Bachelor of Tourism and Hospitality: Economics Assignment 3 Analysis

This economics assignment, completed for the MGE1108 course, analyzes various market structures including perfect competition, monopoly, monopolistic competition, and oligopoly, comparing them based on the number of firms, product similarity, and barriers to entry. The assignment then identifies Coles' market structure as oligopolistic and discusses demand elasticity concerning its egg sales, concluding it is perfectly elastic. It also explores Coles' product differentiation strategy, identifies methods used to compete without price reduction (celebrity endorsement and reputation building), and illustrates the impact of weather on vegetable prices using a demand-supply model. The assignment utilizes concepts from the provided textbook chapters and includes examples to support the analysis.

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STUDENT INFORMATION
STUDENT ID NUMBER GIVEN NAME FAMILY NAME
ASSESSMENT INFORMATION
PROGRAM NAME Bachelor of Tourism and Hospitality Management (BTHM)
FULL COURSE /UNIT NAME Economics for Business COURSE / UNIT CODE MGE1108
ASSIGNMENT DETAILS (title) Assessment 3: Individual Written Assignment
LECTURER NAME
SUBMITTED ON
DUE DATE 26 May 2019 Midnight
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Question 1
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set E

“Compare the market structures of Perfect Competition, Monopoly, Monopolistic Competition and
Oligopoly under the following headings (About 150 words).
i. number of firms in the market
ii. similarity of the products sold
iii. barriers to entry”
(12 marks)
ANSWER to Q1
A market structure refers to the set of market conditions or rather characteristics which define the mode
of operation of a given market. Examples of such characteristics include the number of firms, products’
homogeneity degree and ease of entry into the market. Based on the named characteristics the market
structures are majorly categorised into four groups namely the perfect, monopoly, monopolistic and
oligopoly competition have been compared as follows.
Considering the market number of firms, both the perfect and monopolistic competition market
structures have a vast number of firms whereby each firm has a relatively small market share. The
oligopoly market structure has only a few firms operating in the market which have a larger market share.
Firms of small size can also operate in a oligopoly market structure but the market is dominated and
controlled by the few large firms which have higher market share and this makes the market highly
concentrated. A monopoly market structure has only one firm or rather a single seller operating in the
market. The single firm controls the supply of the commodity which it produces in the market.
Considering the degree of similarity of the products sold in various market structures, a perfect
competition market structure involves the selling of products which are homogenous. Firms operating in
the market offer or rather sell identical goods and services and hence the commodities are indifferent to
customers. In a monopolistic market structure, firms sell products which are differentiated from those
offered by each other through various features such as branding among others. This feature enables them
to have some degree of price control as they can make the price for their products which are
differentiated. In an oligopoly market structure, firms sell products which are either differentiated or
homogenous. The firms are usually independent and hence are very keen about any move taken by each
firm. In a monopoly market structure, the single seller offers products which are unique and are not
similar. The products are not close substitutes and hence the consumer has no choice of considering close
substitutes in case of any changes in the product offered by a monopoly seller.
Based on the barriers to entry, a perfect competition market structure involves the entry and exit
freedom for firms as no barriers are involved and it is very easy for firms to enter the market. In a
monopolistic competition market structure, firms also can freely enter or leave the market as no barriers
to entry or exit but the degree of ease is not as higher as that involved in a perfect competition market. In
an oligopoly market structure, firms find it difficult considering their entry into the market as barriers to
entry exist. Some of the barriers include economies of scale and high initial capital among others. In a
monopoly market structure, it is very difficult for firms to enter the market as high barriers to entry exist.
some barriers which exist in this market structure are initial capital investment among others.
Question 2
“Identify the market structure Coles operates in.
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State your reason why.”
(3 marks)
ANSWER to Q2
Coles in Australia operates in an oligopolistic market structure. This is due to two reasons as identified
from the question. Many firms operate in the supermarket, retail, and consumer services in Australia but
the market is dominated by only three bigger firms namely the Coles, Woolworths, and Aldi. This makes
the market highly concentrated. Also, the three big firms have dominated the highest market share in the
industry. They actually account for more than 60 percent of the total revenue raised from the industry
with the rest sharing the remaining 40 percent.
Question 3
“Discuss how Coles would consider demand for its eggs in terms of elasticity – perfectly elastic; elastic;
inelastic or perfectly inelastic? Draw its demand curve to illustrate this. Explain your choice.”
(3 marks)
ANSWER to Q3
Demand elasticity measures the reaction of the demand for goods and services towards a change in their
prices. Demand elasticity can be either perfectly elastic or inelastic, elastic or inelastic.
Coles should consider the demand elasticity for its eggs to be perfectly elastic. When the demand for a
given good or service is perfectly elastic, then it means that its price increase would lead to a zero
quantity demanded.
The reason for the perfect elasticity of Coles eggs is because its competitors sell similar products and
prices have already been minimized to the lowest point possible. This means that the products sold by
Coles and its competitors such as eggs are similar and hence are close substitutes. Therefore any attempt
to increase the price of eggs by Coles would make consumers shift to purchase eggs from other
competitors as eggs are homogenous. This will adversely affect the demand for Coles eggs and might end
up losing all its customers for eggs. The demand for perfect elasticity is as shown in the below diagram.
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From the graph, it is evident that any attempt to increase the price for eggs by Coles might lead to zero
demand for its eggs.
Question 4
“What is the term used to describe the new strategy that Coles is adopting to increase market share?
Describe how it works."
(4 marks)
ANSWER to Q4
Coles new strategy of increasing its market share can be termed as product differentiation. Product
differentiation refers to a marketing strategy which involves distinguishing a firm’s goods and services
from those of its competitors. This is done through various methods such as branding and quality among
others. From the article, Coles shifts towards considering the quality for its products and their source as
they are 96 percent locally sourced Product differentiation works as explained below.
The main aim of product differentiation is to convince customers to choose a firms brand over those of
their competitors. This is done by identifying the difference in the quality of products of a firm as
compared to competitors’ products. Quality differences can be observed through packaging, promotion
and even branding whereby products are given unique names. Product differentiation at times may not
involve any changes but simply the creation of campaigns for advertisement as is the case with Coles.
Therefore, through product differentiation, consumers are convinced to consider a firm’s brand as the
best based on quality and other features which may not actually involve price decrease.
Question 5
“From the same reading above, identify any two (2) methods used by Coles to compete without reducing
price.”
(4 marks)
ANSWER to Q5
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Celebrity endorsement has been used by Coles to compete without price decrease. Celebrity advertising
or endorsement refers to an advertising campaign or rather a strategy for marketing which is used by
various firms and businesses and involves the use of celebrities or famous individuals who have popularity
based on their statuses socially in order to promote firm’s products. This increases sales for businesses as
more people and fans to the used celebrities purchase products associated with them. The current Coles’
marketing strategy involves the use of celebrity chef by the name Curtis Stone. This strategy is likely to
raise Coles’ profitability as more people who identify themselves with Curtis Stone are likely to purchase
more of Coles’ products.
“Reputation building” has also been used by Coles. Reputation building involves building a good image for
a business to the society through various means such as supporting programs which benefit the society.
For instance, it is stated that Coles good things consist of its charitable work which involves donating to
various groups in Australia such “Redkite and Secondbite” and the Nurture Fund for Coles which assists
farmers in Australia. These activities benefiting the society are likely to increase Coles Market Share as
more customers might purchase their products as a means of appreciation for the good deeds.
Question 6
“Use the Demand Supply model to illustrate the likely effect on the price of vegetables as a result of the
weather, ceteris paribus (a diagram is expected here).”
(4 marks)
ANSWER to Q6
An occurrence of dry weather means that the local farms have to experience a decrease in the number of
vegetables they produce. This, therefore, means that their supply of vegetables to Coles will have to
decrease as only a few vegetables are available. As a result, the supply curve of vegetables for Coles will
shift towards the left direction from S0 to S1 due to supply decline. The quantity supplied will decrease
from Q0 to Q1. As a result, the price of vegetables will increase from P0 to P1 as shown in the diagram
below.
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Question 7
“Briefly discuss any two differences in the market structure that Coles belongs to with the market structure
Monopolistic Competition.”
(4 marks)
ANSWER to Q7
Coles belongs to oligopolistic market structure and hence the differences between oligopolistic and
monopolistic market structures have been discussed.
Considering the number of firms, a monopolistic market structure has a vast number of sellers who sell
products which relate to each other closely but they are not homogenous. The firms have limited market
share and they can act independently. On the other hand, an oligopolistic market structure has only a few
sellers who dominate the market. Other small firms can as well operate i the market but the huge market
share is dominated by the few large firms with the rest sharing the remaining smaller percentage.
Considering the barriers to entry, a monopolistic market structure has no barriers involved as firms can
freely enter or leave the market as they wish. This makes the firms operating in the market structure to
make normal profits in the long term as many firms enter the market. The oligopolistic market structure
has barriers to entry some of which include economies of scale which may result from economies of large
scale production by established firms and huge initial investment.
Question 8
“State which market structure that you think each of the following businesses best belongs to. Explain
your choice.
i. the only cobbler in a country town
ii. McDonalds Restaurant in your city
iii. Metro Trains in Melbourne and Sydney Trains
iv. National Australia Bank
v. Academies Australasia Polytechnic
vi. A small stall in one of Melbourne/Sydney’s Sunday markets that sells souvenirs such as wallets,
caps, tee-shirts, key chains
vii. A car workshop or hair salon in your city
viii. Iphone and Samsung in the mobile phone industry”
(8 marks)
ANSWER to Q8
i. Monopoly market structure. Since it is the only cobbler in town, this means that the business has
monopoly power as no competitors are involved.
ii. Monopolistic competition market structure. McDonalds operates in a monopolistically competitive
market structure which has various players such as Burger King, Dominos and Pizza Hut among
others. Each player in the market has a small market share. They offer almost similar but not
homogenous products.
iii. Oligopoly market structure. The Metro trains in Sydney and Melbourne operate under oligopoly
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market structure as the market is dominated by a few railway companies such as Australian
Railway Supply Company, Reliance Rail and ARTC among others.
iv. Oligopoly market structure. The National Australia Bank operates under an oligopolistic market
structure whereby the bank together with other three major banks namely the ANZ Bank,
Commonwealth Bank of Australia and Westpac dominate more than 75 percent of the Australian
banking market share making the banking sector to be highly concentrated.
v. Monopolistic competition market structure. Academies Australasia Polytechnic operates under
monopolistic competition as there are various institutions of higher learning operating in the
market such as Skills Training Australia, Discover English, and Spectra Training among others.
Various institutions in the market offer related courses but are differentiated by their names.
vi. Monopolistic competition market structure. A small stall operating in one of Melbourne/Sydney’s
Sunday markets is said to be operating in monopolistic market structure as there are various other
small stalls which have a relatively small market share.
vii. Monopolistic competition market structure. There are many car workshops and hair salons in the
city which are differentiated by their names but offering similar services.
viii. Monopolistic competition market structure. Samsung and iPhone in the mobile industry operate
under monopolistic competition market structure. The mobile industry involves many firms which
sell various phones such as Samsung, Nokia, LG, Blackberry, Vodafone and iPhone among others.
These products (phones) are related closely but they are highly differentiated.
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