Microeconomics: Market Structures, Consumer and Firm Behavior Analysis

This microeconomics assignment analyzes the behavior of individual firms and consumers in allocating scarce resources. It examines various market structures, including monopolistic competition and cartels, using case studies such as "New Steak on the Block" and "Kellogg's Breakfast Gamble." The assignment explores concepts like selling costs, demand functions, and the impact of consumer preferences on market dynamics. It discusses the shortcomings of microeconomic assumptions and emphasizes the importance of understanding individual behavior in resource allocation and social welfare. The document also covers how firms maximize profits by adjusting expenditures, innovating, and adapting to consumer tastes, and how government policies and international trade influence microeconomic elements. The main outcome of the assignment is understanding individual and firm behavior, and how they maximize their surplus and profit.

microeconomics

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Microeconomics studies the behavior of individual firms and consumers and study their behavior
in making decision regarding allocation of scare resources.
First Case study is of food choices, New Steak on the Block, Steakhouses, and Butchers Serve up
Different Cuts; Chuck Becomes a Flat Iron Filet
Steakhouses are making changes in menu and redesigning their interior to attract more
customers. There are varieties of new dishes added in the menu and so thus the price hike in the
menu card. Improvement in taste put the extra burden on consumer pocket. New restaurants
using different techniques to attract consumers they spend lavishly on an interior, hiring chef and
promoting their products through celebrities. They have only this choice to endorse their product
as there are so many substitutes available in the market.
There are many concepts used in above case study first is the market structure in
microeconomics. There are the different market structure in an economy perfect competition,
monopoly, monopolistic completion, oligopoly, duopoly, and monopsony. Different markets
have different features; the above case is a case of monopolistic completion; Monopolistic
competition also called competitive market, where there is a large number of firms competing
and selling the same product but with different feature. The products of different firms are not
altogether different; they are slightly different from others, each having a small proportion of the
market share. There are free entry and exit of firms in the monopolist competition, so there is
also market influences on sales and profit of the firm.
The most different feature from other markets in monopolistic competition is selling cost: the
case study is all about selling cost that how food chains create a difference in their products
packing, promotions activities and adding different features. Producers have to incurred different

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types of expenditures; advertisement, campaign, and endorsement are the most important
constituent of the selling cost which affects the demand as well as a cost of production. The
focus of monopolist is to maximize profits and therefore, they adjust the expenditure
accordingly.
Innovation and creating new product to stand out in the entire competitor in the market is the key
to capture the maximum profit in the market. Like the case study depicts Steakhouses tried to
adopt into taste and new dishes into their menu card with different attracted names so that he will
able to differentiate their products from existing products in the market. Likewise in the given
topics “Reviving McDonald” McDonald’s is planning to overhaul its U.S. menu by adding more
customizable options and appealing to regional tastes, a move that the world’s largest fast-food
chain says is aimed at reinvigorating its business after another quarter of sinking profits and
sagging sales.
In second case study: Kellogg's Breakfast Gamble. There is merge between Kellogg's with kasha
co. in 2000 which leads to increase in kasha sales, kasha company sales had soared by 24 times
by launching the new product as per the new consumer taste.
In this case, another market structure used for making the higher profit by producers, it is the
case of the cartel. A cartel is defined as a group of firms that gets together to make output and
price decisions, so thus the both breakfast companies did. Cartel arises when there are firms
selling a similar product and rivals of each other.
Something merger leads to monopoly and helps in attaining maximum profit. Oligopolistic firms
join a cartel to increase their market power, and members work together to determine jointly the
level of output that each member will produce and/or the price that each member will charge. By

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working together, the cartel members can behave like a monopolist. The producer also uses the
similar strategy like selling cost; producer uses innovative ideas to attract more sales in the
market.
Similarly, in the given topic Domination of the Pork Market The United States is the world’s
largest pork exporter, and is expected to dominate the global pork market over the next 10 years.
All the exporter of meat forms a cartel to make maximum profit and keeping their prices high in
the world market. As definition says by working together, the cartel members can behave like a
monopolist and can charge higher prices by controlling the quantity supply in the world
economy.
Variation in products and doing favorable changes as per the consumer taste will influence the
demand of economy. So the other concept of economy is demand function which is a function of
different determinants of demand, taste and preferences are one of them, so a favorable change in
taste and preference will stimulate the demand for a product.
The most difficult micro concept is to analyze the market structure, as we know there are the
different market structure in an economy perfect competition, monopoly, monopolistic
completion, oligopoly, duopoly, and monopsony. Different markets have different features. The
best way identifies this concept is by judging the features of producers behavior for instance if
the producer is spending on advertisement or endorsement, he belongs to a monopolistic
competition and tries to differentiate their product from other producer's product. Thus,
Producers have to incurred different types of expenditures, advertisement, campaign, and

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endorsement are the most important constituent of the selling cost which affects the demand as
well as a cost of production.
The microeconomic theory also helps in demand forecasting, deciding the economic policies of
the government, price determination under various market situations, etc. however, there are
certain shortcomings of microeconomics as well. There is unrealistic assumption of
microeconomics like full employment, microeconomics assumes full employment in an economy
but in reality no economy.
Secondly, microeconomics assume that the ecosystem is lassies fair which means there in no
intervention of government in the ecosystem. But this assumption is also unrealistic as all
economic systems across the world including the capitalist economies experience government
intervention into the economic system.
The study of Microeconomics gives us useful insight into operational aspects of an economy at
the micro or individual level. As discussed above, the study of Microeconomic theory can help
us in deciding upon the best resource allocation process for the maximization of social welfare.
However, there are certain shortcomings of the Microeconomic theory as well. We need to
understand this limitation to complete our understanding of the Microeconomic theory. The
microeconomics approach is individualistic and studies individual behavior of consumers and
producers which are only partially correct and not gives the valid interpretation.
Microeconomics is only a part study of an economy, and thus it does not help us much in
understanding any economic system as a whole. Microeconomics theories sometimes generalize
the individual behavior and apply it to get an aggregate information as a whole, but this may not

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be correct every time as every person have different choices and different taste. As a result, they
behave differently in any given situation.
Ceteris paribus means other things held constant which is an important assumption of
microeconomics but this is an unrealistic assumption in the real market as a change in single
factor can influence more than one factor.
There is a lot of theories and central principle of microeconomics which applied in finding the
individuals behavior of firms and consumers. It helps in analyzing the how individuals and
companies use their scare resources in an efficient manner and how they attain equilibrium by
earning maximum profit.
It helps in understanding the operation at a micro level, and helps in understanding the
economics reasons behind the decisions like – What to Produce? For whom to produce? How
much to Produce? It also helps in understanding that how an individual or firm can maximize
their consumption and production efficiency and the profit by appropriate allocation and
utilization of resources at its disposal.
Microeconomics helps in determination of production by achieving minimization of cost.
Consumer behavior is also evaluated by microeconomics consumer equilibrium attain when he
spend all his money income on a commodity or basket of commodities, and he has no urge to
change it. Consumers also reveal their preferences through revealed preference theory,
consumer’s indifference curve.

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Demand Forecasting help in predict the demand of products and the factors affecting it like the
impact of the change in price, income, the price of related goods on the demand of a product.
Government policy also influences by the demand, supply and market theory.
The government considers all micro level factor while making public policies like tax policy,
pricing policy of public goods and services, how to stop tax evasion and the impact of tax
policies on reducing inequality of income and wealth.
It also helps us to determine the market structure for a producer according the features it have,
selling cost, price taker and higher prices and lower quantity helps to understand the market
structure.
The main outcome I can say I learned is to analyzing the individual and firms behavior, how both
of them maximize their surplus. Consumer tries to grab as much surplus as he can there are
different factors affecting a consumer's decision, on the other hand, producer tries to maximize
his profit and minimizing his cost. How their factor of production should allocate to maximize
his profit. The technique use by producer should use more of capital or labor depends on the
factor cost relate to them. If using machine can minimize the cost of producer firms should use
more of capital goods while if the labor is cheap firm should use labor rather than capital goods.
This course helps me to understand the achievement of social welfare from an aggregate of
individual welfare and can help in deciding the appropriate allocation of resources, commodities
and output mix for the maximization of the social welfare. It helps in analyzing the economics
concepts in the different scenario.
Even the exchange rate determination also influence by the microeconomics elements, the
elasticity's of goods and services a country export and import also a determinant of

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microeconomics which helps us in understand the influence of the change in exchange rate
similarly how tariff and quota can affect the individual demands also determine in
microeconomics.