outcome1economicHND微宏观.doc

DE3G35: Economics 1: Micro and Macro and Macro Theory and ApplicationI IntroductionVirgin Mobile was established by Richard Branson in 1999 and 3 years latter it made profit. Through entering the mobile phone market lately, Virgin Mobile was regarded as a niche player.The mobile phone market can be seemed as an oligopoly, which means that there are only a few sellers of a particular commodity. There are quite a number of oligopolies in the United Kingdom e.g. banking, supermarkets, detergent production. Etc.II Findings1. Characteristics of mobile phone market can be thought two points:l Goods or services may be very similar.l Difficult to predict behavior- considering non-price competition.Although mobile phones are launched new models continuously, the functions, styles of the mobile phone are quite similar. Even how it developing, the mobile phone is a tool that helps people connect others at any moment. It does not have huge difference in substance. Besides the services offered are alike among the mobile phones market, without exception, sending message and call are the most prevalent service which can be earned large profit.Now days, lots of company try to enter mobile phone market, but a few of them can earn profits. Mobile phone is a high-technology product so people will consider about the brand for offer good quality. Whats more favorable policy can appeal more attention.2PriceQuantityDGDPOQPrice is OP and output is OQ. At price higher than P demand is elastic which will cause loss market share. At price lower than P then the fear is that cutting prices will force rivals to follow suit and there will be little gain in the way of additional sales. Because price is above marginal cost, selling more at the going price raises profit. From the case, the mobile phone market can be thought that the price decide the quantity of product. If the company raises the price, certainly the sales will fall. On contrary, decrease the price can gain advantages from other companies; company has possible to grab more customers 3 Apart from oligopolistic market structure, the absolute monopoly is in the hands of one supplier and there is no substitute for the commodity.The two key characteristics of monopoly are:(1) It is the sole seller of its product; its product does not have close substitutes. The single seller is a contrast to perfect competition directly. A monopoly may well have almost complete control the supply of a commodity. Being a position of monopoly seller in the market is the most important to be a single seller. Monopoly cannot however control the demand for the commodity. This means that if the monopolist wishes to supply more this is only likely to be achieved by lowering the price. The monopolist can also, if they wish, fixed the price then allow the consumer to determine the quantity brought. This makes monopoly a price maker but not a price taker. (2) Barriers to entry into the monopolistic competitive area are usually those of advertising, branding or patenting. Where others do try to break in, legal means may be used by monopolies to keep them out.4The diagram for a monopoly is generally considered to be the same in the short run as well as the long run.Profit Maximisation occurs where MR=MC. Therefore equilibrium is at at Qm, Pm.Features of this diagram There are barriers to entry in Monopoly. Firms are price makers. The industry demand curve is the same as the firms demand curve. Profits are maximised at output where MR=MC. This means they set a price greater than MC which is allocatively inefficient. In this diagram the firms makes supernormal profits because AR is greater than AC. Note: In monopolistic competition the short run equilibrium is different to the long run equilibrium5 All the firms will seek to sell products up to the point where marginal cost equals marginal revenue. Extra production will result in costs becoming greater than the extra revenue to be earned. The point at which marginal costs and marginal revenue are equal is the point at which profits are maximised. For the Virgin mobile profit is an incentive to undertake a risk in the belief that a gain can be made. Profit is the reward to Virgin mobile and the incentive that encourages them to take risks. Profit is a reward. It must be earned as we have seen, generally in an imperfect competitive situation. Many business fail and for many different reasons. Entering mobile market exist lots of risk for it is difficult to make people accepting a new brand when there are many rivals. However Virgin mobile can win for incentive that encourages them to take risks. Besides Virgin mobile try to adopt a “Strategic” or “Long Run” view, maximizing profits in that time scale.6 a) Sales Revenue Maximisation theoryl Managers get better perks(motivation) and salaries from sales than profitl Market share is considered a better sign of progress of a firml Because of the above, heavy advertising will take place to maximise salesl Profit may be reduced to pay for advertisingl Firms will still profitsto keep shareholders happy and salaries and perks up but it will not be a profit maximization philosophyl Firms which operate on this philosophy will attempt to sell more but at a lower price than a firm looking for maximum profit Profit maximization is not always the main goals of a firm. Richard Branson knows the regard to marginal cost and marginal revenue. Besides he knows whether or not profits have been maximized. The target of Virgin mobile set for profits suggesting a particular percentage of total turnovers. Richard ensured that with a predicted level of sales they can control costs to meet the profit targets.b) Growth maximization theoryl Managers look for perks, status, salaries etc, but want to grow their own firml If firms want to sell more they must produce more. Productive capacity must also grow. Growth is therefore more balanced.l If market or product is “mature” and has little growth potential firms might have to diversity into new areas over merger and takeover. l Managers can never ignore their shareholders; they must keep them on board. This will only occur if shareholders believe there is increasing value for them in this growth. 7 As long as one of the production factors remains fixed in supply a firm will only be able to increase output with a falling cost over a limited range of output.In short run, diminishing returns will reach a maximum output and cannot be increased. Adding to the other factors will not increase output but will reduce productivity because effectively more resources will be used to produce either the same quantity or a very small increase. Firms may set more diversified targets for their existence and development.Satisfy Behaviour: this theory was expounded by H A Simon and A Cyert. It is based on the fact that achieving specific targets with regard to sale, profit and market share will result in satisfied behaviour by those who own and who runs firms. They know it may be possible to do better but in the long run to press for further profit may result in unintended damage.Growth Maximization Theory: propounded by Robin Marris, managers look for perks, status, salaries etc but want to grow their own firm. If firms want to sell more they must produce capacity (assets) must also grow e.g. plant, equipment. If market or product is mature and has little growth potential firms might have to diversify into new areas. Growth can occur because of amalgamation, merger and takeover. Managers can never ignore their shareholders; must keep them on board.1）Total CostThe average-total-cost curve is U-shaped.The total-cost curve shows this relationship graphically. Efficient scale is the quantity that minimizes average total costAt very low levels of output average total cost is high because fixed cost is spread over only a few units.2）Average CostsAverage costs can be determined by dividing the firms costs by the quantity of output it produces. Demand increase and the firm responds by increasing those factors of production needed to meet the demand.The average cost is the cost of each typical unit of product. The average total-cost curve is U-shaped. The marginal-cost curve crosses the average-total-cost curve at the minimum of average total cost.Average total cost declines as output increases.Average total cost starts rising because average variable cost rises substantially.3）Marginal CostThe marginal product of any input in the production process is the increase in output that arises from an additional unit of that input.Diminishing Marginal Product The slope of the production function measures the marginal product of an input, such as a worker.When the marginal product declines, the production function becomes flatterMarginal cost (MC) measures the increase in total cost that arises from an extra unit of production.Marginal cost rises with the amount of output produced.This reflects the property of diminishing marginal product. Whenever marginal cost is less than average total cost, average total cost is falling.Whenever marginal cost is greater than average total cost, average total cost is rising.The marginal-cost curve crosses the average-total-cost curve at the efficient scale. Marginal cost eventually rises with the quantity of output. The charts tell us that: Fixed CostDo not vary with output. The cost of doing so will remain the same whether the firm is producing to full capacity or almost nothing. Total CostThis is the sum of Fixed and Variable costs. If nothing is being produced the Fixed Cost will be Total Cost. As production commences and Variable Costs rise so will Total Cost. Average CostIs obtained by dividing Total Cost by Number of Units Produced. Average Cost will vary with output because as pr