Week 4: Economic Analysis

Topics: Economics, Cost Pages: 6 (1261 words) Published: October 8, 2015

Week 4 Economic Analysis
September 17, 2015

Economic Analysis
Market Structure
The business firm discussed in this report deals with general merchandise and operates in the retail industry. It specializes with the sale of general consumer merchandise including food products such as dairy foods, baked goods, meat and poultry, seafood and garden outputs; clothing and textile output, electronic merchandise and it also operates an optical center among other business operations. The market structure of this business is monopolistic. The external business environment is composed of several retailers who pose as competitors to the organization in the market (Stackelberg, 2010). Similarly, the market entry for general merchandise retailers is relatively. Due to the size of the organization, the company has a substantial control over the pricing scheme of its output; it has the capacity to shift the cost of goods either to its suppliers or end customers. This power is one that smaller retailers in the industry do not have. The organization differentiates its output through product testing tactics which makes the business clients to perceive brands as new and with improved value through redesigning packages and graphics; while in essence it may have been the same. Price Elasticity

Price elasticity is defined as a measure in the sensitivity of business clients or the supply of commodities as the pricing approach changes (McEachern, 2010). The significance of this value is that it analyzes the proportionate change in the output demanded after the prices of the commodities have been changed. In this business enterprise, the price elasticity is relatively low. Due to the wide range of products sold to its targeted business customers, the organization has been able to capitalize on its economies of scale. For this reason, while a product may have increased its selling price, its purchase levels may still be sustained since the cost is comparatively lower than competitor prices (the small scale retailers). Additionally, since the organization has power over prices, it can opt to transfer burden of cost to its suppliers. This safeguards the end consumers through regulating the prices of commodities. How will pricing relate to elasticity of your product?

Like several other business enterprises in the general merchandise retailing sector, the link between pricing and elasticity of products is such that at ceteris paribus an increase in price reduced the quantity of goods and serviced demanded by the consumers. An increase in prices causes a shift of demand where more people demand for the substitute products (McEachern, 2010). Similarly, a decrease in the prices of commodities leads to a substantial increase of products being demanded. This phenomenon is attributed to the fact that a decrease in pricing implies that consumers can afford more of the product at a given price. Similarly, reduction of price also means that more consumers can afford the goods and/ or products being offered by the business firm. How will changes in the quantity supplied as a result of your pricing decisions affect marginal cost and marginal revenue? Marginal cost is defined cost incurred for the production of an additional item. Marginal revenue on the other hand, is defined as the additional income that is accrued through rise in product sales of a good (Boumal & Blinder, 2015). In this business firm, when the cost of a merchandise e.g. television is reduced from $145.50 to $100.00, a simultaneously decrease in the marginal revenue accrued for the commodity. Furthermore, this reduction in price leads to a subsequent increase of demand for the television. This implies that the quantity of supply for the TV increases substantially to satisfy its growing demand. The additional cost needed to produce more television sets consequently affects the marginal cost. As a result,...
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