hnd经济学1微观经济学outcome1.docx
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hnd经济学1微观经济学outcome1.docx
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hnd经济学1微观经济学outcome1
TableofContents
1.0Introduction
MarcoandMicroeconomicknowledgewehadlearnedinthisperiodismainlytodiscussaboutsomemajormarketstructuresintheentiremarketnow.Andtheyareoligopoly,monopolyandpurecompetitivemarketandsoon.Inthiscase,theVirginMobilehadenteredinmobilephonemarketintheUK,whichisanoligopolymarket.Inthismarket,Orange,Vodafone,BTCellnetandOne2Onearetheoligopolists.
2.0Oligopoly
Whenamarketorindustryisdominatedbyasmallnumberofsellers,weusuallybelieveanoligopolyappears.Andtherearetwomainfeaturesofoligopoly:
●Entrybarriers:
It’sagreatblockforthenewcompanytobealong-runpartofanoligopolymarket.Usually,manysmallerfirmsoperateontheperipheryonsuchsmarket,whichmeansthesecompaniescannotreachthesupernormalprofitsoraffectmuchtomarketpricesandoutput.TakeVirginMobile(VM)asanexample:
BeforeVMengagedinthemobilephonemarketintheUK,thereweresomeindustrialgiantsconqueredthemarket-Orange,Vodafone,BTCellnetandOne2One,whichaccountforalargemarketshare.AlthoughVMismakingprofit,themoneyitearnedisfarlessthananyoneoftheseoligopolist.
●Non-pricecompetition:
Asafewcompanybedominanttoanindustrial,pricingcanbenolongeraneffectivecompetitivenessforthoseoligopolisticfirms.Comparedwithpricing,after-salesservice,extensionofnewmarketandadvertisingseemtobemoreemphasizedbythem.Inthiscase,theVMisbettertopromotethecompetitivenessinsuchways--improvingtheafter-salesquality,expandingintonewmarkets,buildingtheirownbrandandsoon.
3.0ExplanationforDiagraminOligopoly
Intheoligopolisticmarket,theoligopolistsmayreactdiverselytothedifferentpricevariationtrendoftheirrivals.Ifoneoligopolistraisesthepriceandothercompanieswillnotfollowittomaintainthemarketshare,however,ifthecompanyreducethepriceandothercompaniesmustfollow,whichistokeepmoremarketshares.Itcanbeseeninthekinkeddemandcurvebelow.
BeforethepriceishigherthanP1,theproductdemandiselasticthatmeansthepriceraisesandthetotalrevenuewillreduce.ButwhenthepriceislowerthanP1,theproductdemandisinelastic--thepricereducesandthetotalrevenuewillalsodo.Thus,thecompanymayabletoreachastableprofit-maximizingequilibriumatthepointG,sothecompaniesintheoligopolisticmarketcannotchangethepriceoptionally.
4.0PureCompetitiveMarket
Inthepurecompetitivemarketstructure,thecompanycancompetewitheachotherperfectly.Therearetwocommoncharacteristicsthatareconsideredtobe“competitive”are:
●Lowerprices:
Generally,aperfectlycompetitivemarketexistswheneveryparticipantisa"pricetaker"whichmeansthesupplierswillhavenotabletoraisepriceforfacingelasticdemandcurves,andnoparticipantinfluencesthepriceoftheproductitbuysorsells.(http:
//en.wikipedia.org/wiki/Perfect_competition#Basic_structural_characteristics).
Sosimplyraisingpricewillmakealossofdemandandtotalrevenue.Thecross-priceelasticityofdemandcanreflectthecustomers’attitudetowardssomeparticulargoods.Thedemandofsubstitutegoodsisholdingpacewiththepricewhenithasanychange.Conversely,thedemandofcomplementarygoodswoulddecreasewhenthepriceincrease.Inthiscondition,customerswillalwaysfindthemostpropergoodsforthemselves.
●Lowbarrierstoentry:
Comparedwitholigopoly,thenewfirmswouldbeeasiertoenterinthepurecompetitivemarket.Andtheentryofnewparticipantswillprobablyprovidecompetitionandensurepriceiskeptlowinthelongrun.
5.0ExplanationforDiagraminPureCompetitiveMarket
Itisknowntoallthateachindividualfirmisconsideredasapricetaker.Customersmaynotprefertobuyaproductwithahigherprice.Becauseofthecharacteristic(perfectknowledge)ofpurecompetitivemarket,neitherbuyersnorsellerscangainanadvantageandfirmmayselltheirgoodsatthepointwheretheyhavethemaximizedprofit.
Fromtheshortrunviewofafirminapurecompetitivemarketstructure,theexplanationofthediagramisasfollow:
The priceinapurecompetitivemarketstructureis decided by demand and supply,whichcan be seen inpanelontheright.WhendemandrisesfromD1toD2,theequilibriumpointgoesfromAtoBand P2 is the established price. Becauseof the price which a firm use stays at P2, marginal revenue is equal to P2 at last average revenue is equal to P2 as well. When MC=MR, profit maximization is achieved, so the point which firms will stop producing should be C which ordinate is P2 and abscissa is Q2. According to the diagram above, when quantity is Q2, ATC is equal to P1. So P2 subtract P1 is average profit and then multiply by Q2 can obtain total profit.
6.0RolesofProfitinMarketEconomy
●Demandforfactorresources
Scarcefactorresourcestoflowwheretheexpectedrateofreturnorprofitishighest.Inthemobilephonemarket,whenRichardBransonstartedtogetprofitin2002,VMhas1,445,492customers,whichmeansstrongerdemands,morelabourandcapitalarecommitted.Withmorescarcefactorresources,VMmayabletoearnmoreprofit.However,inarecession,theoutput,incomesandinvestmentforVMmustallfall,whichmaycausetheprofitloss.Thusthecompanyshouldtakeaction(forexamplecuttingcosts)topreserveitsmarketposition.
●MarketEntry
Ifanindividualcompanygetsmoreprofitthanothers,itmustbeasignaltootherproducerswithinamarketthatprofitableentrymaypossible.Afterthree-yearefforts,RichardBransonmadeVMprofiting.Whenitcomes,manyotherfirmswouldbeattractedtoentertheindustry.Thus,thecompetitionwouldbeincreasedandnewproducts,technologieswouldbealsoupdatedinahigherspeed.
7.0Theothertwoalternativestoprofitmaximization
●Satisficingbehaviour
Satisficingbehaviourcanbethesubstitutetoprofitmaximizationbehaviour.Thisbehaviouralmethodlaysstressonhowdecisionsaretakenwithinthefirm.Whenadecisionismaking,satisficingexplainsthatindividualsandgroupsshouldchoosethefirstoptionthatisgoodenoughtoaddressmostneedsratherall.BasedonHerbertSimon’sworkconcerningbehaviour--“peoplepossesslimitedcognitiveabilityandcanexerciseonly‘boundedrationality’whenmakingdecisionincomplex,uncertainsituations”,satisficingbehaviourencouragesindividualsandgroupstoattainamorerealisticgoal.
IfVMsetagoalthatexpendingtheircustomersto2millioninayear,finallyitreaches2.5million.Thuswisewecantakethegoalforareceivable.
●Salesrevenuemaximization
Thegoalofsalesrevenuemaximizationistomaximizethesalesotherthanprofits.Themanagersdecisionpriceandstrategyofproducts.Inthispatternofmanagement,businesscangroworsustainmarketshare,ensuresurvival,discouragecompetitors,achievebonusesandbuildtheprestigeoftheseniormanagement.
FortheVM,whenitinitiallyenteredthemobilephonemarket,itisagreatapproachthatsellingtheirproductsasmanyaspossiblewiththelowestprofittoenlargetheirmarketshare.
8.0InfluencesonaFirmintheShortRun
Fromthediagramabove,whichcanbeseenaretotalcost(TC)isthesumoffixed(TFC)andvariablecosts(TFC).Inthebeginning,whennothingisbeingproduced,thefixedcostswillbeequaltothetotalcost.TheTCandTVCincreaseconcurrentlywiththequantity,buttheyareparalleledandthedistancebetweenthemisTFCwhichisalwaysinvariable.Andtotalcostisanupwardtrend.
Thediagramisabouttheshortruncostcurves.Onetimethefixedcostisexcessivelyused,whichwillleadtotheprogressivedecreaseofmarginalproduct,meanwhilethemarginalproductreducewillleadtothedecreaseofmarginalrevenue.LeadingthereducingoftheATCwhenMC 9.0References (http: //en.wikipedia.org/wiki/Perfect_competition#Basic_structural_characteristics).
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