Comparing Market Structures - Graphs

Perfect Competition



Perfect competition in the long run can not sustain economic profit as entry by other companies and expansion in the industry as well.

Monopolistic Competition



The corporation maximizes its profit and produces a quantity where the firms marginal revenue (mr) is equal to marginal cost (mc)

Oligopoly


Is a market were it is dominated by a few businesses. Above the kink the price is relatively elastic, below the kink the price is relatively inelastic because other firms will introduce lower prices and a price war will start.

Monopoly



The monopoly graph shows that the demand curve is not constant as out put is increased.

Comparing Market Structure

Below in this table is the 4 market structures:	Perfect Competition	Monopolistic Competition	Oligopoly	Monopoly
Number of Firms	Lots	Many	A few	Only one
Freedom of entry into industry	Easy	Easy	Difficult	Very restricted
Nature of product	Undifferentiated	Differentiate	Differentiate	singular
Implications for demand curve	Horizontal	Downward sloping, elastic	Downward sloping, inelastic	Downward sloping, inelastic
Average size of firm	small	small to medium	Medium to Large	Very Large
Possible consumer demand	Demand is constant because consumers can not tell that differences exist in product	Differentiated products have consumer buying from prefered vendor	Demand is very constant as competition is closing watching each other and prcing is not changed	Demand is constant as no competition, variable of weather
Profit making possibilities	Profit making is at a level that company believe is best output	A break-even business in the long run	Maximizing profits at MR=MC	Does make profit however controlled by government intervention as well
Government intervention	No government intervention	Government involved at taxation level only	Government has higher involvement	Complete control

Oligopoly and Game Theory

The oligopoly market is a market where there is only a few large corporations which control the entire market. New corporations will come along from time to time however entry into this market is expensive and competition is very fierce. The well established firms have the advantage of substantial funds as well benefit from the falling average costs for the products. Now with the oligopoly market the pricing of items are a delicate balance. With there being only a few corporations if one tries to under cut the competition the competition will respond with under cuttings as well and a price war shall begin. If your corporation chooses to have your price higher than the going market you will cut yourself off from the consumer. The price for products in the oligopoly market are much more set than the flexibility of monopolistic market.

Game theory was devised by watching a group of poker players. Poker players are out for their own self interest and are continually watch the other players and trying to anticipate the moves that the other players will make, and then adjust their moves accordingly.  However when this theory was tested on individuals it proved to not be the case. People wanted to believe the best of other individuals and have faith in them.

A cartel is a group of sellers acting in unison. Whether it be that the cartel decided to set a selling price for products, or whether they decide to have a supply maximum that each with bring to market. The cartel decided on a fact and they all agree and the consumer is left with no choices. Collusive is when the corporation get together and decided how they are going to split up a market place and put controls in place to do so. This type of business dealing in illegal all over the world however this does not stop large companies from engaging in this type of behaviour.

Defining Monopolistic Competition

Monopolistic competition is as market containing many relatively small firms. These firms emphasis the differences in their products to the consumer with the hopes of winning the consumer over and having them purchase their product.

Monopolistic Competitive Companies

Size:	Small Company	Medium Company	Large Company
Features:
Differentiated products	English Candy Store	Purdy's Chocolates	Apple
Control over price	Homemade meat pies - farmers market	CoCo Brooks Pizza	McDonald's
Mass advertising	Tom's House of Pizza	Totem Building Supplies	Home Depot
Brand name goods	Frilly Lilly	Optiks International	Honda

Competing as Starbrucks

For perfect competition there must be a large number of buyers and sellers, and all of these must be small in relation to the whole market. Which when it comes to coffee drinkers around the world Starbucks would be considered to be only one of the players in this market. In perfect competition a decision by any particular consumer to increase or decrease her purchases will have no perceptible effect on total sales, that is true for the Starbucks individual patron.

The main reason for Starbucks to realign there business practices is because they were loosing money. They brought back Howard Schultz to head up the organization again after the corporation was loosing money. He decided that the company had lost its flare and individualization which made it the coffee house of choice that consumers wanted. By the decision which Starbucks executives made along the way which seemed like good ideas at the time, they had made themselves more like a cookie cutter business. Which in turn had also turned off patrons, as well the fact the you could find a Starbucks at every corner did not make the experience special any longer.

With the decision to close locations the majority of the location that would be closed were very close to another location already. Many of the locations where in a high saturated area of stores. The number of stores closing were originally to be 100 however climbed to 600. The additional 500 stores had been on an internal watch list as they were under performing already.

The costs of closing a store must be more beneficial than to wait to see if the store location is going to turn around and can cover its variable costs at this time. For Starbucks to decide to close the locations the closing costs would have had to out weigh the benefit of keeping them open.

Starbucks was committed to relocating as many employees as possible however still believed that they would be spending $8 million US on severance packages to employees in the store locations, $120 to $140 million US in lease termination and future lease termination costs, and the total closer charges would be $348 million US. These are significant amounts of money that obviously had been analysed and the repercussion  contemplated greatly. However saying all of this for the 2008-2009 time period, Starbucks still planed on going ahead an opening 200 new stores in 2009. This number had been cut in half from the original 400 new store openings slated for 2009.

Coffee at Starbucks is a premium price is how I categorize the amount that they charge. However I also engage in more than just a plain brewed cup of coffee when I go to Starbucks. My coffee of choice is a Skinny Latte, which I then choose a flavour depending on the time of year. Right now for a treat I will have the pumpkin spice, which I really enjoy and it is more like a dessert treat.

The reason that Starbucks can charge the prices that they do is because we as a society have allowed this to happen and we have bought into the deluxe lavish coffees. We are no longer completely satisfied with a brewed cup of coffee that we make at home, we like to treat ourselves to a more lavish life style. Starbucks had great timing they entered a market at a time when consumers had more disposable income and were willing to spend it.

If Starbucks was to lower their prices there would be an increase in demand for the product, however they need to balance the quality factor and makes sure that they can still deliver the same quality at a lower price or they could end up loosing customers if they cut there prices to lower and quality suffered.

P                  x

P1                            x

P2                  x

____________________________
             Q1     Q2     Q3    Q4



CBC News, (July 2, 2008), retrieved September 13, 2012,  www.cbc.ca/news/business/story/2008/07/01/Starbucks-closure.html.

Seattle Times The, (July 2, 2008), retrieved September 13, 2012, seattletimes.com/html/businesstechnology/2008028854_starbucks02.html.

Long Run Costs and Economies of Scale

With the invention of the internet and the subsequent evolution of all the resources which are available to us with only a key stroke or two it is hard to believe that there are still areas of which information is lacking.

The business that I would start is a not-for- profit that would assist families who have had a child diagnosed with a disability or a long term illness. My business would assist the child and families finding the resources needed for them in the community, as well as help the families understand and make the needed transition for the new diagnosis. This business would start off smaller with focusing on assisting families in one quadrant of the City of Calgary, then growing to encompass the entire City. Having a web page and using social media to be able to bring awareness for the company would be the path I would choose as a starting tool as well as a long term tool.

A third of the adult population is living with some form of a disability; the majority of these were not diagnosed in childhood. However in the past 20 years or so the medical profession has made leaps and bounds and has been able to identify and diagnosis more and more cases. The target market for the company would be the third of the population, in the City of Calgary. A need to partner up with the Children’s Hospital so that when a family receives the diagnosis for their child they are given information to contact our group right away to help with direction on getting the proper supports.

Fixed costs for our group would be website, phone line, cell phones, internet and email for the group. Short term expenses for our group would be counsellors, a small office space and mileage for counsellor’s vehicles. Long term expenses of hiring more counsellor’s a larger office space, running programs at our facility that are not offered elsewhere, and vehicles for counsellor’s to use would be the ultimate goal.

Having a grown child who was diagnosed many years ago with multiple disabilities there were no avenues available at the time to find supports in the community to help. You needed to try and search out what you could on your own, which is what I did; it was a very long and frustrating road. In speaking with a friend for this article that has a child with a disability she told me about Children’s Link (www.childrenslink.ca).  I went to the website and was very impressed with all that this organization has to offer to its clients, from finding out the diagnosis all the way to transitioning to adulthood and independence for the young adult. I am sure that there will always be room for another group to work in this area, with the number of children being diagnosed with disabilities every year the work load is heavy.  

Law of Diminishing Returns

The law of diminishing return is a decrease in the marginal output of the production process as the amount of a single factor of production is increased, while the amount of all other factors of production stay the same (Wikipedia) .

In Pierre Lemieux article The Diminishing Returns to Tobacco Legislation he speaks about the diminishing return of the government dollars spent on the fight to stop smoking (Lemieux, 2001). Governments have long since taxed the sinful items which we as individuals indulge in, these funds are inelastic to the government. They can raise these taxes and increase their revenues year over year.

Then a point in time came when smoking was linked to serious health problems and the social conscience was awoken in regards to governments becoming responsible to their citizens for their health and well-being rather than just to make money off of people’s addictions. The information supplied from Pierre Lemieux in his article says that cigarette prices in the United States increased by 52% from 1985-1995 during which time 18% of smokers quit smoking then from 1995-1999 prices increased 48% with 11% of smokers quitting smoking at this time (Lemieux, 2001), from this information it looks as if the law of diminishing return started for the governments with regards to the effectiveness of the use of their anti-smoking dollars during 1995.  

From the article we do not know the total number or percentage of the population that smoked in the United States during the time periods of 1985-1995 or 1995-1999. We do not know how many new smokers started each year, the length of time people smoke before they decide to quit? As well we do not know what was the deciding factor for an individual to quit? Was the advertising on the cigarette packages offensive and that was the cause for them to quit, or was it due to another factor such as their physician advising them of complications due to smoking. Without the further details of the reasoning behind someone quitting it is truly hard to say when the law of diminishing return started for the government with their anti-smoking dollars.

Myself I quit smoking in 2000 (I realize it is outside of the time used) the reason I did this is because my children were getting older and I did not want them to start smoking. All of the advertising for all those years did not impact me. My mother quit a year ago she smoked for 55 years; the reason she quit was because she ended up in hospital again with pneumonia for the second time in less than a year. It was a very severe case with her long term prognosis not know for quit sometime. Again the anti-smoking campaign did not have an impact on her quitting either.

In Pierre Lemieux article he makes the state of “or it may be that most smokers don't really see, or care about, such government warnings” (Lemieux, 2001), I do not agree with this statement. All levels of government have different types of regulations and warnings to try and help us help ourselves; over and over as individuals we continue these different behaviors as we choose. The drinking alcohol and driving campaign is a prime example of individuals also not being impacted by the graphic displays of motor vehicle accidents caused by drinking and driving. My opinion is that individuals see the advertisements but do not really believe that this would happen to them until it is too late and they have lung cancer or caused a motor vehicle accident.

Pierre Lemieux spoke about mild forms of prohibition not to be discounted when it comes to smoking (Lemieux, 2001). However in the past when there was prohibition around alcohol all this did was to create an underground society which made and transported alcohol and increased alcohol consumption. The increase in demand for alcohol rose and so did the illegal making of alcohol so that supply increased as well. Prohibition was proven to not be a viable solution in the past when it came to alcohol and with the data we have from that experience this would lead us to believe that it would also not be a good solution to the anti-smoking campaign either.

What is the answer to continue momentum in the anti-smoking campaign and see government dollars used in the best way? I do not know what the answer is for a better use of the government’s anti-smoking campaign dollars and how to keep the momentum going, however social change has started and this to have a momentum that will hopefully help in assisting the anti-smoking campaign.  

Lemieux, P. (2001, Mar 19). The Diminishing Returns to Tobacco Legislation. The Laissez Faire City Times. Retrieved on August 24, 2012 from:

http://www.pierrelemieux.org/artdiminish.html

Oil & Gas Industry in Alberta

The current state of the oil and gas industries at this time is said to be in a reduced activity. Scott Saxberg President & CEO of Crescent Point said that “reduced industry activity will alleviate cost pressure in the second half of 2012, leading to improved operating costs and cash efficiencies” (Healing, 2012). However Crescent Point’s net income rose by 55% to $287 million and cash flow was up by 24% to $386 million.

With the current state of the pipeline situations with Enbridge Northern Gateway, Kinder Morgan Trans Mountain and Keystone XL pipeline finding ways to move the oil and gas to lucrative markets such as Asia is proving to be quite a challenge. The cost of moving a barrel of diluted bitumen is $7 in the pipeline, the cost of moving the same quantity by rail is $6 to $8. Rail is a form of transportation which is being looked into for an alternate source of moving oil and gas.

Oil and gas are fairly inelastic in the short term. As shown in the gas shortage of the 1970’s in the long term individuals and industries adapted and made changes to improve cars, hot water heaters, furnaces etc. as well as using technology for new sources of energy. However in the shorter term we as consumers still consume the same amount and just end up paying the higher prices.

Citing:

Fekete, Jason (2012) Canadian Newsstand Complete, Edmonton Journal, Pipeline protests spur option search; companies consider alternative routes, shipping crude by rail. Retrieved August 4, 2012, search.proquest.com.libresources1.sait.ab.ca/canadiannews/docview/1033267389/13890A6F8BA6E177ADO/1?accountid=13652.

Healing, Dan (2012) Canadian Newsstand Complete, Calgary Herald, Crescent Point aims for six-figure production; Company says income up 55% to $287 million. Retrieved August 14, 2012, search.proquest.com.libresources1.sait.ab.ca/canadiannews/docview/1033175767/1389041892E49BC97CE/2?accountid=13652.

                                                            Works by an Oil Rig

                                          http://www.energy.gov.ab.ca/NaturalGas/729.asp

Price Elasticity & Revenue

When a product or service amount demanded is determined by the price of the item that is price elasticity.
Analysts speculate that an iPhone 5 update is in the works for the fall, but along with that they are saying that apple has another iPad in the works as well. Speaking about the price elasticity of the new tablet mar-ket and how a tablet priced at the $300 mark would drive up sales in this very price sensitive market. They are saying that there is a potential of $10 billion in revenue for this new mini tablet, and that apple could take away sales from Amazon.com's Kindle.
Analysts did warn of lower revenue due to cannibalization and lower average sale prices.

	$500
	$450	x
	$400		x
Price	$350			x
	$300				x
	$250					x
	$200						x
	$150							x
	$100
		10	20	30	40	50	60	70
					Quantity  (in billions)

News paper article at: search.proquest.com.libresources1.sait.ab.ca/canadiannews/docview/1031141163/1388645AE76288EO134/1?accountid=13652
Ratner, Jonathan.The Ottawa Citizen [Ottawa, Ont] 03 Aug 2012: F.3
credit: Jonathan Ratner; Financial Post
copyright CanWest Media Aug 3, 2012

Graphing Changes to Demand

Graphing changes to demand is a constant in our world.
With the scarcity of products  and resources in our economy demand is ever changing. Living in the point and time in history that we are with the invention of computers and the subsequent computer age that has followed our lives have seen a great deal of change.
Graphing demand in the region in which you lived back at the turn of the 20th century would have been a simpler task then graphing demand in today's world economy. You would have still encountered the increases in demand however the region which you would be dealing with would have been significantly smaller.
In today's world market with the amount of products for possible purchase and consumers having higher than ever disposable income the demand is greater to have the latest and greatest items, as well to keep up with the Jones' and what they have.
Don't forget that part of the demand curve is influenced by what we as consumers believe our future income shall be. With us as students at SAIT taking classes we are doing this to increase our knowledge which in turn we hope shall lead us to better jobs which we make the assumption shall pay us more money, and in turn will give us more disposable income :) Which then we can spend, increasing our demand for products !!

Found graph at the following website:                                     
http://economicobjectorvism.files.wordpress.com/2007/07/oil_graph_1.jpg

                         
                           

Economics Games

In our microeconomics class as part of our curriculum we were assigned to play a game. I thought to myself  "Wow how great does that sound, this is going to be really fun", yes and no is the answer to that statement. 

Firstly from the list of games I chose the McDonald's game. My reasoning at the time was that I worked at McDonald's many years ago and remembered the company philosophy and believed that this would assist me with my endeavour.  

Trying to juggle all of the supply and demands of each of the different areas of the corporation showed to be a very trying task. I had the grain and cattle growing at the right level then the next thing I knew I did not have enough employees in the restaurant, and then at head office there is a political problem which ends up costing  a significant amount of money each month...and while dealing with head office forgot about the the cows and they didn't get enough feed and died!! Then we went bankrupt... 

I found that the game really gave a good insight into what it would take to run a corporation, it is a very fine balancing act. I found that I was really hooked on the game and have gone back and played it a few times, of course so that I could get further data for the class :) 

Production Possibilities

We as a society have choices that must be made on a large scale such as the building of schools and hospitals which are made by the decision makes in our federal and provincial governments. These type of decisions have a direct opportunity effect to the rest of society. These type of decision can increase capital expenditures and grow our economy at a higher rate, or can be more of a consumer consumption and have a economy grow at a slower rate.

A significant opportunity cost which I have encountered with returning to school is that of less disposable income for myself. By doing the analysis and making the decision to return to school I have had to give up my yearly tropical vacation, and delay the purchase of a newer vehicle for the time being. However the long term benefits of this short term sacrifice are definitely worth it.