The essential nature of International marketing

The essential nature of International marketing International marketing is the performance of business activities designed to plan price, promote and directs the flow of the companys goods and services to consumer or user in more then one nation for profit. Cateora Graham International marketing is a broader concept and includes export marketing. Export marketing is concerned with the production of good in one country and marketing them in different countries of the world while international marketing is a boarder concept and includes globalization. International Marketing is essential for all countries-small big; developed developing and rich poor. This is because no country in the world is self sufficient as regard all the requirements and no country can live in complete economic and political isolation. Every country has to import something from other country and has to export whatever surplus available. The natural resources are not divided equally among the countries of the world. There is disparity among countries as regards geographical area, population, climate condition, availability of natural resources, economic growth, technology development, production activities and so on. Such disparity leads to inter dependent of countries. It is this situation which serves as base for the conduct of large scale international marketing activities. OBJECTIVES To bring countries closer for trading purpose and to encourage large scale free trade among the countries of the world. To bring integration of economies of different countries and there by to facilitate the process of globalization of trade. To establish trade relations among the nations and thereby to maintain cordial relations among nations for maintaining world peace. To facilitates and encourage social and cultural exchange among different countries of the world. To provide assistance to developing countries in their economic and industrial growth and thereby to remove gap between the developed and developing countries. To ensure optimum utilization of resources at global level. To encourage world export trade and to provide benefits of the same to all participating countries. To offer the benefits of comparative cost advantage to all countries participating in international marketing. To keep international trade free and fair to all countries by avoiding trade barriers FEATURES Large Scale operation International marketing transaction is always conducted in large quantity. This is necessary for securing the advantages of large scale operation as regards transportation, handling and warehousing. Domination of multinationals and developed countries Multinational Corporation dominates the international marketing scene. It has world wide contacts. They conduct business operation more efficiently and economically. They are in a better position to adopt global approach which is necessary in international marketing. International restrictions International marketing imposes various trade restriction (tariff non-tariff) because of productive policies followed by differences countries. Tariff barriers are adopted practically by all countries. Foreign exchange also imposes various restrictions on imports exports. The growth of international marketing is adversely affected due to such trade restrictions. Sensitive character International marketing is highly sensitive flexible in the character. A product may suddenly become unpopular or market may come down quickly due to political and economic reasons. Even the use of advanced technology by the competitors or the introduction of new product by the competitor may affect the sale at the global level. Need of international marketing research International marketing requires marketing research in the form of marketing surveys, product surveys and product testing as it is highly competitive. Government policies change, new substitutes enter in to the market and new restriction is imposed because of political, economic, social and cultural factors. Such challenges are common in international marketing and for this continues watch on international marketing environment is required. Marketing research, sale forecasting, etc. are useful techniques for this purpose. They bring adoptability in international marketing activities . Importance of Advance Technology Countries like the USA, Japan Germany have a dominating position in international marketing because of the use of advanced technology in production marketing of goods. They are able to promote export capture world market due to their ability to sell superior quality goods at competitive prices. At present, world markets are flooded with Japanese goods. this is the result of intensive use of automation advanced computer technology in Japan. Keen Acute Competition International marketing is highly competitive. Moreover, this competition is between developed developing countries which are unequal partners. Such competition is made severe due to special facilities incentives provided by the government to the exporter for export promotion. Need for specialized Institutions International marketing is risky complicated. It requires lengthy procedures formalities. Professional exports are necessary for dealing with various aspects of international marketing. Similarly, financial institution like indent houses, exchange bank export houses are established world over for effective participation in international marketing. Need for long term planning International marketing requires long term marketing planning. The marketing situation in different countries changes because of social, economic political factors. This stresses the need for long term planning in international marketing. A comprehensive dynamic marketing programmed can be prepared through such long term planning. Lengthy Time Consuming International marketing activity is lengthy, time-consuming complicated. This is due to long distances, restrictions imposed by different countries, payment difficulties due to the use of different currencies lengthy procedural formalities which need to be completed in an orderly manner. NEED FOR INTERNATIONAL MARKETING International interdependence of countries No countries in the world are self-sufficient in all respect. No countries can produce all its requirements due to geographical other factors. There is international inter-dependence because of which every country has to imports. This awareness of mutual dependence creates favorable situation for the growth of international marketing. International inter-dependence growing world population are two basic factors which suggest the need of large scale international marketing. Absence of uniform geographic climate conditions Geographic condition climatic factors are not uniform in all countries. No country is able to produce all goods required by it. A country can import the goods which it is not n a position to produce due to natural other economic factors. This suggests the need of international marketing in the case of all countries. Availability of comparative cost benefits International marketing is necessary as the cost of production is not uniform in all countries. Every countries can produce certain favorable factors. Exchange of commodities on the basis of comparative cost is always beneficial to all countries. Growing need of countries International marketing is necessary in order to meet the growing need of different countries also for providing better standard of living to people. This is the reason due to which countries following different political philosophies system maintain trade relation make the life of their citizens richer happier. Need of closer economic cultural cooperation International marketing is also needed for developing closer economic cultural relations between countries. This is the way by which the available global, natural other resources will be utilized fully at the international level. International marketing is needed for economic integration among the nation of the world. Problem of surplus/shortage of production in countries International marketing is needed due to surplus production in some countries supplemented by shortage of production in some other countries. It is also needed as some countries have huge unused production capacity while other have no capacity to meet even their domestic need. This situation can be corrected only through international marketing which facilities exchange of goods as per the need of different countries. Bridging gap between developed and developing countries International marketing is need in order to bridge the gap between the advance countries the developing countries. Such marketing not only brings exchange of goods services but also facilitates transfer of technical know-how skills. Such transfers are necessary for rapid growth of developing countries. Economic growth of developing countries world peace: International marketing is needed for rapid growth development in all countries-develop developing. It bring transfer of technologies facilitates rapid industrialization in developing countries. It provides a mechanism through which developed countries provides assistance to developing countries in there efforts towards economic growth. International marketing efforts benefits to all participating countries also develops co-operation among countries. In short, international marketing is needed as it is a key to world peace prosperity. PROBLEMS/DIFFICULTIES IN INTERNATIONAL MARKETING Payment difficulty: Payment is an important difficulty in international marketing because of different currency systems followed by different countries of the world. The buyer will like to make payment in one currency, while the seller desires to have payments in his home currency. In addition, strict foreign exchange is necessary. All these factors create complication in the payments for the goods sold or the services rendered. Such difficulties are absence in the case of domestic marketing due to the existence of uniform currency system Risk and Uncertainties in transportation: International marketing involves the transportation of goods over long distance covering thousand of kilometer. There is a risk of loss or damage of goods as exposed to uncertainties in transportation. High cost of transportation is one more problem in international marketing as this cost raises the market price considerably and affects sales. Government restrictions: International marketing is not free like domestic marketing. Export imports are restricted by the Govt in all countries. Due to such restriction, various problems are created before the exporters. Even the restriction in foreign countries create problem before the exporting community. Such trade restrictions are in the form of heavy tariffs, quotes, exchange control so on. Difficulties in communication: The operation of international marketing is between people of different language groups, traditions, customs, nationality, socio-system national laws. More over, direct contact between the parties is not possible. Hence, a special procedure in the form of letter of credit, bank guarantee, insurance, etc., is necessary for safety security of payments. Time difficulty: There is a wide gap between the time when the group are dispatched the time when the goods are received paid for. There is delay in receiving the delivery of goods due to complicated procedures long distance. Such delay is always troublesome to exporter as well as importer. Difficulty in the preparation of documents: A large number of documents are required to be prepared in international marketing transaction. The exporters, for example, have to prepare various documents for the benefit of the importers. This work is lengthy, complicated time-consuming. Severe competition in global market: International marketing is risky due to competition in global markets. This competition may be related to price, quality sales promotion techniques used. The competition is between countries with varied economy, social technological background. Such competition is always troublesome to poor developing countries. Exporters from such countries have to face various problems while dealing with severe market competition. Miscellaneous difficulties: These difficulties in international marketing include (a) difference in weights measures in different countries, (b) political affiliations of countries, (c) trade barriers trade blocs, (d) differences in the marketing practices followed in different countries and (e) war or international tensions. SCOPE OF INTERNATIONAL MARKETING Regulation on marketing activities: International marketing is not free like domestic marketing. Various countries impose tariff non-tariff restrictions on trading activities. Such restriction affects the volume of international trade. The study of such regulation their effects on trading activities is one aspect of study concerned with international marketing. Every country has to study such regulation imposed by other countries take suitable remedial measures. Formalities and procedures of marketing: International marketing is a complicated time-consuming activity due to different commercial laws practices followed in different countries. Exporter importer have to follow various formalities procedure relating to licensing, foreign exchange, customs duties clearing of goods. Such procedure formalities are not uniform in all countries hence the study of procedure formalities comes within the scope of international marketing. Exporter importer have to study such formalities procedure for orderly conduct of international marketing activities. Trade block and their impact: Trade block are established by different countries participating in international marketing activities. Such block includes EU, LAFTA, ASEAN, EFTA CACM. However, such trade blocks are harmful to the growth of free world trade. Commercial policies and their impact: Every country prepares its own commercial policies to suit its specific needs. The policies of different countries create international commercial environment under which all countries have to operate. Naturally, the study of commercial policies of different their impact on world trade needs special attention. Such study comes within the scope of international marketing. International marketing research: Marketing research is essential for large scale marketing in global markets. Information about marketing environment, needs of consumers, buying behavior, extend of market competition, etc. will be available through such research activities. Product planning development, introduction of scales promotion techniques, etc are possible only through such research of foreign markets. Miscellaneous aspects: Export financing. Exim policy and implication. Export pricing and export risk management. Product innovation, standardization and sales promotion. Study of special facilities, concession and incentives. BENEFITS OF INTERNATIONAL MARKETING TO A COUNTRY/NATION Provides higher standard of leaving: International marketing provides better life welfare to people in different countries. It provides goods which cannot be produced in the home country due to geographical limitations. This raises the standard of living of the people social welfare. International marketing facilities large scale production create employment opportunities in different countries. This provides purchasing power to the people ensures higher living standard to them. Ensures rational optimum utilization of resources: Rational allocation of resource the best use of the resources available at the international level is one major advantages of international marketing. It enables every country to export whatever is available as surplus. This may be raw material, oils, consumer goods even machinery services. Rapid industrial growth: International marketing creates new demand for goods. This facilitates industrial activities brings industrial development. International marketing leads to industrial development of the country, provides massive employment opportunities to the people full utilization of natural resources available. Benefits of comparative cost International marketing provides to participating countries, the benefits of comparatives costs. The benefits of division of labour specialization at the international level are available to participating countries through international marketing. International cooperation and world peace: International marketing bring countries closer due to trade relation. This leads to cooperation among the countries. Developed countries help developing countries in their development activities. This remove economic technological gap between the countries. Facilitates cultural exchange: Social cultural exchanges between different countries of the world are possible due to international marketing. This is possible as fashions move along with goods. Trade also develops social cultural relation among nations. This lead to cultural integration at global level. Better utilization of surplus production: Due to international marketing, surplus production of goods can be exported to other countries. This provides foreign exchange to exporting country also meets the needs of other countries. Effective use of surplus goods, service, raw material, etc. is possible due to international marketing. Thus effective utilization of surplus domestic production, introduction of new varieties of goods, improvement in the quality of production promotion of mutual co-operation among countries are the benefits of international marketing. Availability of foreign exchange: Easy availability of foreign exchange for import of capital goods, modern technology other essential requirements is possible due to international marketing. A country earn foreign exchange due to export can use it for essential imports. Expansion of tertiary sector: International marketing promotes exports. This lead to industrial development. Along with this, expansion takes place in the infrastructure facilities. International marketing indirectly promotes transport, banking, insurance shipping activities. This provides additional benefits to the national economy. Special benefits during emergency situation: International marketing offers special benefits during natural calamities such as floods famines. Emergency supply of goods is required to meet urgent needs. This is possible because of large scale imports. Even other country offers cooperation to county facing difficulties through supply of essential goods services. BENEFITS OF INTERNATIONAL MARKETING TO A COMPANY A company exporting abroad earns substantial profit out of its export operation. This is because export marketing is normally more profitable then domestic marketing. Even the loss in domestic marketing can be compensated from the profit earned out of export. A company exporting abroad earn foreign exchange out of its operation and the same can be used for the import of essential goods, new machinery, technology, etc. this facilitates large scale export in future. A company exporting goods abroad is in position to utilise its production capacity fully as it has capacity to use the entire production for domestic and export marketing. A company exporting goods abroad is normally a sound company with financial stability and good earning capacity. It can face problems of domestic marketing because of the support marketing. LIMITATIONS OF INTERNATIONAL MARKETING Unequal sharing of benefits: The benefits of international marketing are not shared in a fair manner among the participating countries. Rich and developed countries get more benefits at the cost of poor and developing countries. Restrictions on International Marketing: International marketing will offer all benefits only when free trade is allowed by all countries. However, the actual position is all together different. Trade restrictions (tariff and non-tariff) are imposed by all countries (developed and developing) on free movement of goods. This restricts the growth of international trade and actual benefits available to participating countries are limited. Efforts to remove various restrictions by WTO and other international trade organizations are not effective. Adverse effects of trade blocs on International Marketing: Along with trade barriers, trade blocs exist among the countries of the world. EU, LAFTA, ASEAN are some active trade blocs. They encourage trade among the members of the group but put artificial restrictions on the trading activities with non-members. As a result, the growth of international marketing is restricted. Similarly, free trade among nations is not allowed. In addition, countries which have not joined such trade blocs suffer in regards to their exports and imports. Domination of MNCs and developed countries on International Marketing: MNCs from rich and developed countries dominate international trade since long. Their operations are for profit maximizations. Poor and developing countries suffer due to virtual monopolistic position of MNCs in international marketing. These corporations sell their products in many developing countries as per the terms and condition which are profitable to them. This leads to exploitation of poor and developing countries also dominate international marketing. Existence of severe competition in international marketing: One limitation of present day international marketing is the existence of stiff competition among participating countries and companies. Unfortunately, this competition is between unequal competitors. It is between rich and poor or developed and developing countries. Developing countries lack advance technology, skilled labour, infrastructure facilities and so on. As a result, they have to sell their raw materials and other resources at a low price to rich countries.

Sociocultural Constructivism Theory Essay -- Sociology, Piaget

Chapter 2: Theoretical Framework: Cognitive Constructivism Theory and Sociocultural Constructivism Theory As stated in Chapter I, to create better readers, many reading specialists agree that word study is a developmentally sound approach to providing reading instruction (Bear et al, 2008; Ganske, 2000; Zutell, 1999). Word study is founded on robust evidence-based research on the developmental stages of reading and spelling; however, word study and specifically word sorts have a diminuative amount of scientific evidence as to it success in reading instruction (Boscardin et al, ND). To create an evidence-based study, it is useful to analyze word study using the lenses of cognitive constructivism and sociocultural constructivism theories. In combining these two theoretical frameworks, I will view the WtW reading instruction approach from both the internal cognitive development as well as the external social influences of learning. In Chapter 2, I will succinctly review the principles of each theory and demonstrate how the theories provide an applicable balance for this study. Constructing meaning from an event is an important link to comprehension (Carlisle, 2000; Francis, et al., 1996; NICHD, ND; Rasinski & Oswald, 2005; Williams & Lundstrum, 2007). However, the idea of constructing meaning, or constructivism, is a broad concept with multiple connotations. Two distinct types of constructivism will be the lens for this study, cognitive constructivism and sociocultural constructivism. The two theories are essentially different in that cognitive constructivism posits the internal construction of information as the controlling influence, while sociocultural constructivism posits the external interactions with peers and adults as m... ...ible tool for examining data from this study. Word study’s origin is based on the belief of the student’s constructivism in understanding and comprehending new knowledge by the word study developers, the generalized belief by education specialists that it is the way students learn, its foundational role in teacher preparation programs, and its acceptance of the dynamics within the classroom as playing a role in appropriate instruction. Hence, for this study, it is advantageous to use the constructivism theories of both Piaget and Vygotsky, cognitive and sociocultural, as theoretical frameworks. Together these theories will be the lens for analysis of the data collected within the study. By using both, I am able to examine both the an individual’s internal and external construction of information. In the ensuing chapter, I establish the methodology of this study.

Evolution of Man :: Science Anthropology

Evolution of Man Scientists continue to debate the history of man. It is generally agreed upon by the scientific community, however, that humans evolved from lesser beings, and this essay will function to provide evidence to support this claim. Several points will be outlined, including the general physical changes that occurred between several key species on the phylogeny of man, and a discussion of dating methods used to pinpoint the age of the fossils. This essay will begin with a brief discussion of dating techniques. In the study of hominid evolution, two main methods of dating are used: carbon-14 and potassium-argon dating. Carbon-14 dating involves the decay of radioactive C-14, which has a half life of 5770 years. This makes this method useful for dating of recent fossils, with good accuracy, up to 50,000 years back. After 5770 years, half of the carbon-14 in a fossil decays to nitrogen-14. Since the ratio of carbon-12 to carbon-14 in a living organism remains the same as in the environment around them because the organism constantly eats and replenishes it, if it were to die, the ratio would change greatly after many years. It is the difference between this ratio now and the time is died that allows a date for it to be established. Potassium-argon dating, another dating method, is possible due to volcanic ash and rocks found near many fossil sites. Rocks and ash created in this manner contain potassium-40, but no argon. As time passes, the potassium-40 decays into argon-40. In the laboratory, the sample is reheated, and since argon-40 is a gas, it is released. The ratio of argon-40 released to potassium-40 still present allows for a date to be assigned to objects near the sample. However, due to potassium's high half-life (1.3 billion years), it is only useful as a dating technique for finds older than 500,000 years old. Also, it is only useful where volcanic activity existed. Both these methods have error margins, ranging from a few thousand years in carbon-14 dating to tens of thousands of years, or more, for potassium-argon dating. However, thanks to scientific breakthroughs, these two processes can be used with reasonable security in establishing a time for fossils. Humans have existed on the Earth for approximately 3.4 million years. At least, that’s from when the oldest human ancestors have been found. The oldest known human is the fossil "Lucy," an Australopithecus, discovered by Donald Johnson and M.

Samenvatting Managerial Economics

chapter 1. introduction to managerial economics 1. what is managerial economics? Managerial economics = the science of directing scarce resources to manage effectively > each needs to understand how they can influence the demand through price and advertising, what is the best organizational architecture and how to compete Differences between ‘new’ and ‘old’ economy * Network effects in demand = the benefit provided to any user depends on the total number of other users * Scalability = the degree to which the scale and scope of business can be increased without a corresponding increase in costs Public good = one person’s consumption does not reduce the quantity available to others Branches Managerial economics: * Competitive markets * Market power * Imperfect markets 2. preliminaries scope (omvang) Microeconomics = the study of individual economic behavior where resources are costly > how consumers respond to changes in prices and income, †¦ Manag erial economics more limited scope = it is the application of microeconomics to managerial issues Macroeconomics = focuses on aggregate economic variables considers economic aggregates directly rather than as the aggregation of individual consumers and businesses methodology Fundamental premise = individuals share common motivations that lead them to behave systematically in making economic choices > a person who faces the same choices at two different times will behave in the same way at both times > it is systematic so it can be studied Economic model = a concise description of behavior and outcomes = abstraction Models are constructed by inductive reasoning > afterwards, the model should be tested arginal vis-a-vis average Marginal value = the change in the variable associated with a unit increase in a driver Average value = total value of the variable divided by the total quantity of a driver > relation between the marginal and average values depends on whether the average value is decreasing, constant or increasing with respect to the driver Stocks and flows Stock = quantity at a specific point in time Flow = the change in a stock over some period of time > measured in units per time period other things equal = an approach to simplify the problem by analyzing each change separately, holding other things equal . timing Two types of models * Static models = describe behavior at a single point of time, disregard differences in the sequences of actions and payments > model of competitive markets, analysis of organizational architecture * Dynamic models = focus on the timing and sequence of actions and payments = receipts and expenditures often occur at different times discounting Investments = using resources at some times in order to receive benefits at other times > discount future values to that they can be compared with the present Net present value the sum of the discounted values of a series of inflows and outflows over time = represents the current val uation of a flow of dollars time Internal rate of return = alternative for the net present value without using the discount rate 4. organization organizational boundaries Vertical boundaries = delineates activities closer to or further from the end user Horizontal boundaries = defined by its scale and scope of operations * Scale = rate of production or delivery of a good or service * Scope = refers to the range of different items produced or delivered individual behavior businesses are managed by individuals and their interests may diverge from those of the organization > managers are subject to bounded rationality Standard assumption = people make decisions rationally = individuals choose the alternative that gives them the greatest difference between value and cost > their behavior will follow some predictable patterns based on what they judge to be in their best interest People do not always behave rationally > reason: bounded rationality = people have limited cognitive bilities and cannot fully exercise self-control = people adopt simplified rules for decision-making * Separate accounting for different categories of benefits and cost * Lack self-control = addictive behavior and difficulty postponing immediate gratification for longer-term benefits. * More sensitive to loss than to gain = risk averse * Decisions may depend on how choices are framed Two implications: * Individuals will be relatively sluggish in responding to changes in business and economic conditions * Role for managerial economics is larger . markets Market = consists of the buyers and sellers that communicate with one another for voluntary exchange > not limited to any physical structure of particular location * Markets for consumer products = buyers are households and sellers are businesses * Markets for industrial products = buyers and sellers are businesses * Markets for human resources = buyers are businesses and sellers are households Industry = businesses engaged in the production o f delivery of the same or similar items competitive markets = markets with many buyers and many sellers Buyers provide the demand and sellers provide the supply demand-supply model = describes the systematic effect of changes in prices and other economic variables on buyers and sellers >describes the interaction of these choices market power Key variables: * Prices * Scale of operations * Input mix = determined by market forces Market power = ability of a buyer or seller to influence market conditions A business with market power must determine its horizontal boundaries = depends on how its costs vary with the scale and scope of operations Four key tools in managing demand: 1. Price 2. Advertising 3.Policy toward competitors 4. R&D expenditure Imperfect markets Imperfect Market = when one party directly conveys a benefit or cost to others and where one party has better information than others > managers need to resolve the imperfection 6. global integration Price in one local market will be independent of prices in other local markets > some markets are global because the costs of communication and trade are relatively low = the prince in one place will move together with the prices elsewhere > whether a market is local or global, same managerial economics principles ommunications costs and trade = with developments in technology and deregulation Transport: * air transport liberalization * containerization of surface transport. Telecommunications: * de-regulation. * scale economies in bandwidth. Growth of cross-border trade and investment: * falling trade barriers. * falling financial barriers. * falling communications cost managers have to pay increasing attention to markets in other places outsoarcing = the purchase of services or supplies from external sources > external sources could be within the same country or foreign E-commerce Limitations: * Payments system Trade barriers * Shipment costs part 1: competitive markets chapter 2. demand 2. individual dem and Individual demand curve = a graph that shows the quantity that the buyer will purchase at every possible price construction = other things equal, how many would you buy at a price of – – ? > important to keep other things equal there the decision may depend on other factors * Vertical axis is the price * Horizontal axis is the quantity Two views: * For every possible price, demand curve shows the quantity demanded * For each unit of item, demand curve shows the maximum price that the buyer is willing to pay slope at a lower price, buyers are willing to buy a larger quantity Marginal benefit = the benefit provided by an additional unit of the item Diminishing marginal benefit = each additional unit of consumption or usage provides less benefit than the preceding unit > the price that an individual is willing to pay will decrease with the quantity purchased preferences Two implications: * The demand curve will change with changes in the consumer’s preferences * Different consumers may have different preferences and hence different demand curves 3. emand and income Demand curve does not explicitly display the effect of changes in income and other factors that affect demand income changes = effect of a change in income on the demand curve is very different from that of a change in price > if income drops = demand curve shifts to the left * Change in price = movement along the demand curve * Change in income or any factor other than the price = shift in the entire demand curve normal vis-a-vis inferior products Normal product = positively related to changes in the buyer’s income Inferior product negatively related to changes in the buyer’s income >demand falls as the buyer’s income increases Broad categories of products = tend to be normal Particular products within the categories = may be inferior 4. other factors in demand = prices of related products, advertising, durability, season, weather and location complements and substitutes Complements = if an increase in the price of one causes the demand for the other to fall Substitutes = if an increase in the price of one causes the demand for the other to increaseShift to the left: * Increase in the price of a complement * Fall in the price of a substitute Shift to the right * Increase in the price of a substitute * Fall in the price of a complement advertising Informative advertising = communicates information to potential buyers and sellers Persuasive advertising = aims to influence consumer choice An increase in advertising expenditure will increase demand > each additional dollar spent on advertising has a relatively smaller effect on demand = diminishing marginal productEffect of advertising on demand depends on the medium durable goods = provide a stream of services over an extended period of time > buyers have discretion over the timing of purchase Three significant factors for demand: 1. Expectations about future prices and incomes 2. Inter est rates = many buyers need to finance their purchase of durable goods > if interest rates are low the demand for durables will be higher 3. Price of used models = substitutes of a new model 5. market demand Market demand curve graph that shows the quantity that all buyers will purchase at every possible price = analysis is essentially similar to that for an individual demand curve construction = interview all the potential consumers and ask each person the quantity that he er she would buy at every possible price = horizontal summation of the individual demand curves = slopes downwards since the individual demand curves slope downwards other factors = buyers’ income, price of related products, advertising > changes in these factors will shift the entire market demand curveTwo ways of measuring income of country: * The gross national product (GNP) = GDP + net income from foreign sources * The gross domestic product (GDP) = measure the total amount produced in a country for a given year Macro factors: * Income = average, distribution * Demographic = population, age structure, urban-rural * Cultural-social income distribution = the more uneven the distribution of income, the more important it is to consider the actual distribution of in income and not merely the average income when estimating the market demand 6. buyer surplus benefit Marginal benefit maximum amount of money that the buyer is willing to pay for the unit Total benefit = benefit yielded by all the units that the buyer purchases benefit vias-a-vis price Buyer surplus = difference between a buyer’s total benefit from some quantity of purchase and the actual expenditure > a buyer must get some surplus, otherwise he or she will not buy = maximum that a seller can charge is the buyer’s total benefit price changes Gains from a pricecut: * Lower price on the quantity that she would have purchased at the original price = infra marginal units She can buy more = marginal units > extent depends on the buyer’s response to the price reduction = the greater the increase in purchase, the larger the buyer’s gain from the price reduction = when you have to calculate how much you gain from a price cut, always look at the demand curve and see how much you buy at the old price and how much at the new price and calculate the buyers surplus package deals and two-part pricing Package deals = charge buyer just a little less than her/his total benefit = leave buyer with almost zero surplusTwo-art pricing = pricing scheme comprising a fixed payment and a charge based on usage = enables to soak up most of the consumer’s buyer surplus Market buyer surplus = sum of individual buyer surpluses 7. business demand inputs Businesses do not purchase goods and services for their own sake > use them as inputs in the production of other goods and services = use inputs to produce outputs for sale to consumers or other businesses * finished/semi-finished components â€⠀œ. * raw materials and energy. * labor and other services. capital. Demand Demand for inputs depend on: * quantity of final output = shift of the entire demand curve * prices of complements or substitutes in production Marginal benefit = the increase in revenue arising from an additional unit of the input > diminishing marginal benefit = downward sloping demand curve for inputs chapter 3. elasticity 1. introduction Elesticity of demand = measures the responsiveness of demand to changes in an underlying factor (price, income, advertising) Own-price elasticity of demand measures the responsiveness of the quantity demanded to changes in the price of the item 2. own-price elasticity = percentage by which the quantity demanded will change if the price of the item rises by 1% Percentage change in quantity demanded Percentage change in price construction Two ways of deriving: * arc approach = we collect records of a price change and the corresponding change in quantity demanded > own-pric e elasticity as the ratio of the proportionate change in quantity demanded to the proportionate change in price can also be calculated by changing p0 by the average price ((old price + new price)/2) and by changing q0 by the average quantity ((old quantity + new quantity)/2) * point approach = can be derived from the coefficient of price in the equation = calculates the elasticity at a specific point on the demand curve – arc approach: elasticity between two points properties Characteristics: * It’s a negative number * A pure number, independent of units of measure * Ranges from 0 to negative infinity Price elastic if a 1% increase in price leads to more than a 1% drop in quantity demand = if a price increase causes a proportionately larger drop in quantity demanded Price inelastic = if a 1% price increase causes less than 1% drop in quantity demand intuitive factors Availability of direct or indirect substitutes = the fewer substitutes that are available, the less ela stic will be the demand > Demand for a product category will be relatively less elastic than demand for specific products within the category = there are fewer substitutes for the category than for specific products Buyer’s prior commitments Learning * Complementary purchases (spare parts, upgrades, †¦) * Taste = demand less elastic Benefits/costs of economizing = buyers have limited time to spend on searching for better prices > they focus attention on items that account for relatively larger expenditures > separation of buyer and payee elasticity and slope Own price elasticity = describes the shape of only one portion of the demand curve > a change in price, by moving from one part of a demand curve to another part, may lead to a change in own-price elasticity Straight line demand curve demand becomes more elastic at higher prices > incase of other shapes, demand may become less elastic at higher prices Steeper demand curve means demand less elastic = but elasticity is not the same as the slope > slope stays the same, the own-price elasticity varies throughout the length causes by the changes in price and quantity Own-price elasticity can also vary with changes in any of the other factors that affect demand = in that case, demand curve will shift > own-price elasticity may also change 3. forecasting quantity demanded and expenditure expenditure change in price will affect expenditure through the price itself as well as through the related effect on quantity demanded Change in quantity demanded = price elasticity x change in price If demand elastic, price increase leads to * proportionately greater reduction in purchases. * lower expenditure. If demand inelastic, price increase leads to * proportionately smaller reduction in purchases. * higher expenditure. accuracy Discrepancy = the own-price elasticity may vary along a demand curve > the forecast using the own-price elasticity will not be as precise as a forecast directly from the demand curve . other elasticities income elasticity = measures the sensitivity of demand to changes in buyers’ income = percentage by which the demand will change if the buyer’s income rises by 1 % Percentage change in demand percentage change in income = varies with changes in the price and any other factor that affects demand * Depending on whether the product is normal or inferior, income elasticity can be positive or negative * Demand for necessities tends to be relatively less income elastic than the demand for discretionary items cross-price elasticity measures the sensitivity of demand to changes in the prices of related products = percentage by which the demand will change if the price of the other item rises by 1%, other things equal Substitutes = an increase in the price of one will increase the demand for the other = cross-price elasticity positive Complements = an increase in the price of one will reduce the demand for the other = cross-price elasticity negative advertis ing elasticity measures the sensitivity of demand to changes in the sellers’ advertising expenditure = percentage by which the demand will change if the sellers’ advertising expenditure rises by 1%, other things equal > price of the item must remain unchanged > has a much stronger effect on the sales of an individual seller than on the market demand = advertising elasticity of the demand faced by an individual seller tends to be larger than the advertising elasticity of the market demand forecasting the effects of multiple factorsOnly way to discern the net effect of factors pushing in different directions = use the elasticities with respect to each of the variables Percentage change in demand due to changes in multiple factors is the sum of the percentage changes due to each separate factor 5. adjustment time The short run = a time horizon within which a buyer cannot adjust at least one item of consumption or usage The long run = a time horizon long enough for buyers to adjust all items of consumption of usage nondurables the longer the time that buyers have to adjust, the bigger will be the response to a price change > demand for such items will be more elastic in the long run than in the short run Alcohol and tabacco = demand relatively inelastic > discouraging new people from taking up smoking and drinking = demand relatively more elastic in the long run durables = a countervailing effect leads demand to be relatively more elastic in the short run > especially strong for changes in income = drop in income will cause demand to fall more sharply in the short run than in the long runDifference between short- and long-run elasticities = depends on a balance between the need for time to adjust and the replacement frequency effect 6. estimating elasticities data Two sources of data: * Records of pas experiences * Surveys and experiments specifically designed to discover buyers’ preferences > test market Collection in two ways: * Focus on a p articular group of buyers and observe how their demand changes as the factors affecting demand vary over time = time series Compare the quantities purchased in markets with different values of the factors affecting demand = cross section specification To obtain accurate estimates of elasticities = specify all the factors that have a significant effect on demand > specify the mathematical relationship between demand and the various factors Dependent variable = whose changes are to be explained Independent variable = a factor affecting the dependent variable = linear equation in which the dependent variable is equal to a constant plus the weighted sum of the independent variables ultiple regression = can estimate the separate effect of each independent variable on the dependent variable = aims to determine values for the constant and the coefficients Residual = the actual value of the dependent variable minus the predicted value Method of least squares = based on the view that positiv e residuals are as bad as negative residuals while large residuals are disproportionately bad > seeks a set of estimates for the constant and the coefficients to minimize the sum of the squares of the residuals since equally large positive and negative residuals have identical squares, the method treats them identically statistical significance F statistic = measures the overall significance of the independent variables > assumption that there are is no relationship between the dependent variable and the set of independent variables > ranges from 0 to infinity R? = uses the squared residuals to measure the extent to which the independent variables account for the variation of the dependent variable > ranges from 0 to 1 1 means that all the residuals are exactly 0 T-statistic = used to evaluate the significance of a particular independent variable = estimated value of the coefficient divided by the standard error > ranges from negative to positive infinity P value = measures the like lihood that estimated coefficient could be the result of chance under the assumption that the true coefficient is zero = gives the probability that random sampling errors could produce a coefficient as large as found by the least-squares multiple regression model chapter 4. supply . short-run costs Two key decisions: * Continue in operation * Rate at which to operate = depend on the length of the time horizon Short run = time horizon in which a seller cannot adjust at least one input > business must work within the constraints of past commitments Long run = time horizon long enough for the seller to adjust all inputs Difference between both depends on the circumstances fixed vis-a-vis variable costs Fixed cost = cost of inputs that do not change with the production rate > the height of the total cost curve at the zero production rate Variable cost cost of inputs that change with the production rate > to distinguish between fixed and variable costs, a business must analyze how each c ategory of expense varies with changes in the scale of operation Total cost = the sum of fixed cost and variable cost C = F + V Marginal cost = the change in total cost due to the production of an additional unit Average cost = total cost divided by the production rate = unit cost Cq = Fq + Vq > continues to fall with increases in the production rate until it reaches a minimum, thereafter it increases with the production rate the average cost is the average fixed cost plus the average variable cost > if the production rate is higher the fixed cost will be spread over more units Marginal product = increase in output arising from an additional unit of an input > diminishing = the average variable cost will increase with the production rate Where the average variable cost is increasing the relationship between the average cost and the production rate depends on the balance between the declining average fixed cost and the increasing average cost Diminishing marginal product causes margi nal and average cost to rise echnology Two implications: * The curves will change with adjustments in the seller’s technology * Different sellers may have different technologies and hence different cost curves 3. short-run individual supply Assumptions * profit maximization * Business is so small relative to the market that it can sell as much as it would like at the going market price production rate Total revenue = price multiplied by sales Marginal revenue = the change in total revenue arising from selling an additional unit To maximize profit, a business should produce at that rate where its marginal revenue equals its marginal costMarginal revenue is represented by the slope of the total revenue line * Wherever the marginal revenue exceeds the marginal cost, the profit can be raised by increasing production * Wherever the marginal revenue is less than the marginal cost, Luna can raise profit by reducing production break even To decide whether to continue production, the business needs to compare the profit from continuing in production with the profit of shutting down Fixed cost = sunk cost = it has been committed and cannot be avoided > even if the business shuts down, it must still pay the fixed cost F Business should continue production whenR – V – F > – F = R > V P > V/q > R = p x q = short-run break even condition > a business maximizes profit by producing at the rate where the marginal cost equals the price, provided that the price covers the average variable cost individual supply curve Individual supply curve = a graph showing the quantity that one seller will supply at every possible price > for every possible price, a business should produce at the rate that balances it marginal cost with the price Slopes upward = if the seller is to expand production, then it will incur a higher marginal cost Input demandChange in input price: * Shift in marginal cost * Change in profit-maximizing production 4. long-run individual su pply = contracts expire and investments wear out > all inputs become avoidable long-run costs = long-run average cost curve is lower and has a gentler slope > in the long run, the seller has more flexibility in adjusting inputs to changes in the production rate = it can produce at a relatively lower cost than in the short run, when one or more inputs cannot be changed production rate = a rate where its marginal cost equals the price of its output reak even = in the long run, a business should continue in production if the maximum profit from continuing in production is at least as large as the profit from shutting down All costs are avoidable = it the business shuts down, it will incur no costs and so its profit from shutting down is nothing R > C P > C/q = business should continue in production so long as total revenue covers total cost individual supply curve = that part of its long-run marginal cost curve, which lies above its long-run average cost curve Two views: * For every po ssible price, it shows the production rate For each unit of item, it shows the minimum price that the seller is willing to accept 5. market supply Market supply curve = a graph showing the quantity that the market will supply at every possible price = sum of the quantities supplied by each individual seller short run Market supply curve = begins with the seller that has the lowest average variable cost Change in an input price will affect the seller’s marginal cost at all production levels > shift the entire market supply curve * Increase in price of an input will shift the market supply up * Reduction in price of an input will shift the market supply down long run every business will have completely flexibility in deciding on inputs and production > freedom of entry and exit is the key difference between the short run and long run Sellers that cannot cover their total costs will leave the industry until all the remaining sellers break even > an industry where businesses van make profits will attract new entrants = market supply will rise and pushes down the market price hence the profit will drop Quantity supplied will adjust in two ways when there’s a change in price: * All existing sellers will adjust their quantities supplied along their individual supply curves * Some sellers may enter or leave the market Graph = slope is more gentler and may be flat 6. seller surplus price vis-a-vis marginal cost Seller surplus difference between a seller’s revenue from some quantity of production and the minimum amount necessary to induce the seller to produce that quantity > short-run seller surplus can also be defined as the difference between the seller’s revenue and the variable cost Short-run seller surplus = total revenue less variable cost Long-run seller surplus = total revenue less total cost purchasing = a buyer can apply the concept of seller surplus to reduce the cost of its purchases market seller surplus = sum of the individual seller surpluses = difference between the market revenue from some production rate and the minimum amount necessary for the market to produce that quantity 7. elasticity of supply measures the responsiveness of supply to changes in underlying factors such as the price of the item and inputs price elasticity = measures the responsiveness of the quantity supplied to changes in the price of the item = percentage by which the quantity supplied will change if the price of the item rises by 1%, other things equal Percentage change in quantity supplied Percentage change in price properties * Pure number * Positive number intuitive factors Intuitive factors: * Capacity utilization > a seller that has consiverable excess capacity will step up production in response to even a small increase in price = individual supply will be relatively elastic * Adjustment time long-run supply is relatively more elastic than the short-run supply chapter 5. competitive markets 2. perfect competition Five con ditions: 1. The product is homogeneous 2. There are many buyers, each of whom purchases a quantity that is small relative to the market 3. There many sellers, each of whom supplies a quantity that is small relative to the market 4. New buyers and sellers can enter freely, and existing buyers and sellers can exit freely 5. All buyers and sellers have symmetric information about market conditions homogeneous product = the product is always the same > competition is stronger many small buyers = no buyer can get a lower price than others > all buyers face the same price all buyers compete on the same level playing field When some buyers have market power it is not possible to construct a market demand curve many small sellers = no seller has market power > no seller can get a higher price than other free entry and exit = no technological, legal or regulatory barriers constrain entry or exit > the market price cannot stay above a seller’s average cost for very long > degree of com petition also depends on barriers to exit = it must consider the exit cost when deciding whether to enter the market symmetric information = no seller can enjoy the privilege of secret information 3. market equilibrium the price at which the quantity demanded equals the quantity supplied > when market out of equilibrium, market forces pushes price towards equilibrium demand and supply At the market equilibrium, there is no tendency for price, purchases or sales to change excess supply Not in equilibrium = market price will tend to change in such a way as to restore equilibrium Excess supply = the amount by which the quantity supplied exceeds the quantity demanded > suppliers would compete to clear their extra capacity and the market price would drop back toward the equilibrium excess demand = the amount by which the quantity demanded exceeds the quantity supplied > when the price is below the equilibrium level buyers would compete for the limited capacity significance of equilibrium Two reasons: * If a market is not in equilibrium, either buyers or sellers will push the market toward equilibrium * By comparing equilibria we can address a wide range of questions > when prices are quite flexible, the market will adjust to the new equilibrium fairly quickly, so comparing equilibria is a fairly accurate method of analysis Neither buyers nor sellers may face rationing 4. supply shift equilibrium change When price of input falls >entire supply curve shifts down = at every possible sellers want to supply more price elasticitiesDownward or upward shift in the supply curve will change the equilibrium price by no more than the amount of the supply shift > change in equilibrium price depends on the price elasticities of demand and supply Inelastic demand = buyers are completely insensitive to the price > when supply curve shifts, the buyers do not change their behavior = they continue to purchase exactly the same quantity Elastic demand = buyers are extremely sensitive t o price > equilibrium price does not change at all If the demand is more elastic then the change in the equilibrium price result from a shift in supply will be smaller Inelastic supply = sellers are completely insensitive to the price > if their costs change they will not change the quantity supplied Elastic supply if the cost of an input changes, the marginal cost changes by the same amount at all production levels common misconception = if sellers’ costs fall by some amount, then the market price will fall by the same amount Overlooks the impact of: * The shift in supply on buyers = if they are very sensitive to price, the shift in supply would result in no change to the equilibrium price * The price sensitivity of sellers = if sellers are insensitive to price, then the drop in cost will not induce them to sell more Price change * Smaller if demand is more elastic than supply * Bigger if supply is more elastic than demand 5. demand shiftDemand shifts down (left) > new equil ibrium with lower price and lower quantity Demand shifts up (right) > new equilibrium with higher price and higher quantity 6. adjustment time short-run equilibrium = point where its short-run marginal cost equals the marketprice long-run equilibrium = the point where its long-run marginal cost equals the market price demand increase Short-run equilibrium = the extent to which a seller expands its operations depends on the slope of its short-run marginal cost curve > if steep then the price increase will not lead the seller to expand operations by very much Long-run equilibrium = there is enough time for all costs to become avoidable, for new sellers to enter the market and for existing sellers to leaveThe increase in demand raises the market price and hence each seller’s profit = will attract new sellers to enter the market Although the price is higher than in the original equilibrium, higher input prices result in higher marginal and average cost curves > in the new long-ru n equilibrium, each individual seller just breaks even demand reduction Extent of cutback depends on two factors: * Extent of sunk costs = in an industry involving substantial sunk costs, the reduction in demand will translate into a relatively large drop in price and a small reduction in quantity * Slope of the seller’s short-run marginal cost curve in the new long-run equilibrium there will be a smaller number of sellers and each will exactly break even with average total costs equal to the market price price and quantity over time Two general points: * In response to shifts in demand = market price will be more volatile in the short run than the long run * In response to shifts in demand = there is a greater change in the market quantity over the long run than in the hort run In industries with substantial sunk costs the adjustment of production will be concentrated in the long run In industries where costs are minor the adjustment to shifts in demand will be relatively sm oother > the market price will be relatively less volatile chapter 6. conomic efficiency 2. conditions for economic efficiency Economically efficient = if no reallocation of resources can make one person better off without making another person worse off > persons may be human beings or businesses sufficient conditions Three sufficient conditions based on users’ benefits and supplier’s costs 1. All users achieve the same marginal benefit 2. All suppliers operate at the same marginal cost 3. Every user’s marginal benefit is equal to every supplier’s marginal cost Equal marginal benefit If not equal: * Provide more to user with higher marginal benefit * Take away from user with lower marginal benefit society as a whole would be better off Equal marginal cost If not equal: * Supplier with lower marginal cost should produce more * Supplier with higher marginal cost should produce less Marginal benefit equals marginal cost If not equal: * If MO > MC , produce more of the item * If MO < MC, produce less of the item philosophical basis Technical efficiency = providing an item at the minimum possible cost > does not imply that scarce resources are being well used The concept of economic efficiency extends beyond technical efficiency Economic efficiency assesses resource allocations in terms of each individual user’s evaluation of the benefit internal organization production will be efficient if all users achieve the same marginal benefit, all suppliers operate at the same marginal cost and every user’s marginal benefit balances every supplier’s marginal cost 3. adam smith’s invisible hand Invisible hand = market price guides buyers and sellers, acting independently and selfishly to channel scarce resources into economically efficient uses competitive market = satisfies all three requirements for economic efficiency market system = an economic system in which resources are allocated through the independent decisio ns of buyers and sellers, guided by freely moving prices Price performs two roles: * It communicates all the necessary information It provides a concrete incentive for each buyer to purchase the quantity that balances marginal benefit with the market price > it provides a concrete incentive for every seller to supply the quantity that balances marginal cost with the market price 4. decentralized management internal market Transfer price = price charged for the sale of an item within an organization > should set it equal to market price = by decentralizing the management is establishing an internal market that is integrated with the external market implementation Two general rules: * If there is a competitive market for the item, the transfer price should be set equal to the market price * Producing units should be allowed to sell the product outside buyers and consuming units should be allowed to buy the product from external sources Outsoarcing = purchase of services or supplies fr om external sourcesAny organization that used resources or products for which there are competitive markets can apply decentralization to achieve internal economic efficiency 5 incidence = both pricing methods have exactly the same impact on the manufacturer and customer freight inclusive pricing Cost and freight = a price that includes freight Ex-works pricing = does not include the freight cost > entire supply supply curve will shift down = with ex-works demand, the buyers will now have to pay the freight cost > price is lower = total price is equal if you increase the price with the freight cost Price and sales are the same whether the sellers do or do not include the freight cost in their prices incidence the change in the price for a buyer or seller resulting from a shift in demand or supply > whether manufacturers set prices that do or do not include the feight cost, the incidence is the same = the incidence does not depend on which side initially pays the freight cost > depen ds only on the price elasticities of demand and supply taxes = government depend on tax revenues to support public services such as national defense, †¦ > some are levied on consumers, others on businesses buyer’s vis-a-vis seller’s price Seller’s price = buyer’s price – tax Buyer’s price = price that buyers pay Seller’s price = price that sellers receive > p156 tax incidence buyer’s price will rise by less than the amount of the tax and the seller’s price will drop by less than the amount of the tax > tax is generally shared between buyers and sellers according to their relatively price elasticities * Less sensitive = will bear the relatively larger portion of the tax part II market power chapter 7. costs 2. economies of scale = analyze how costs depend on the scale or rate of production > decision on scale also depends on market demand and competition Fixed cost = cost of inputs that do not change with the product ion rate Variable cost = cost of inputs that change with the production rate marginal and average costsMarginal cost = rate of change of the variable cost > if average variable cost remains constant, then the marginal cost will be the same Economies of scale = increasing returns to scale = a business for which the average cost decreases with the scale of production > marginal cost will be lower than the average cost = since the marginal unit of production costs less than the average, any increase in production will reduce the average intuitive factors Two possible sources: * Substantial fixed inputs = at a larger scale, the cost of the fixed inputs will be spread over more units of production business with a strong element of composition, design or invention * If the average variable cost falls with the scale of production = whether the average variable cost increases or falls depends on the particular technology of the business diseconomies of scale = a business where the average c ost increases with the scale of production If: * Fixed cost is not substantial * And variable cost rises more than proportionately with the scale of production strategic implications If economies of scope: * Large scale * Market concentrated, few suppliers * Monopoly and oligopoly If diseconomies of scope * Small scale * Market fragmented * Perfect competition 3. economies of scope if the total cost of production is lower when two products are produced together than when they are produced separately Diseconomies of scope = if the total cost of production is higher when two products are produced together joint cost = cost of inputs that do not change with the scope of production strategic implications Example: telecommunication and broadcasting Produce/deliver multiple products * Product mix * Brand extension Core competence = a generalized expertise in the design, production and marketing of products based on common or closely related technologies = joint cost diseconomies of scope = if the total cost of production is higher when the two items are produced together than when they are produced separately arise where the joint costs are not significant and making one product increases the cost of making the other in the same facility 4. experience curve Accumulated experience = matters in industries characterized by relatively short production runs and a relatively substantial input of human resources As engineers and workers gain experience in production, they become more proficient individually and as a team > they devise new ways to reduce cost, including better tools and more cost-effective procedures Experience curve = shows how the unit cost of production falls with cumulative production over time > Distinguish from economies of scope within one production period Conditions: Relatively large human resources input per unit of production * Relatively small production runs 5. opportunity cost = it is necessary to look beyond the conventional accounting statem ents Relevance = key principle = managers should consider only relevant costs and ignore others alternative courses of action = to evaluate a business > conventional income statement does not present the revenues and costs of the alternative courses of action = costs are actually higher because of the opportunity cost opportunity cost defined Opportunity cost = net revenue from the best alternative course of action uncovering relevant costs Two ways to uncover relevant costs: Consider the alternative courses of action * Use the concept of opportunity cost = both approaches lead to the same business decision Alternative courses of action and opportunity cists change with the circumstances and hence are more difficult to measure and verify opportunity cost of capital A business that is partly financed by debs will appear to be less profitable than an otherwise identical business that is completely financed by equity > equity capital is not costless! = it has an opportunity cost Econom ic value added = net operation profit after tax subject to adjustments for accounting conventions less a charge for the cost of capital they are less likely to be biased in favor of capitalintensive activities A complete measure of business e performance should take account of the opportunity cost of equity capital 6. transfer pricing Transfer price = transfer price of an internally produced input should be set equal to its marginal cost perfectly competitive market Transfer price = market price full capacity = marginal cost of the input is not well defined > transfer price should be set equal to the opportunity cost of the input which is the marginal benefit that the input provides to the current user = compare marginal benefit across internal users 7. sunk costs a cost that has been committed and so cannot be avoided > not relevant to business decisions alternative courses of action Depend on: * Prior commitments * Planning horizon Continue | Cancel | Cont. margin | $280,000 | $0 | Advert agency | $50,000 | $50,000 | Magazine | $250,000 | $50,000 | Profit | ($20,000) | ($100,000) | Continue | Cont. margin | $280,000 | Advert agency | $0 | Magazine | $200,000 | Profit | $80,000 | = only avoidable costs strategic implications = managers should ignore sunk costs and consider only avoidable costs > sunk costs are not relevant for pricing, investment, or any other business decision Two ways of dealing with sunk costs: Explicitly consider the alternative courses of action * Remove all sunk costs from the income statement = both approaches lead to the same business decision > it is easier to consider the alternative courses of action explicitly when multiple alternatives commitments and the planning horizon To identify sunk costs consider: * Past commitments * Planning horizon The longer the planning horizon, the more time there will be for past commitments to unwind and hence the greater will be management’s freedom of action Short-run planning horizon = so me sunk costs Long-run horizon = no sunk cost Sunk vis-a-vis fixed costs Fixed cost two different senses: A cost that cannot be avoided once incurred * A cost of inputs that do not change with the production rate = two types of costs have very different implications for business decisions Not all sunk costs are fixed = cost op public service employees is sunk, once they secure tenure. However, government could have hired only temporary workers (no sunk costs) 8. statistical methods multipple regression = to investigate the extent of fixed costs and economies of scale forecasting = to forecast the dependent variable when the independent variables take different values Other applications Investigate the presence of joint costs across two products hapter 8. Monopoly 1. Introduction Monopoly = if there is only one seller in a market Monopsony = if there is only one buyer in a market 2. sources of market power = the barriers that deter or prevent entry by other competing sellers/buyers m onopoly Unique resource = access to unique physical, natural or human resources Intellectual property = property over inventions or expressions Patent = gives the owner an exclusive right to the invention for a specified period of time Copyright = establishes property in published expressions, including computer software and engineering drawings Economies of scale and scope Product differentiation differentiating itself from competitors > through product design, distribution, and advertising and promotion Regulation = government may decide to award an exclusive franchise to one provider > government hopes to avoid duplication and reduce the cost of the service monopsy = same factors as a monopoly Additional reason for presence = existence of a monopoly > a seller that has a monopoly over some good or service is also likely to have market power over the inputs into that item 3. Monopoly pricing Monopoly has to consider how its sales will affect the market price Given the market deman d curve a monopoly can Set the price and let the market determine how much it will buy * Decide how much to sell and let he market determine the price at which it is willing to buy that quantity Monopoly is choosing a combination of price and sales off the demand curve > a monopoly can set either the price or sales but not both revenue Inframarginal units = those other than the marginal unit Marginal revenue from selling an additional unit will be less than the price of that unit = marginal revenue is the price of the marginal unit minus the loss of revenue on the inframarginal units > difference between the price and the marginal revenue depends on the price elasticity * Demand elastic = seller need not reduce the price very much to increase sales > marginal revenue will be close to the price * Demand inelastic seller must reduce the price substantially to increase sales > marginal revenue will be much lower than price Marginal revenue can be negative = if the loss of revenue on th e inframarginal units exceeds the fain on the marginal unit Profit maximizing price Profit maximizing scale of operation = the scale at which the marginal revenue balances the marginal cost Contribution margin = total revenue less the variable cost > a seller maximizes profit by operating at a scale where the sale of an additional unit will result in no change to the contribution margin economic inefficiency Marginal benefit exceeds the marginal cost 4. demand and cost changes Change in demand: * New marginal revenue * Original marginal cost = new profit-maximizing sales and price arginal cost change = change in price is less than change in marginal cost When there is a change in either demand or cost, the extent to which a monopoly should adjust its price depends on the shapes of both it marginal revenue and marginal cost curves > it should adjust the price until its marginal revenue equals its marginal cost fixed cost change = profit-maximizing price and scale do not depend in any way on the fixed cost > changes in the fixed cost will not affect the marginal cost curve If the fixed cost is so large that the total cost exceeds total revenue, then the monopoly will prefer to shut down 5. advertising Promotion the set of marketing activities that a business undertakes to communicate with its customers and sell its products > advertising, sales promotion and public relations benefit of advertising Advertising can cause: * Shifting out the demand curve * Demand to be less elastic Benefit of advertising = change in the contribution margin Net benefit = the change in the contribution margin less the advertising expenditure > advertise up to the point that the increase in contribution margin from an additional dollar of advertising is exactly 1 $ = more appropriate to consider the effect of advertising on the contribution margin generated by the product dvertising-sales ratio Incremental margin = price less the marginal cost = increase in the contribution margin fro m selling an additional unit, holding the price constant Incremental marginal percentage = ratio of the price less the marginal cost to the price > measures the production of benefit by each dollar of advertising Advertising-sales ratio = incremental margin multiplied by the advertising elasticity of demand = says how much of the revenue should be invested in advertising 6. research and development = principles are the same as for advertising and promotion Benefit : * Shifting out the demand curve * Causing it to be less elasticNet benefit from R&D = change in the contribution margin less the R&D expenditure R&D-sales ratio = incremental margin percentage multiplied by the R&D elasticity of demand project evaluation = decisions on individual R&D projects should account for the timing of costs and benefits > p 212 7. Market structure effects of competition General points: * A monopoly restricts production below the competitive level and it can set a relatively higher price extracting larger profit * Profit of a monopoly exceeds what would be the combined profit of all the sellers if the same market were perfectly competitive potential competition Perfectly contestable a market in which sellers can entry and exit at no cost > monopoly cannot raise price substantially above its long-run average cost > depends on the extent of barriers to entry and exit lerner index = incremental margin percentage > can be used to compare the degree of monopoly power in markets with different prices > captures the impact of potential competition (P – MC) / P Perfectly competitive market = lerner index equals 0 Monopoly = bigger than 0 Problem = it will not detect the power that a monopoly does not exercise 8. monopsy = buyer with market power restricts purchases to depress the price Trades off: * Marginal expenditure * Marginal benefit Marginal expenditure = change in expenditure resulting from an increase in purchases by one unit maximizing net benefit a monopsy will maxim ize its net benefit by purchasing the quantity at which its marginal benefit equals its marginal expenditure A monopsony restricts purchases to get a lower price and increase its net benefit above the competitive level chapter 9. Pricing 2. uniform pricing = policies where the seller charges the same price for every unit of the product price elasticity = percentage by which the quantity demanded will change if the price of the item rises by 1% Demand inelastic > sales fall less than proportionately with the increase in price = total revenue will increase profit maximizing price Incremental margin percentage = – 1/price elasticity of demand demand and cost changesPricing rule shows how a seller should adjust its price when there are changes in the price elasticity of demand or marginal cost > a seller should not necessarily adjust the price by the same amount as a change in marginal cost common misconceptions * Contribution margin percentage = revenue less variable cost divide d by revenue > accounting systems often assume that costs are proportional = marginal cost is the same as the average variable cost = contribution margin percentage equals the incremental margin percentage * the belief that the profit maximizing price depends only on the elasticity = ignores costs * set the price by marking up average cost > problems: * in economies of scale, the average cost depends on the production scale > the need of an assumption about the scale sales and production scale depend on the price * it gives no guidance as to the appropriate mark-up on average cost Shortcomings: * leaves buyers with a lot of buyer’s surplus * does not sell to every potential buyer 3. complete price discrimination price discrimination = selling down the market demand curve = pricing policy under which a seller sets prices to earn different incremental margins on various units of the same or a similar product Complete price discrimination = a pricing policy where the seller pric es each unit at the buyer’s benefit and sells a quantity such that the marginal benefit equals the marginal cost > it charges every buyer the maximum that he or she is willing to pay for each unit comparison with uniform pricing resolves the two shortcomings of uniform pricing * no buyer’s surplus * economically efficient quantity information = to implement complete price discrimination, the seller must know each potential buyer’s individual demand curve > not enough to know the market demand curve or the price elasticity of the individual demand curves 4. direct segment discrimination Segment = significant cohesive group of buyers within a large market homogenous segments Direct segment discrimination = the policy of setting different incremental margins to each identifiable segment heterogeneous segments Not enough information: * apply uniform pricing within each segment prices are such that the incremental margin percentage for each segment equals the recipro cal of the absolute value of the segment’s price elasticity of demand * apply indirect segment discrimination within each segment implementation Conditions: * To implement direct segment discrimination, the seller must identify and be able to use some identifiable and fixed buyer characteristic that segments the market > otherwise buyer might switch segments * Seller must be able to prevent buyers from reselling the product among themselves = price discrimination is relatively more widespread in services than goods and is especially common in personal services Policy of direct segment discrimination prices should be set to derive a relatively lower incremental margin percentage from the segment with the more elastic demand and a relatively higher incremental margin percentage from the segment with the less elastic demand 5. location Seller can discriminate on the basis of the buyer’s location on two ways: * Free on board (FOB) = a common price to all buyers that does n ot include delivery > the differences among the prices at various locations are exactly the differences in the costs of delivery to those locations * Ignores the differences between the price elasticities of demand in the various markets * Cost including freight = delivered pricing = set prices that include delivery the difference in the prices between the two market will simply be the result of the different incremental margin percentage and the different marginal costs of supplying the two markets A lower margin does not necessarily mean a lower price because there is a transportation cost restricitng resale = if the difference between the prices of a product between two markets exceeds the transportation cost, consumers might buy the item in one market and ship it to the other > gray market = parallel importing 6. indirect segment discrimination = when seller may know that specific segments have different demand curves but cannot find a fixed characteristic with which to discrimi nate directly Indirect Segment discrimination policy of structuring a choice for buyers so as to earn different incremental margins from each segment > voorbeeld p 244-245 implementation Two conditions: * Seller must have control over some variable to which buyers in the various segments are differentially sensitive * Buyers must not be able to circumvent the discriminating variable = seller cannot prevent buyers from reselling the product 7. bundling = combination of two or more products into one package with a single price pure bundling = a pricing policy that offers only a bundle and does not allow the alternative of buying the individual products = more profitable than uniform pricing but less than direct segment discrimination mixed bundling offers buyers a structured choice between the budle and the individual products = form of indirect segment discrimination implementation Three conditions to be effective: * Where there is substantial disparity among the segments in their be nefits from the separate products * Where the benefits of the segments are negatively correlated in the sense that a product that is more beneficial to one segment provides relatively little benefit to another * Where the marginal cost of providing the product is low = when provision of the product involves a substantial marginal cost, a seller should consider mixed bundling 8. selecting the pricing policy Direct discrimination works through buyer attributesIndirect segment discrimination works through product attributes > products under indirect discrimination may provide less benefit than those with direct segmentation > indirect discrimination may involve relatively higher costs > indirect discrimination relies on the various segments voluntarily identifying themselves through the structured choice cannibalization = when the sales of one product reduce the demand for another product with a higher incremental margin > seller cannot discriminate directly and must rely on a structur ed choice of products to discriminate indirectly but discriminating variable does not perfectly separate the buyer segmentsWays to mitigate cannibalization: * Product design * By controlling availability chapter 10. strategic thinking 1. introduction Strategy = a plan for action in a situation where the parties actively consider the interactions with one another in making decisions Game theory = a set of ideas and principles to guide strategic thinking * Simultaneous actions = strategic form * Sequential actions = extensive form 2. nash equilibrium = a framework for strategic decisions that must be taken simultaneously A strategy is dominated = if it generates worse consequences than some other strategy regardless of the other parties’ choice Game in strategic form a tabular representation of a strategic situation, showing one party’s strategies along the rows, the other party’s strategies along the

Parallel LellaraP

Then Nodal thought to himself, â€Å"What if there was a parallel world Now we enter the life of London, who is doing anything except for read Eng a book. â€Å"l really hate doing homework,† London said. â€Å"To bad it's the beginning of the year. † his friend Christian said. Just like Nodal, London wanted the new parallel universe e machine, but they both don't have the money. Even though they were very opposite, the e machine was the only thing Nodal and London wanted. So for Christmas London got the machine, and for Nodal graduation ca me around and they tooth got the machine.But the thing is, it din ‘t come with batteries. Know a powerful device that let's you travel from universe to Universe needs batteries. The battery is not going to stop them the machine has a lot of money an d they didn't have the money for batteries. So every day London and Nodal asked their parents for money. They asked their friends for money, they asked their enemies for money, and they even asked complete strangers for money. Until one day London and Nodal did the last thing they could, they took the batteries out of the remote.So when London and Nod mol got the batteries out of the remote and into the machine, they were ready. They powered it up and selected maneuvered for the destination on dial and there was a flash! The next thing they knew London and Nodal were in each other s universes. To them everything looked the same but little did they know everything was a bout to change. â€Å"Where am l? ‘ London said â€Å"everything looks the same except there is no TV in this room. Is it my room in this world? † London was so shocked he didn't know what to d o. But there is no time for Loon's stories.Now we travel to where Nodal went. â€Å"Where am I? ‘ Nodal said â€Å"Oh no I traveled to a world without any books! Oh hers one, City of Ember, what is this? ‘ As London on and Nodal were just getting used to the worlds they've tra veled to, they read the box the machine came in which said â€Å"Thank you for buying the world traveler 237 please be noted that this machine only goes one way then disappears until you buy another one. Once again thanks oh and have a good day. † â€Å"Alright I had enough fun time to go back. Oh no, where did the machine go? † London said frightened.Someone should have told him to read the box. â€Å"It's time to go baa KC to my world, I can't stay in a world no books. Where's the machine, I musty misplaced it I'll find it Oh no I can't find it I'm stuck here forever!!!! † Nodal said. It took London and Nodal a very long time to get used to the new world they were in. But finally they had to except the fact that they were never going back to t heir old worlds. And in the end, they forgot all about going to different universes and just live d their life. That's why you should always read the box.

Mythology the Past and Present Essay

Nike is the winged goddess of victory according to Greek mythology. She sat at the side of Zeus, the ruler of the Olympic pantheon, in Olympus. A mystical presence, symbolizing victorious encounters, Nike presided over history’s earliest battlefields. A Greek would say, â€Å"When we go to battle and win, we say it is Nike. † Synonymous with honored conquest, Nike is the twentieth century footwear that lifts the world’s greatest athletes to new levels of mastery and achievement. The Nike ‘swoosh’ embodies the spirit of the winged goddess who inspired the most courageous and chivalrous warriors at the dawn of civilization. In Greek mythology, Nike was a goddess who personified victory, also known as the Winged Goddess of Victory. The Roman equivalent was Victoria. Depending upon the time of various myths, she was described as the daughter of Pallas (Titan) and Styx (Water), and the sister of Kratos (Strength), Bia (Force), and Zelus (Zeal). Nike and her siblings were close companions of Zeus, the dominant deity of the Greek pantheon. According to classical (later) myth, Styx brought them to Zeus when the god was assembling allies for the Titan War against the older deities. Nike assumed the role of the divine charioteer, a role in which she often is portrayed in Classical Greek art. Nike flew around battlefields rewarding the victors with glory and fame. Nike is seen with wings in most statues and paintings. Most other winged deities in the Greek pantheon had shed their wings by Classical times. Nike is the goddess of strength, speed, and victory. Nike was a very close acquaintance of Athena, and is thought to have stood in Athena’s outstretched hand in the statue of Athena located in the Parthenon. Nike is one of the most commonly portrayed figures on Greek coins. Nike has a legacy that lives on today, not through the field of battle but through clothing, shoes, and apparel. Nike paints the perfect portrait of what the goddess set out to do, and that was to turn out victorious in the end no matter how grueling the battle may be. When people hear the word Mercury they might think of a nice care or even the planet. Hear I will explain the origin of this Greek god. Mercury was a messenger, and a god of trade, the son of Maia Maiestas and Jupiter in Roman mythology. His name is related to the Latin word merx (â€Å"merchandise†; compare merchant, commerce, etc. ), mercari (to trade), and merces (wages). In his earliest forms, he appears to have been related to the Etruscan deity Turms, but most of his characteristics and mythology were borrowed from the analogous Greek deity, Hermes. Latin writers rewrote Hermes’ myths and substituted his name with that of Mercury. However there are at least two myths that involve Mercury that are Roman in origin. In Virgil’s Aeneid, Mercury reminds Aeneas of his mission to found the city of Rome. In Ovid’s Fasti, Mercury is assigned to escort the nymph Larunda to the underworld. Mercury, however, fell in love with Larunda and made love to her on the way; this act has also been interpreted as a rape. Lara thereby became mother to two children, referred to as the Lares, invisible household gods. Mercury has influenced the name of many things in a variety of scientific fields, such as the planet Mercury, and the element mercury, which it was formally associated. The word mercurial is commonly used to refer to something or someone erratic, volatile or unstable, derived from Mercury’s swift flights from place to place. Zeus is probably one of the most well know mythological god out there. People may not know but he inspired a very interesting logo that we all know today as Gatorade. It works out good because Gatorade is often used in competition, and Zeus was a competitive and powerful god. In Greek mythology Zeus is the â€Å"Father of Gods and men†, according to Hesiod’s Theogony, who ruled the Olympians of Mount Olympus as a father ruled the family; he was the god of sky and thunder in Greek mythology. As Walter Burkert points out in his book, Greek Religion, â€Å"Even the gods who are not his natural children address him as Father, and all the gods rise in his presence. † For the Greeks, he was the King of the Gods, who oversaw the universe. As Pausanias observed, â€Å"That Zeus is king in heaven is a saying common to all men†. In Hesiod’s Theogony, Zeus assigns the various gods their roles. In the Homeric Hymns he is referred to as the chieftain of the gods. His symbols are the thunderbolt, eagle, bull, and oak. In addition to his Indo-European inheritance, the classical â€Å"cloud-gatherer† also derives certain iconographic traits from the cultures of the Ancient Near East, such as the scepter. Zeus is frequently depicted by Greek artists in one of two poses: standing, striding forward, with a thunderbolt leveled in his raised right hand, or seated in majesty. His Roman counterpart was Jupiter and his Etruscan counterpart Tinia. Zeus was the child of Cronus and Rhea, and the youngest of his siblings. In most traditions he was married to Hera, although, at the oracle of Dodona, his consort was Dione: according to the Iliad, he is the father of Aphrodite by Dione. He is known for his erotic escapades. These resulted in many godly and heroic offspring, including Athena, Apollo and Artemis, Hermes, Persephone (by Demeter), Dionysus, Perseus, Heracles, Helen, Minos, and the Muses (by Mnemosyne); by Hera, he is usually said to have fathered Ares, Hebe and Hephaestus.

Fast Food Industry Essay Example | Topics and Well Written Essays - 750 words

Fast Food Industry - Essay Example According to one study, kids tend to increase intake of calories by at least 15 percent when they consume fast food. As a result they get extra six pounds per year if they do not burn extra calories through exercise. Due to easy availability and temptation of taste buds, people prefer fast foods over other healthier foods such as vegetables, fruits in their diets. Company campaigns and new varieties also direct people towards fast foods. Researchers at the University of California, Berkeley found that living near a fast food outlet increases obesity risk by 5.2 percent. Another health hazard that fast food is significantly responsible for is Type 2 Diabetes. Regular eating fast food is responsible for this disorder.Fast food consumption also leads to cardiovascular disorders. Researchers in a study done at the Institute for Clinical Evaluative Sciences in Ontario, Canada discovered that localities with higher density of fast food outlets tend to increase coronary incidents among the population by huge 262 percent. Use of trans fats or hydrogenated vegetable oil should be banned completely in the preparation of fast foods across the country; however, many fast food companies have voluntarily reduced or completely stopped the use of trans fats in their food preparations (The New York Times, 2013). In short, fast food outlets are required to be regulated for its ingredients, its locations and its publicity campaigns so that it does not harm a large section of the population.