Monopolistic and Oligopoly Firms: Business Economics Assessment Answer
Economic for Business
In the present market situation, an economy is said to be a branch of knowledge that studies the various key elements such as production, transfer of wealth, and consumption level of the users. It has been seen that the resources are quite scared for the nation, thus it is important for the economist to utilize them accordingly so that maximum output could be incurred in the future. In the general term, it consists of factors of production, government spending, and other income that are incurred by an individual (Checherita-Westphal and Rother, 2012). However, business economies tend to be associated with the subjects related to different aspects such as distribution, scarcity, and consumption level of the users. Therefore, this project intends to provide specific information regarding the GDP growth rate, entry barriers, labor forces, and aggregate demand changes. Apart from this, the overall computation those are based on firm spending is also being the highlight of this report.
(i): Monopolistic competition is a situation in which most of the firms tend to compete with the other for similar products and services to the proposed customer groups. It has been seen that firms used to set prices relatively high other than the marginal cost which impacts the client surplus low as compare to the perfectly elastic market (Shukla and Shukla, 2014). There are several assumptions associated with these types of markets that can lead to analyze the effectiveness of the market. In the context to examine the changes in the profit and loss concept of these markets is been identified through the below graphs of the Lan T-shirt company.
In the short-run, the income earned by the firm is being competing within the market structure stands at any level. It has been seen that the Lan T-shirt is making a supernormal profit that is included by the curve lines. In this position, the Marginal cost and revenues tend to be equal. It has been identified that strong brand loyalty could make clients demand low price sensitivity. However, ATC is higher than the actual demand, where MR = MC. In the case, Lan T-shirt overall cost structure is indicating a variable growth in the price. Below-mentioned is certain key facts regarding the production level of Lan T-shirt such as:
In the stage ATC1, the supply units if marked as 40 units for the price of 17.5 t-shirts, thus, it could lead to ATC1 > D. The profit margin for the T-shirt could incur valuable spending of income worth $2.4/t-shirt sales.
In the second case, the ATC2 value amounts to $22.5 at the same 40 units of supply. It would indicate that firm has suffered a loss of 2.5 per t-shirt. The overall performance of the firm tends to be aligning with AVC conditions (Gabisch and Lorenz, 2013). At this point, the value or quantity supplies intend to remain increasing, then the production of the t-shirt should be stopped.
(ii): Imperfect competition tends to be an effective market situation, where there is less number of sellers but having heterogeneous products that are suitable for the perfectly competitive market demand. It has been seen that monopoly and oligopoly are the two best examples of an imperfect market. These are considered as close hurdles that make it hard for new firms to enter into a given market. Some of them are:
Network effect: It has been seen that the effect that various users tend to have on the overall value of products and services would lead to an impact on the market. In the case of a strong network, it might restrict the chances of new entrants.
Switching cost: The cost incurred by customers with the motive to take advantage of the other suppliers. It is associated with the cost of buying new machinery, research for new suppliers, and loss of services (Rahman and Mamun, 2016).
Start-up costs: In most of the situation, the cost is reduced that cannot be recovered when a firm lead to switching the market by taking into account its operation into the market.
In the economic situation, GDP growth tends to play an eminent role in the overall growth and development of an economy. Most of the business firms the growing size of the business is the primary motive for the companies. Moreover, it could lead to impact both short and long-term growth that is complex for the firm. Therefore, certain indicators that are associated with the economic development in Goodland republic is being discussed below:
From the above economic information of Goodland republic, it has been examined that the calculation of nominal GDP is done in the two years 2017 and 2018. It happens to be analyzed that the value of second-hand items would not be considered from the total investments because the nominal GDP value of $17, 70, 35,175 gets affected. Thus, the real GDP tends to be examined through using the deflator’s price on the same investments which are close to the nominal value (Aucott and Hall, 2014). With regard to the real GDP, it has been determined as $1,08,43,40,035 million for the same period. However, it is one of the vital indicators which are used to provide an idea regarding the changes in inflation rate or growth in price. Furthermore, the real GDP price remains at constant at some point, thus a change in GDP used to reflect variation in quality. The reduction in price fluctuation is only occurred due to the real GDP values.
Fig: Business cycle
(Source: Cause of firm downfall or growth, 2015)
It has been seen that the business cycle is termed as a trade cycle that shows upward and downward changes in the GDP so that future growth opportunities tend to created accordingly. The duration of the cycle within this period is containing an individual expansion and contradicts to the number of sequences. The below mentioned are the stages that are included in the business cycles of any credit banking industry.
Peak: In this first stage, the position of the firm is being determined with a number of situation factors, where the growth of the GDP rate is being analyzed accurately along with the price variations. The economic trends that are affecting the business growth position as a downward slope. It arises because of legal policies and standards implementation (Narayan and Popp, 2012).
Expansion: The next phase of the trade cycle indicates that the GDP grows for more than two periods moving from a trough to a peak. It is generally considered as the recovery period for the firm. Apart from this, it can assist the firm to remain strong in a tough competition.
Recession: This stage most of the firms get suffered due to high economic crises or maximum credit float in the market. The demand rate gets decreased as per the profit level, as the supply gets over along with the minimum price.
Trough: This phase intends to provide valuable information regarding the GDP growth rates that reduce the overall supply and demand up to a certain level.
Growth: This stage of the firm is considered as high maturity because the economy is getting a sufficient amount of return on the total spending. It is normally related to the growing investments which will increase the confidence and morale of customers to purchase the goods at the same price.
In the context of the available case scenario, it has been analyzed that the total deposit as initial investments amounts to $200000 with the interest rate of 5%. However, it will see that after one annual year, there is an increment in the total deposit to $210000. The inflation value is being decreased as the client purchasing the product at this price range (Rassenfosse and Potterie, 2012). Hence, it has been examined that with 4% the cost would be $100, whereas, after the end of the year, it increased up to $104 over the total deposit. It could be better understood by the below calculations:
1st case: With reduction of 4% inflation rate
Total deposit: 210000
Rate: (100%-4%): 96%
Total spending: $210000*96%: 201600.
It shows that there is a growth of $1600 seen in the FY2018.
2nd case: With reduction of 6%
Total deposit: 210000
Rate: (100%-6%): 94%
Total spending: $210000*96%: $197400.
It indicates a total reduction of $12600 on the total deposit. It means that the long-run inflation rate is delivering a low return to the shareholders.
According to the above table, it has been seen that the people who are associated with the firm are willing to play an active role in any given task. Hence, it has been analyzed that the labor force is determined as 13.5m+0.7m: 14.2million. It intends to be reported as 68.3% of the total adult population that ranges from 15years. However, it has been seen that that entire individual those are not considered into the labor force ranges because they are actively taking part in the working process (Salahodjaev, 2015). For the overall data, it has been a value of 6.6million in the labor force. The overall structural unemployment values occurred due to the fluctuation in the economic situation. Further, unemployment which is related to a high level of growth is being marked accordingly. Thus, it has been reported that the young group of the population tends to remain constant with a particular labor market.
According to the above graph, it has been analyzed that the aggregate demand is being considered as final demand for a product or services that are manufactured in an economy for a particular purpose. It happens to be often realized as effective along with the changing fiscal and monetary policies of the country. However, if government investment intends to get an impact on the present growth, then it will lead to creating an effect on the total national income of the economy. Henceforth, the goal of government spendings might develop a negative influence on the growth and profitability position of the economy. The purpose of increasing expenditure is to increase the overall spending for a particular nation. Certain key factors result in changes in the demand curve such as:
- In the short run, the AD curve shifts rightwards due to the high real GDP growth rate.
- Government spendings, as well as import duties for the economy, can also impact the shift in the demand curve (Wang, Li, Barnes and Ahn, 2012).
- The reduction in consumption rate for the client should be the reason.
- Th price elasticity of outputs along with the price also changes with the market demand.
Throughout the entire project report, it has been articulated that the economy is a wide concept for the economy. Therefore, it is important for the nation to determine the changes in the demand and quantity supplied so that future growth and spending for the firm could easily be managed. However, the GDP growth rate, labor forces, and other policies are also required to be followed strictly before entering into the new market.