hnd经济学1微观经济学outcome1.docx

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）.