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A public traded company taken for microanalysis is ExxonMobil chemicals
Price elasticity measures the magnitude of the responsiveness of quantity demanded and quantity
supplied to a change in price. It can be defined as the percentage change in quantity demanded
divided by the percentage change in price.
Price elasticity of demand:
Qd
100
Qd
Percentage change in quantity demanded
Pr ice elasticity 

P
Percentage change in price
100
P
Price elasticity of demand offers a quantitative measure of the price responsiveness of quantity
demanded along a demand curve. The demand curve being downward sloping, the ratio or price
elasticity is always negative. The higher the numerical value of the price elasticity, the larger the
effect of a price change on quantity. If the price elasticity of demand is found to be greater than
1.0, the demand is supposed to be elastic because percentage change in quantity demanded is
more than the percentage change in price; if price elasticity is less than 1.0, the demand is
supposed to be inelastic because the percentage change in quantity is less than the percentage
change in price. In sum, no matter elasticity is elastic or inelastic, elasticity determines as to how
price change affects total expenditure on the product.
Price elasticity of supply:
Qs
100
Qs
Percentage change in quantity supplied
Pr ice elasticity of supply(  ) 

P
Percentage change in price
100
P
Price elasticity of demand offers a quantitative measure of the price responsiveness of quantity
supplied along a supply curve. The supply curve being upward sloping, the ratio or price
elasticity is always positive. The higher the numerical value of the price elasticity, the larger the
effect of a price change on quantity. If the price elasticity of supply is found to be greater than
1.0, the supply is supposed to be elastic because percentage change in quantity supplied is more
than the percentage change in price; if price elasticity is less than 1.0, the supply is supposed to
be inelastic because the percentage change in quantity supplied is less than the percentage
change in price. One extreme of supply elasticity is when supply curve is horizontal, resulting in
price elasticity to be infinity. At the other extreme, supply being entirely unresponsive to price, the
supply curve becomes vertical and the elasticity of supply equals to zero.
The petrochemical product has benefit from price elasticity, where price sensitive markets
respond to low prices by buying additional volumes. In petrochemical sector this year, the highly
price-elastic US and other markets took advantage of the value slump to pocket more
petrochemical products.
Two Non-price factors that impact the demand:
(i)
(ii)
Alternative chemical with similar properties and better results
Branding
Assuming the price of the petrochemical product itself remains unchanged, the demand of the
petrochemical product is responsive to the above-mentioned factors. Alternative chemical
with similar properties and better results may impact the demand. Sellers resorts to
advertising, customer services, product differentiation, product quality, etc. to create a
positive and strong brand images to inculcate tendency among consumers to buy their goods.
Two Non-price factors that impact the supply:
(i)
(ii)
State of technological knowledge
Conditions of supply of inputs
State of technological knowledge and the conditions of supply of inputs, such as labor and
energy, may impact supply in the large extent. These two factors shift supply curve to the left or
right subject to whether factors are reducing or increasing the cost of supply.
Industry and the market equilibrium associated with the product or service:
ExxonMobil chemicals is in petrochemical product and services solutions. These products play a
key role in enabling the manufacture of affordable, environment friendly, sustainable and safe
products.
Given that factors, other than price, influencing on demand and supply are held constant,
independent actions of buyers and sellers will lead to the intersection of demand curve and
supply curve at market equilibrium, establishing the equilibrium price and quantity in the market.
At any other price other than equilibrium price, market forces will lead price and quantity to
move in the direction of their equilibrium values. If the price is above the equilibrium price,
surplus will exist at this price, leading to the goods to pile up. A market force will exert on the
supplier to cut prices rather than accumulate unwanted goods; thereafter, price will drop and
settle at equilibrium price. Alternatively, a good is manufactured at a price ‘P’ and the quantity
demanded is higher than the quantity supplied. This disequilibrium situation is called ‘shortage’.
At this situation, consumers are not only frustrated by getting as much as they wish, but also
willing to pay higher. As a result, suppliers, seing that quantity demanded is greater than quantity
supplied, will hike their selling price. Consequently, in market, whenever there is a shortage at
some price, market forces, defined as the behavior of buyers and sellers in the market, result in
higher price.
Effect of changes in supply and demand on the market equilibrium and decisions:
In market, demand and supply are constantly subject to different driving forces and influences, thereby
causing shifts in demand and supply curve and resulting in altering market equilibrium price and
equilibrium quantity.
Increase in demand causes the equilibrium price to rise and the equilibrium quantity to rise as well;
alternatively, a decrease in demand will cause the equilibrium price and equilibrium quantity to fall.
When there is higher availability of the specified product or service, it results in outward shift of supply
curve, resulting in a lower price and higher demand. Alternatively, when there is scarcity of the specified
product or service, it results in inward shift of supply curve, resulting in a higher price and lower demand.
Economics for bussiness
Question (a): Describe three key inputs (or factors of production) and fixed and variable costs
involved in the production of your chosen product or service. One example of an input is machines,
which are fixed costs. Keep in mind that all inputs will either fall under fixed or variable cost.
Answer (a): As a matter of fact, factors of production refer to the resources inputs used to
produce economic goods and services, that is, factors of production are physical assets; the way
these resources or physical assets are combined to produce goods & services is regarded as
technology. The three factors of production or resources inputs are as follows:
(i)
Land: Land is an important factor of production. Land as a factor of production
comprises not only land but also all natural resources (e.g. minerals, water resources, oil
etc.) obtained from land. Two more dimensions of land are flora and fauna used in the
creation of products and space. Land is considered passive factor of production.
(ii)
Labour: Labor as a factor of production refers to the mental or physical efforts of
human being employed in the process of production. Laborers are paid wages as
compensation in return for their contribution to the production of goods/services. Labor
is considered passive factor of production. The amount of human capital implied by
labor ranges from the totally unskilled to highly trained professionals.
(iii)
Capital: All man-made aids to production that are used for further production of wealth
are included in capital, i.e., it is produced means of production. For example, machines,
tools, buildings, roads, bridges, raw materials, factories etc. Capital is paid interest in
return for its contribution to the production of goods/services.
Fixed and variable costs:
In economics, production costs can be divided into fixed and variable costs. The major
difference between fixed costs and variable costs is the fact that, whereas variable costs
are function of output, i.e., variable costs change according to the quantity of a good or
service being produced, fixed costs do not change with output change. Examples of
fixed costs are insurance, rent, normal profit, setup costs and depreciation. However, it
is not to say that fixed costs are permanent, for the fact that fixed costs are fixed with
respect to quantity of production for a certain period. Fixed costs include such capital as
buildings and machinery that cannot be adjusted in the short term.
(b) Analyze the factors that impact your choice of inputs to produce the chosen
product or service. For example, how would a change in the price of raw materials
impact the combination of inputs?
Taxation: Taxation introduces a difference between before-tax and after-tax prices of
factors of production. In the case of the fact that this amount of gap is different from one
factor of production to another, relative prices thereof get changed. This transforms the
behavior of economic agent (a person/company/ organization having an influence on
the economy in terms of producing, buying, selling or taxation) in a way that brings
changes in the respective shares of taxed factors, with the result a new allocation of
resources in the economy. Distortion results in inefficiencies. Difference in tax burden
(affecting factor of production) may lead to economic inefficiencies and lower level of
output.
Innovation: Innovation has impact on processes of production, choice of inputs and
product. Towards economic efficiency, the technique minimizing total expenditure and
the cost minimizing choice of inputs are to be used.
Change of prices in factor of production: In the face of change in the prices of factor of
inputs, the suppliers change the combination of inputs in order to maximize their profits.
Thus, substituting cheaper ones for expensive ones is the way to mitigate the effect of
change in the prices of raw materials. In sum, the least-cost combination of inputs for a
given output will be chosen in the face of change in the price of factors of production.
(c)Based on this analysis, what production decisions would you make? Be sure to
support your decisions with examples or data.
For decisions on producing products and services, it is of utmost importance that the
production of the product/service be properly planned and coordinated both within and
with marketing. A production decision is based on these four following issues:
(i)
what to produce:
A firm’s production decision is based on its perception of customer demands, be it
produce consumer goods like food, clothing etc. or capital goods like machinery
etc.
(ii)
How to produce :
Critical part of a firm’s production decision, after what to produce, is pertaining to
most efficient way of processing factors of production.
(iii)
How much to produce :
Subsequently, market volume requirement plays a an important part in decision
making.
(iv)
For whom to produce:
It is also important for decision making that products should meet the requirement
of the target population. Therefore, assessment of target population should be
taken consideration in course of production decision.
Production decision can be broken down into three parts:
(i)
Production technology
(ii)
Consumer Constraints
(iii)
Input Choices
(i)
Production technology:
The most efficient technology should be used to convert factors of production (Land,
labor, capital) into Outputs so that products musters with the requirement of customers.
(ii)
Consumer Constraints:
Consumer constraints play a critical role in production decision; therefore,
firms/organizations must be cautious about the prices of land, labor, capital and other
factors of production, reason being that the firm/organization is required to maintain least
possible the cost of production.
(iii)
Input Choices:
Producers are required to take into account process of different factors of production so
that products price could be maintained competitive in the market.
—XXX—
The microeconomic analysis paper should be a complete, polished artifact containing all of the
critical elements of Final Project Part I, including Sections I and IV , which were not covered in
the milestones. In addition to covering all of the critical elements of Part I Milestones One and
Two, the Part I final submission should include the following elements:
1. Determine whether the market structure of the industry in which your chosen company
operates is perfectly competitive, monopolistically competitive, oligopolistic, or
2. Assess how the type of market structure impacts your chosen company’s financial
performance as measured by performance variables over the past three years. Support
your response with data and graphs illustrating two performance variables of your
choosing (e.g., sales, net income, stock price) over time.
3. Answer the following question: How would possible changes in the industry’s market
structure impact your chosen company’s business strategy in the future? Keep your
Q1.Determine whether the market structure of the industry in which your chosen company
operates is perfectly competitive, monopolistically competitive, oligopolistic, or
My company is “Universal Music Group’. The market structure of ‘Universal Music Group’ has
characteristics of both oligopolistic and monopolistically competitive. Generally, market is both
oligopolistic and monopolistically competitive at the same time, reason being that oligopoly
primarily speaks about the number of firms and monopolistic competition speaks about
substitutes of products.
Most of real world markets have monopolistic competition,
wherein firms furnish services and goods that are mostly common, with slight difference from
their substitutes. This feature stands in stark contrast to perfect competition where customers are
completely ignorant about difference between products of competing firms. Also of note is the
fact that it is also opposed to monopolistic markets as well where products do not have
substitutes.
Moreover, market structure of music industry is oligopoly too. Oligopoly refers to a
market wherein a small number of large firms sell a similar good or service. More importantly, in
oligopoly, the success of firms is dependent on the actions of its rivals.
Q2: Assess how the type of market structure impacts your chosen company’s financial
performance as measured by performance variables over the past three years. Support
your response with data and graphs illustrating two performance variables of your
choosing (e.g., sales, net income, stock price) over time.
Answer: The major impact of market structure ‘monopolistically competitive’ on music industry
is that it will function less efficiently as compared to perfectly competitive market. In
monopolistically competitive market, the firms in music industry will supply goods or services
below their manufacturing capacity, notwithstanding the fact that firms’ profit maximizing level
happen to be at the point when marginal revenue is equal to marginal costs.
Monopolistically competitive short term impact: As products in monopolistically competitive
market structure are differentiated, firms produce goods and services having no exact substitutes.
More or less, for a short term, firms can behave like monopolists. As a result, like monopolists, a
monopolistically competitive firm has a downward slopping demand curve, that is, when the
firm adjusts its prices, it definitely affects quantity of consumers demand. Moreover, profit
maximizing production quantity is at the point where the marginal revenue curve intersects
marginal cost curve as shown in below graph.
Monopolistically competitive long term impact:
Profits in this market structure attracts new entrants in market, resulting in left shifts of demand
for existing firms. Thus, long run equilibrium is achieved.
As evident ,in the short run, the firm benefits most and firms try their level best to stay in the
short run by further innovating, and further product differentiation.
Q3: How would possible changes in the industry’s market structure impact your chosen
Answer: In monopolistically competitive market structure, trends rule in music industry;
whenever the existing firms are accruing positive economic benefits with some products, many
new firms are apt to enter and produce products similar to those products. As more firms are
making products similar to the original products, the consumers have wider choice, with the
result that demand of the original product decreases and demand curve of original producing
firms shift to the left. At this juncture, the company’s business strategy in the future to tide over
competitors entering the market with closer substitutes is to step up its attempt to innovate and to
find new ways to differentiate its products. Therefore, when it becomes difficult to make positive
economic benefits in the fact of many similar substitutes, it is always required for firms to be
ahead of their competitors in terms of innovation of their product so that they could differentiate
their products.
Market structure of my music industry is also oligopolistic, reason being that the
music industry is dominated by four big firms, namely Sony, Universal, Warner and EMI.The
defining characteristic of oligopoly market structure is that the success of firms is dependent on
major rivals’ activities. The success of the firm consists in taking strategic decisions about prices
and quantities the competitor firms are producing.
My company is “Universal Music Group’
Q1.Determine whether the market structure of the industry in which your chosen company
operates is perfectly competitive, monopolistically competitive, oligopolistic, or
The market structure of ‘Universal Music Group’ has characteristics of both oligopolistic and
monopolistically competitive. Generally, market is both oligopolistic and monopolistically
competitive at the same time, reason being that oligopoly primarily speaks about the number of
firms and monopolistic competition speaks about substitutes of products.
Most of real world markets have monopolistic competition,
wherein firms furnish services and goods that are mostly common, with slight difference from
their substitutes. This feature stands in stark contrast to perfect competition where customers are
completely ignorant about difference between products of competing firms. Also of note is the
fact that it is also opposed to monopolistic markets as well where products do not have
substitutes.
Moreover, market structure of music industry is oligopoly too. Oligopoly refers to a
market wherein a small number of large firms sell a similar good or service. More importantly, in
oligopoly, the success of firms is dependent on the actions of its rivals.
Q2: Assess how the type of market structure impacts your chosen company’s financial
performance as measured by performance variables over the past three years. Support
your response with data and graphs illustrating two performance variables of your
choosing (e.g., sales, net income, stock price) over time.
Answer: The major impact of market structure ‘monopolistically competitive’ on music industry
is that it will function less efficiently as compared to perfectly competitive market. In
monopolistically competitive market, the firms in music industry will supply goods or services
below their manufacturing capacity, notwithstanding the fact that firms’ profit maximizing level
happen to be at the point when marginal revenue is equal to marginal costs.
Monopolistically competitive short term impact: As products in monopolistically competitive
market structure are differentiated, firms produce goods and services having no exact substitutes.
More or less, for a short term, firms can behave like monopolists. As a result, like monopolists, a
monopolistically competitive firm has a downward slopping demand curve, that is, when the
firm adjusts its prices, it definitely affects quantity of consumers demand. Moreover, profit
maximizing production quantity is at the point where the marginal revenue curve intersects
marginal cost curve as shown in below graph.
Monopolistically competitive long term impact:
Profits in this market structure attracts new entrants in market, resulting in left shifts of demand
for existing firms. Thus, long run equilibrium is achieved.
As evident ,in the short run, the firm benefits most and firms try their level best to stay in the
short run by further innovating, and further product differentiation.
Q3: How would possible changes in the industry’s market structure impact your chosen
Answer: In monopolistically competitive market structure, trends rule in music industry;
whenever the existing firms are accruing positive economic benefits with some products, many
new firms are apt to enter and produce products similar to those products. As more firms are
making products similar to the original products, the consumers have wider choice, with the
result that demand of the original product decreases and demand curve of original producing
firms shift to the left. At this juncture, the company’s business strategy in the future to tide over
competitors entering the market with closer substitutes is to step up its attempt to innovate and to
find new ways to differentiate its products. Therefore, when it becomes difficult to make positive
economic benefits in the fact of many similar substitutes, it is always required for firms to be
ahead of their competitors in terms of innovation of their product so that they could differentiate
their products.
Market structure of my music industry is also oligopolistic, reason being that the
music industry is dominated by four big firms, namely Sony, Universal, Warner and EMI.The
defining characteristic of oligopoly market structure is that the success of firms is dependent on
major rivals’ activities. The success of the firm consists in taking strategic decisions about prices
and quantities the competitor firms are producing.

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