industry to activate business
organization to gain awareness of public towards goods and services. Effects of laws of costs: - Under monopolistic market structure, price determination for
products is done through laws of costs (Zhao and et.al., 2014). Therefore, as per the
customer’s needs and demand, Cost of the product effects As per the market position of
food items company changes its price of products and services to increase the
productivity and demand for same. Hence, increase in cost decreases the demand and
vice-versa. Further, on the behalf of government instructions to set price, retail industry
can fluctuate costs which effects the economic stability of nation.
 Social welfare: - It emerges social welfare by producing goods and services on the
behalf of government interventions (Ghamkhari and Mohsenian, 2013). In addition to
this, in the present scenario, Sainsbury as a public limited organization Increases
productivity and profitability through social welfare and society's awareness towards
company's products and services.
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