Comparing Market Structures Exercise 9-2

Figure A represents the Average and Total Profits of perfect competition market. At the Q1 output the average cost is AC1, the total profit is equal to the average profit times the quantity produced.

Figure B represents the Monopolistic competition market, D1 is an elastic demand curve with its associated marginal revenue curve MR1. AC and MC are the normal U-shaped cost curves. The area P1aQ10 represents total revenue. Similarly, C1bQ10 represents total costs.

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Figure C represent the Oligopoly markets, the discontinuity in the marginal revenue curve is the result of the kink in the demand curve. MC1 is the original marginal cost curve. Quantity Q1 is the profit-maximizing output that results in price P1. An increase in marginal cost from MC1 to MC2 results in no change in equilibrium price or quantity.

Figure D is for the Monopoly market, its present AC curve is higher than the demand curve at all output levels. Its best option will be to minimize its losses by producing at the point where its marginal revenue equals its marginal cost, that is where these curves intersect at a quantity Q1. It would charge a price of P1 and would incur an economic loss denoted by the shaded area, AC1abP1

Oligopoly and Game Theory Exercise 8-1

Game Theory

The main idea behind the game theory is finding a method of analyzing of a firm behaviour that highlights the mutual interdependence between firms, this idea can be applied to any situation where people seek to work out the best possible action, and also includes the possible reactions of the rivals.

Game theory was first developed by economists John Neumann and Oskar Morgensten in the 1940s to analyze strategic behaviour.

Most of the business agreements either between the Oligopoly firms or between governments are an example of game theory as rational profit-maximizers is applicable, watching the price oil is an evidence of game theory in between countries members in (OPEC).

The various strategies and outcomes or payoffs of the game theory players are usually presented in the form of a matrix, the matrix describes the results of the players behaviour in four cells taking the four possible results: 1- the first player cheat and the second don’t, 2-the second player cheat and the first don’t, 3-both players cheat, 4- both do not cheat.

If rivals decide that instead of competing they are going to collude, then the form of collusion make take different forms such as dividing up the market on the basis of geography or dividing the whole market on the basis of existing client list or by general agreement on an output quota for each form. The formal agreement of cooperation among firms is called cartel.

Oligopoly

Oligopoly is a market with a few large firms, while the perfect competition is with many firms (lots of sellers and buyers) and the monopolistic competition market in which there are many firms that sell differentiated products.

We may clarify the Similarities and differences between each type of market in the below table

Type of the Market	Number of firm	Type of product
Perfect Competition	Many	Identical
Monopolistic competition	Many	Differentiated
Oligopoly	Few	May be Identical (for undifferentiated OligopolyOr Differentiated (for the Differentiated Oligopoly

The perfect Competition market is considered the best choice, the main feature of this type of market is that all producers are price takers, so no one has a control of the prices and the consumer will get the product with standard prices, the producers may work to reduce the cost of their products to increase their profit

Another feature is that the products of this type of market is identical and the buyers also are price takers, and this will help me as a consumer to utilize the products in an efficient manner and at the same time the type of this market ensures that no shortage will happen to the products due to the producers changes of the prices.

If we all agree that the perfect Competition market is not practically exist then as a consumer I will prefer the Oligopoly market as the competition in this type of markets is not about the prices!

Defining Monopolistic Competition Ecersise 7-1

Monopolistic Competition Definition: may be defined as a market with some special features, A market where the firms differentiate their products and the competition between the firms depends on who differentiate its products more than the others, they may differentiate their products by developing a brand name, product logo or packaging that distinctive the products than the others. They may also use the advertisement to advertise their products and this depends on the size of the company and how much it can pay for the advertisements.

Another feature of this market, is the control over price, unlike the perfect competition markets where all the firms are price takers, the monopolistic completion firms have some control over the prices.

Monopolistic Competitive Companies

Size:	Small Company	Medium Company	Large Company
Features:
Differentiated products	OMEGA watches	Ray-Ban Sunglasses	KFC
Control over price	MAX	Tim Hortons	Co-op
Mass advertising	Dolce & Gabbana	Colgate Dental	Nestlé
Brand name goods	Tupperware	Rollerblade	Aspirin
Distinctive packaging	Burberry Bags	Johnson & Johnson	Kit Kat

Nike may be fitted in the raw of the differentiated products, its logo and its products made it a very well know brand and a product that is a very high in demand due to its differentiated products. And it became a brand name in the markets.

Dollar Store may be fitted in with the feature of Control over price.

Starbucks and the perfect competition markets Exercise 6-2

Starbucks may be considered part of a the perfect competition of the coffee market as buyers, they are a price taker in the coffee market, and the coffee market is a sample of a perfect competition market as its run under the all conditions of the perfect competition,

As sellers in their shops, we can’t consider Starbucks as a part of a perfect competition for so many reasons, one is they are not price takers and their prices changes according to many reasons.

Starbucks decided to close number of their stores and also to realign their business practices due to many reasons, they probably made some poor decisions, one reason is opening many stores close to each others, where the performance of these stores were unprofitable. Second, when they opened stores in fiscal 2006, they probably didn’t anticipate how much tough the economy would be and how the brand would be struggling.

In the short run and by closing number of their stores they will reduce the cost and they expect profits to drop. In the long term the benefits will be higher over the cost.

Starbuck’s coffee is expensive compared of others like Tim Horton or McDonalds. But still millions go for the Starbuck coffee for the good quality of the coffee they serve, the varieties, the warm and friendly environments created in their stores, all these reasons make drinking the coffee in Starbucks is a joy for many people which makes their coffee a normal good, one for which demand falls as incomes fall.

Starbucks unveiled a new product which was an instant coffee, which is considered an inferior product, and as the company’s chief executive declared that their decision to produce an inferior product is all about economics!

By this decision their benefits for the long run will be more and will increase even if they reduced their sales to the normal goods.

sources:

·        Starbucks Gossip(http://starbucksgossip.typepad.com/_/2007/02/starbucks_chair_2.html)

·        CBC News(http://www.cbc.ca/money/story/2008/07/01/starbucks-closures.html)

·        The Seattle Times(http://seattletimes.nwsource.com/html/businesstechnology/2008028854_starbucks02.html)

Starting a new business “Catering” Exercise 5-5

I’m planning to start a catering business; It will be a small business as a start, I will rent a small place and supply it with the equipment and tools necessary to produce few kinds of food, the business will include an outlet to sell the product, in addition, I will use my car as a start to distribute the products to different supermarkets and shops.

Also will use the media networking (like Internet, Blackberry, What’s up...etc) to make an advertisement to the business and will offer free delivery to individuals, and the payment will be cash at delivery point.

The fixed cost will include:

-        Lease payment of the business.

-        Equipment and cooking tools and machines.

-        Annual insurance.

-        Fees to get the approval and other payments to set the business.

-        Business taxes.

The variable costs:

-        Wages to the employees.

-        Food raw materials.

Implicit costs:

-        Using my private car.

-        I’ll loos my job, which I get paid for it recently.

-        The opportunity cost of my budget.

-        I’m expert in cooking, so I will bake and cook myself and hire assistants only, so cost of my payment will be considered as implicit cost.

My goal is to make my business a “brand” and to be known in the local markets. The plan is to keep the small business for two years and if the demand for the products will increase and the profit gained will be above the normal profits, I will think of taking a loan from my bank and expand the business and open a small factory with line productions of the most demanded products in the markets.

I could not find in the Internet any similar ideas, sure there are much similar ideas but I could not find one listing the answers to the requested question.

On the other hand, I found many websites help starting successful catering businesses, below are a couple of such websites

http://www.cateringbusinessideas.com/

http://www.cateringbusinessguide.com/

They include so many details and costs that I did not think about it in my study especially for the long run cost, Catering supplies and other expenses.

The Diminishing Returns to Tobacco Legislation "Reader's notes" Exercise 5-3

Points in the debate have merit:

-        The actions taken by the governments to reduce tobacco consumption.

-        Illustration the phenomenon of diminishing returns.

-        Numbers given showing the success in reducing tobacco consumption in the last ten years.

-        Giving reasons for decreasing returns to government intervention.

Points lessen the debate:

-        The debate does not include any reports or suggestions of any health care organizations to reduce tobacco consumption.

-         Did not concentrate on the roll of media in the awareness of smoking risks, in addition to the government roll, but instead they argue that “Too much information may also kill information“ , I’m not quite sure how far is this statement accurate!

The point of diminishing returns for the government

In my opinion, the point of diminishing returns for the government is indeterminate, although we can say that the government will reach the diminishing returns when it increase the factors which may lead to reduce the tobacco consumption, so by September 2002 where the last action were taken by the government which was to force the manufacturers to print on cigarette packs the effect of tobacco related diseases may be the point of the diminishing returns for the government afterward.\

The government may fund some activities which can increase the awareness using media campaigns, also it may create some ideas in this concern to be processed by some NGO’s or some organizations or educational institutes, like arranging a marathon to the smokers to be sponsored by the manufacturers of the cigarettes and it’s income may be devoted to researches related to the dangers of smoking and its relationship to cancer diseases.   

The debate include some information regarding the supply and demand of tobacco products, in 1985-1995, the supply increase mainly because of taxes and the demand decreased by 18%, while in the later period (1995-1999) we can see the supply increase more while the percentage of the demand decreased only by 11 percent.

As the cigarette have a very inelastic demand, we can see that the debate suggest that the government should increase the taxes “Sin taxes” to achieve the same results achieved in the earlier period.

Tourism industry in Canada Exercise 4-3

            The tourism sector makes an important contribution to Canada's economy in every region of the country, the tourism sector is made up of several industries, including

·       transportation

·       accommodation

·       food and beverage

·       recreation and entertainment

·       travel services

            Canada's Federal Tourism Strategy sets out a new approach to strengthening Canada's tourism sector and helping it continue to make a significant contribution to the Canadian economy.

            The tourism in Canada is not only international, the domestic tourism plays a big role in the tourism industry in Canada, for example Canadian travelers made 229.2 million domestic trips in 2010, up 0.9% over 2009. Most of these trips (9 out of 10) were within the traveler’s province of residence, also Canadian residents accounted for 80% ($58.5 billion) of total tourism spending in Canada in 2010, the sixth year in which the domestic share of tourism spending increased, while the total international arrivals have been trending down for the past 10 years, reaching 24.7 million in 2010, mainly due to the decrease in U.S. visits and mainly after the crises Travelers from the U.S. accounted for 45% of Canada's international travel receipts in 2010, down from 59% in 2000.

            For the majority of people, tourism is a luxuries and not a necessity, as their income increase, expenditures on tourism will become greater.