Industrial Economics Term Paper First Draft
A manager has to make demand analysis, anticipate time value of money, detemine supply and demand levels, create a goal for his/her firm and understand the importance of profits, use his/her company’s products’ elsaticity tendencies before produce them in large quantities, maximize it’s profits and minimize production costs. A firm can be merge with another one because of profit maximization target and minimizing it’s cost. Experiences are also important factor for firms’ managers. Dividing it’s departments professionally and observing their working quality and criticizing their actions are the assignment of the manager. Studying “Industrial or Managerial Economics” we can determine basic concepts about industry and understand how to manage a firm successfully. There are many market places exist and many industries’ try to do with others and this manner creates competitiveness. A great manager has to focus on it’s firm’s weaknesses, strenghts, opportunities in market. Focusing on this basic concepts surface others and these are explained by a Harvard Professor called Micheal Porter who is a leading authority on comapny strategy and the competitiveness of nations and regions. Mr.Porter generate a simply “The five forces framework” and we can simply understand power of buyers and input suppliers, industry rivalry, importance of types of goods and requirements to enter market. How these forces influence industry profitability is the important factor that a manager has to focus on. But the basic point of a firm is that maximize it’s profits and to do that a manager has to know “time value of money” concept. Let’s give an example about time value of money. For instance a firm make good investment and receive $10,000 cash prize from a supplier. Assume that a manager has two options, he/she can receive $10,000 now or he/she can receive $10,000 in three years. Like mmost of us, a manager as an ordinary person, he/she can receive that money today cause there is purchasing power exist right now and waiting make no sense. But using a simple formula a manager can make decision about receiving money today or in the future. PV=FV/1+in i: interest rate , n: time period, FV:Future value, PV: Present value For option A, by receiving $10,000 today, you are secure to increase the future value of your money by investing and receiving interest in a period of time. For option B, the payment received in three years would be your future value. To illustrate, I have created a timeline:
Another important concepts are market forces called demand and supply. When a firm make pricing decisions it has to consider the law of demand. Law of demand states that, if a product’s price increases, the demand for that product will decreases.Of course this law is accepted when there is elasticity exist on that product. Demand is effected from consumers’ income level, price of related goods and from advertising. These three factors shift the demand curve and it change quantity demand for products.Products can be normal or inferior. Normal and inferior goods are related with income and it also effect demand concept directly. If consumers’ income increase and they still demand for a good more than before, so that good is called normal. But if consumers’ income increase and demand for particular goods decrease, these goods are called inferior. A manager has to consider market manners, input suppliers and consumers behavior during the production process. For the explain market forces: Supply and demand, I will give an example. There is a bread producer called X who has great reputation in the industry. X company supply it’s inputs from a huge farm which produce great wheats. Because of the global warming this farm cannot produce same amount of wheat and X company cannot produce same level of bread. This situation will decrease the number of outputs and bread prices will increase fastly. Because of the high...
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