Managerial Economics Report: Competition, Supply and Telecom Industry

This managerial economics report delves into various market structures, including perfect competition and oligopoly, analyzing their characteristics and implications for firms. It examines the factors influencing supply, the law of supply, and the impact of technological advancements on equilibriu...Read More

MANAGERIAL
ECONOMICS

Table of Contents
INTRODUCTION ..........................................................................................................................1
MAIN BODY...................................................................................................................................1
SECTION A.................................................................................................................................1
SECTION B.................................................................................................................................5
CONCLUSION................................................................................................................................9
REFERENCES .............................................................................................................................10

INTRODUCTION
Managerial economics refers to the economics functions in managing the functions of the
firms in the industry. Micro and macro economics are related with the firms in various ways and
effects the business environment in the economy.
The report will include the features of perfect competition market, the point at which the
firm will stop hiring worker in a perfect competitive market form and the characteristics of the
market form. Also the government interventions to deal with market failures.
Furthermore report will study the law of supply, the supply schedule and the various
factors affecting the supply in the market. Also the effect of change in innovative technology on
equilibrium price and equilibrium quantity supplied.
Thereafter the report will include the case study of telecommunication regulatory
authority which was a independent industry regulatory but later government opens the market for
more private and foreign players. the type of market in the telecommunication industry , its
characteristics, pricing policies of those firms and the profit maximization strategies in
telecommunication industry.
MAIN BODY
SECTION A
1. Perfect Competition
Answer:
There are various types of market in the industry. Which comprise of monopoly,
monopolistic competition and oligopoly market. Each market leads to different market
conditions on the bases of market demand, their cost and revenue functions. A perfectly
competitive market is a market in which the competition between the firms is very high. There
are large number of sellers and large number of buyers in this type of market. The commodities
ion this market are of similar nature. The customers demand for commodity can be fulfilled by
large number of sellers in the market.
For example: A person went to a vegetable seller and inquire the price of tomatoes. The
vegetable seller quotes the price of $ 5 per Kg. The person went to another vegetable sellers. The
other vegetable sellers also quoted the same price for tomatoes. Therefore from the above
example it is concluded that:
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 There are many sellers and buyers in the vegetable market for the commodity tomatoes.
 All shopkeepers are selling tomatoes at same price that is $ 5 per Kg. The product in the market are homogeneous. The products in the perfect competition
market are similar and there is no major difference between the products sold in perfect
competition market (Brickley and et.al., 2015).
Features of Perfect Competition Market
Large number of buyers and sellers:
There are large number of sellers and buyers who are willing too purchase and sell goods
in the perfect competition market. The sellers in the perfect competition market are interrelated fr
the determination of the price of the commodity to be sold to the customers.
Homogeneous product:
The products sold in the perfect competition are homogeneous. This means that products
are of similar nature and there is no major difference in the product consistency.
Free entry and exit of firms:
The sellers in this market are free from entry and exit in the market. The firms came to
sell their products and services in the market and exit when they are not able to survive in
market.
Perfect knowledge of market:
The buyers and sellers in the market posses complete knowledge of price of goods that is
at what price they need to be sold. Also the buyers are aware of current price in the market. This
results in the homogeneous prices of products in market.
Perfect Mobility of factors of Production and Goods:
In this type of market there is easy flow of factors from one place to another where they
can be sold profitably. Also the market pertains where the highest price of those commodity can
be quoted by customers.
Absence of Price Control:
In this type of market the price of commodities are not determined by the sellers rather
the price is determined by the market supply and demand forces in the market (Froeb and et. al.,
2015).
Perfect competition among Buyers and sellers:
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There is perfect competition in the ,market because there is complete openness in buying
and selling of goods. There are no restrictions in charging more or demanding less. Their is
complete freedom of bargaining for the products and services.
One price of the commodity:
The price of commodity is usually same in the perfect competition market.
Independent relationship between buyers and sellers in market:
Their exist an independent relationship between buyers and sellers in perfect competition
market. No buyers and sellers are bound to purchase or sell products in the perfect competition
market (Hill, 2016).
2. Point at which stop hiring worker in perfect competition. Characteristics of market
form.
Answer:
The firms in the perfect competition make various decisions relating to the price, output
required and input of the factors to the production. Among the various inputs required for the
manufacturing of the products the two main types of factors are labor and capital.
The labor factor is fulfilled by the availability of labor in the market. Workers supply
labor to firms in exchange for wages. The demand for labor is derived demand. The demand for
labor is derived from the output of firms. If the demand for commodity of firm reduces there is
decrease in output of firm therefore the firm will reduce its labor force.
The firms determines the number of workers in the firm on the basis of level of demand
of its output. The marginal revenue product of labor is related to the marginal product of labor.
The marginal revenue of product of labor is additional revenue the firm earns by employing one
more unit of labor.
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Illustration 1: A perfect competition labor- demand decisions
(Source : Labor Demand and Supply in a Perfectly Competitive
Market,2019)
In the perfectly competitive market firms the profit- maximizing labor- demand is to hire
workers up to the point where the marginal revenue product of labor is just equal to the market
wage rate in the market. The intersection point of market wage rate and marginal revenue
product of labor is the marginal cost of last worker (Hirschey, 2016).
In the above graph, the demand curve is downward slopping due to law of diminishing
returns. As more workers are hired, the marginal product of labor begins declining, causing the
marginal revenue product of labor to fall as well. The intersection of market wage rate and
marginal revenue product of labor is when market wage rate is 50 and number of worker is 3.
Therefore the firm will stop hiring the labor after this point in the above study.
Characteristics of the market form
1. Market is an area in which buyers and sellers meet to purchase and sale the goods and
services.
2. There are different types of commodity and different market for each commodity in
market.
3. The buyers and sellers are the essential parts of market.
4. There exist a free and fair competition between the buyers and sellers in the market.
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5. The price of product is usually fixed for similar product in a market as there exist
competition in the market.
3. Government intervention to deal with market failures.
Answer: The market of the industry is unable to maintain the market flow the government
intervention plays an important role. The government makes various plans and policies in the
economy when the market fails.
 Taxation – the government stabilize the market forces by imposing tax on negative
externalities. When the tax is imposed on any commodity there will be reduction in
supply of tat commodity and as a result increase in the price. This discourages the
protection or consumption of a goods which are not good for the customers (Hitomi,
2017).
 Subsidy- the government provides subsidies for the production of goods which are
beneficial for customers. Through the subsides there is increase in supply and reduction
in the price of commodity. This increases the production and consumption of goods with
positive effect.
 State Provision- there are few goods and services provided by government. These goods
are provided and funded through tax revenue, and government savings. This can include
the services like healthcare services, education and public goods with common standards.
 Buffer Stocks- for maintaining the balance of some goods in the industry, government
purchases and the commodities if the a commodity reaches its floor price and sells the
commodities when the ceiling price is reached. This ensures the fair income for producers
and the generation of fair price for consumers.
 Regulation- by imposing rules and regulations the government controls production and
sells of commodities and services by legally imposing fines and prison on production and
sells of the commodities and services. By imposing regulation the production of illegal
items cannot produced and it is easy to monitor the types of products and services out
flows in the country (Perloff and Brander, 2017).
 Extended Property Rights- the imposing of extended property rights identifies the
responsibility of paying for external costs either by producer or customer.
SECTION B
Question 1
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a) Supply schedule and various factors affecting the supply in market.
The law of supply is the positive relationship between the quantity supplied and price of
that commodity. If the price of a commodity rises the suppliers are willing more to supply its
goods and services in the market. The supply schedule is a table which shows the quantity
supplied and the quantity which the supplier is ready to supply on a given price level in the
market. The supply schedule determines the relationship between supply and price of
commodity.
Supply Schedule
Price Quantity Supplied
5 10 units
7 15 units
Factors affecting the supply in market
There are many factors which affect the quantity supplied by the firms. Some of these factors are
explained below-
 Price- this is a main factors for the supply of commodity. If the price of product increases
the supply for commodity also increases.
 Cost of Production- if the cost of production increases than there will be lessor supply of
those goods and services.
 Natural Conditions- if there is favorable climatic conditions than the supply of
commodity increases on the other hand when there is unfavorable climatic conditions
than the supply of commodity decreases.
 Technology- with the advancement of technology there is increase in supply of that
commodity and vice versa.
 Government Policies – if the government policies are liberal and lesser tax goods and
services to be supplied than there will be increase in supply and vice versa.
 Price of related goods- if the price of related goods increase than the supply of the
commodity increases (Salvatore, 2015).
b) Technical change and its effect on equilibrium price and quantity.
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Illustration 2: Technical change and its
effects
(Source :The Law of Supply,2019)
The technological advancement results in the reduction of cost of production of the goods
and services. When there is positive change in the technologies there will be increase in the
quantity produced.
With this increase in production there will be increase in supply and thereby rightward
shift in the demand curve. There is increase in supply as the products and services are upgraded
and customers purchase them with a believe that they are better than before.
Therefore a shift in supply from S1 to S2 affects the equilibrium point, and there is
increase in the equilibrium quantity and equilibrium price of that commodity.
Question 2
a) Oligopoly and its characteristics
There is emergence of new firms in the telecom market which was a monopoly market
earlier. In the monopoly market there is single seller of a commodity and large number of buyers.
But in the oligopoly market there are small number of sellers and large number of buyers for the
same product in the market (Seaman and Young, 2018). There is existence of oligopoly market
in the telecom industries through the entrance of private and foreign players.
The characteristics of the oligopoly market are as follows:
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 There are small numbers of sellers in oligopoly market
 The firms involved in oligopoly are highly competitive.
 As the market is highly competitive there is no barriers on the entry and exit of the firms.
 Advertising places a significant role in the oligopoly market. The companies are in high
competition so if any company advertise results in the reduction in the sale of other
companies in the market.
 The behavior of the firms in this competition is similar as there are few firms with same
products and services.
b) Pricing policies in telecommunication industry.
In oligopoly market the price of the commodities are determined by the policies of its
competition. The firms in oligopoly market acts like a cartel. Also the firms in
telecommunication industry divide the demand and set the price for there commodities in the
market. The price of any firm dependents widely on the price of other firms. If there are no
collusion of the firms in oligopoly market than the firms individually determines the prices of the
commodities and services which are best suitable for the firms and helps in the profit
maximization of the firms. There are several models used by telecommunication industry which
can be applied in determination of price of the commodities ans services-
1. Pricing interdependence- According to this theory, a competitor in the oligopoly market
will not follow price increase, but it will cut the prices in response to a price decrease.
2. Cournot assumption – In this theory the various firms compete simultaneously to
determine the maximum profit based on assumptions that other firms will not change.
3. Nash equilibrium- A set of strategies in a oligopoly market among two or more
participants is called a Nash equilibrium (Sen, 2016).
4. Stackelberg model- In this model the leader of the oligopoly firms chooses the output
first than the other firms follow the leading firm.
c) Profit maximization strategy of oligopoly market.
The companies in the oligopoly market determines the price of their commodities for the
motive of profit maximization. The profit maximization is done through industries marginal cost
and industry average cost with market demand. The profit maximization is shown in graph below
(Vasigh, 2017).
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Illustration 3: Profit Maximization in oligopoly market
(Source: Market structure and market powers, 2019)
CONCLUSION
The report concludes that there is application of various economics theory in the
management of business firms. The report states that in the perfect competition market there are
large number of sellers and buyers in the market for the different commodities . Also the report
states that the major characteristics of market form are- many buyers and sellers meet to sale
there products and services, price is determined by the market forces. Also the government
interfere through taxation, buffer stocks and granting subsidiaries.
Thereafter report states that supply schedule determines the change in price effects the
quantity supplied. Also the change in technique will increase the equilibrium price and quantity
demanded.
Thereafter report also states that there is existence of oligopoly market in the
telecommunication industries. The oligopoly market is the market in which there are small
number of sellers and large number of buyers. There exist a high competition in the oligopoly
market.
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REFERENCES
Books and Journals
Brickley, J. and et.al., 2015. Managerial economics and organizational architecture. McGraw-
Hill Education.
Froeb, L. M. and et. al., 2015.Managerial economics. Cengage learning.
Hill, S., 2016. Managerial economics: the analysis of business decisions. Macmillan
International Higher Education.
Hirschey, M., 2016. Managerial economics. Cengage Learning.
Hitomi, K., 2017. Manufacturing systems engineering: A unified approach to manufacturing
technology, production management and industrial economics. Routledge.
Perloff, J. M. and Brander, J. A., 2017.Managerial Economics and Strategy. Pearson.
Salvatore, D., 2015. Managerial economics in a global economy. OUP Catalogue.
Seaman, B .A. and Young, D. R. eds., 2018.Handbook of research on non profit economics and
management. Edward Elgar Publishing.
Sen, A., 2016. 550-81 Managerial Economics.
Vasigh, B., 2017. Introduction to air transport economics: from theory to applications.
Routledge.
Online
Labor Demand and Supply in a Perfectly Competitive Market.2019 .[online]. Available through.
<https://www.cliffsnotes.com/study-guides/economics/labor-market/labor-demand-and-
supply-in-a-perfectly-competitive-market>
The Law of Supply.2019.[online]. Available through.
<https://courses.lumenlearning.com/boundless-economics/chapter/supply>
Market structure and market powers. 2019.[online].Available through.
<https://slideplayer.com/slide/5356211/>
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