Marginal revenue
Marginal revenue is the difference expressed considering the number of units sold. It may also be the change in cost of a product when the production changes by one unit. Total revenue, on the other hand is the total sum received after completion of a business transaction (Posner, 1999). Its relationship to marginal revenue determines the amount of profit that is derived. Marginal revenue is subtracted from total revenue to get the profit.
Marginal cost
Marginal cost is the point of profit maximization where by a firm has done all in its power to minimize on other expenses. The final price of a product is set after the firm has considered all conditions and subtracted accrued and expected expenses. It is also a point at which consumers will comfortably buy the product. The total cost of a product determines its marginal cost in the sense that a relationship has to be made between the two. A firm has to ensure that the marginal cost is higher than the total cost of the product to maximize on their profit.
Profit
Profit is the difference obtained after subtracting the total cost of a product and other expenses involved. A business obtains the benefit from its undertakings. The concept of profit maximization comes from the strategies that will minimize on total expenditure for higher output.
How a profit-maximizing firm determines its optimal level of output, using marginal revenue and marginal cost as criteria.
In determining marginal cost, a firm needs to consider how the total revenue expected. This will be for the purpose of setting appropriate price that will facilitate profit maximization.
Action taken by a profit-maximizing firm if marginal revenue is greater than marginal cost
When the marginal revenue is higher than the marginal cost, a profit-maximizing firm will determine the performance of a product in the market. Depending on how it is demanded, or the season, the company may retain the marginal revenue or reduced it at an acceptable level.
Action taken by a profit-maximizing firm if marginal revenue is less than marginal cost
Just as the case above, the company will consider how the product is likely to perform in the market and take the necessary action. However, it will not be practical to reduce on the marginal revenue considering that the marginal cost is already higher. The firm will hence need to set the marginal revenue at an acceptable market rate.
PART THREE
Elasticity of demand
The ptice elasticity is computed by dividing the proportional change in demanded amount by an equivalence change in the price. If the elasticity is computed over a specific part on the demand curve, it is known as arc elasticity and it is computed as:
Where
Q1 = Initial quantity
Q2 = Final quantity
PI = Initial price
P2 = Final price
Elasticity of demand is the difference accrued to a seller when there is a change in price of a commodity. This will affect the demand for the product and ultimately the profits earned.
Cross-price elasticity
Cross price elasticity are the changes in the market when there is a subsequent change in prices of certain commodities. Any change in price of one product is likely to affect the demand of other relate prices. Substitute goods are those that can be used instead of he available one, an example is tea and coffee. Complementary goods are those products that are used alongside each other; an example is bread and butter.
Income elasticity
Income elasticity is the changes experienced on the demand of products when there is a change in people’s income. Normal goods are those that will always stand the taste of time in the market. The rate of their demand is not affected by a change in price. Inferior goods are those that customers can do without hence affected by a change in price.
Elasticity coefficients for each of the three terms defined in part A.
Elasticity of demand is usually affected by the income of users as well as the change in price of other products. For instance, despite the increase in price, there are some commodities whose demand will remain unchanged. On the mother hand, when there is an increase in people’s income, then there will be a higher demand for some products (Heywood & Peoples, 2006). The demand for complementary and substitute goods will be affected by a change in prices for a certain product.
Contrast the terms defined in part A.
`
Elasticity of demand will mainly be affected by an increase of decrease in the prices of the commodity. Cross price elasticity compares and contrasts the demand for a particular product in relation to the prices of other products. Income elasticity is the expected change in the demand of a product basing on the changes on people’s income.
Whether demand would tend to be more or less elastic for each of the following three determinants of elasticity demand:
Availability of substitutes
Substitute goods will be used as an alternative whenever there is an increase in price of a particular commodity. However, availability of substitutes also affects the rate at which manufactures increase their prices. Products like soaps and other toiletries tend to stabilize in the market.
Example
For example, when there is an increase in price for tea, people are likely to compare the same with the price of coffee and resolve to use it instead. This is because coffee can be use as a substitute for tea.
Share of consumer income devoted to a good
Whenever there is an increase in the price of a product and the same is not reflected on their income, there will be a reduction on its demand. Customers will tend to use the product with caution to minimize on how much they use it.
Example
For instance if an individual was in a habit of using 2kg of sugar on a monthly basis and the same shoots up, they will be obliged to minimize on its use so that they spend about one and a half.
Consumer’s time horizon
Elasticity of demand is also affected by the season in which the change is experienced. Consumers tend to postpone buying a particular product if they can do without it.
Example
For example, during winter, there is usually a demand for heavy clothing. Such a demand may not be affected by an increase in price because people are obliged to buy the products for their well being. However, they may want to buy it before the season especially when the prices are low.
Difference between perfectly inelastic demand and perfectly elastic demand
Perfect inelastic demand is that point when he cost of the product is fair enough. It mostly occurs when the efforts of consumers to have the price reduced is in vain due to production cost. They adjust to the new changes and accept he set price. Perfectly elastic demand on the other hand occurs when there are reasonable willing buyers of a product despite its change in price. The quantity of goods demanded is adequate to earn the seller the require profit.
The relationship between elasticity of demand and total revenue
PART FOUR
The relationship between regulation and market structures and how regulation affects the market
Industrial (i.e., economic) regulation
Industrial regulation is a tactic that is mostly used by the government to minimize on the exploitation of consumers. There are certain measures that are usually taken on the expenses involves in the manufacture of goods. The government will require that the prices that are set for the products are fair after putting into consideration the expenses involved. One of the tactics involved is to minimize on the number of industries involved in the production of particular goods. There is usually a monopoly that s put especially on government parastals to ensure fair prices (Sexton, 2010). Even though consumers enjoy a steady supply of products at a fixed price, the issue of monopoly minimizes on competition. This will lead to production of poor quality products that may be sold at high prices (Posner, 1999). The consumer will have no alternative but obtain the products even if they do not appreciate them.
Social regulation
Social regulations are limitations and requirements that are impose on firms for the benefit of the society. They mostly affect the people around which is considered to be a move to facilitate fairness. In this move, companies are required to produce goods of certain quality and quality. It also affects the working hours of its employees, remunerations and strategies that should be followed in hiring and employing (Fisher, 1985). They are mainly aimed at facilitating fairness in the work place and the community and minimize on the instances of discrimination and bias in the basis of gender, educational level, disability and the likes (Cook & Farquharson, 1998). Most firms are usually affected by such regulations especially if the government sees the need of instilling discipline among company managers.
Natural monopolies
Natural monopolies are high cost maintenance firms that mostly deal in the supply of essential products. Their monopoly is due to the technology that is used in their operation and maintenance, which cannot be facilitated by private investors. The government for providing essential commodities to the public mostly establishes them. Such entities include electricity firms, water industries and various service ministries such as education and healthcare. Due to the economic situation of a country, they may be beneficial as it ensures that the distribution of such products and services is fair. For instance, in the supply of electricity, it is not just about installing the machines to generate the power but also establishing generators as well as posts through which the power shall be supplied.
Antitrust laws were mainly formed to protect consumers and other organizations against unhealthy competition. The laws, which include the Sherman act and others, provide avenues where by the public and mother organizations can seek address whenever they feel undermined by other organizations. These laws stipulate what is required of different organizations by setting standards for them. There are regulatory commissions that have been assigned to ensure that such laws are being followed strictly. This includes requiring manufacturers to give detailed information about their products and how they are to be used (Posner, 1999). They are also to take the responsibility of clarifying any information about their products that is likely to raise questions. The commissions are also responsible for clarifying any information given by manufacturers and producers concerning their products to ensure that they are correct and safe for use.
PART FIVE
Major cross-cultural issues that may impact Company A’s marketing approach in this situation
Despite the social-cultural changes that the company will experience as it extend its business activities in china, it will be necessary to study the market and take the necessary precautions. Unlike European and United States nations, china is a conservative nation which will affect the marketing procedures that will be followed. The first step towards facilitating such expansion in china is to market its products and ensure that they are accepted and appreciated by the natives. When we talk about marketing the product, this has to do with advertising and other sales promotion procedures (Jain, 2003). The manner in which such procedures will be facilitated will determine how acceptable the product will be accepted. The company will need to use natives in such procedures to ensure that it is a product that they can easily identify with.
The company will have to tale note of the fact that china’s official language is Chinese; a feature that is vital in carrying put any form of sales promotion. It will not be practical for the company to use English in their advertisements and sales promotion procedures Taylor, J. and (Weerapana, 2007). There is also the issue of images displayed in the process of sales promotion. It has to be noted that suggestive images are likely to annoy the people who are always on the look out. For instance, due to china’s conservative nature, use of exposed images may draw a different message to the people. The dressing code of the people involved in such promotions matter a lot in ensuring that the products are accepted. The Chinese people have dressings that are deemed suitable for certain age group as well as status of people. Depending on the message is to be conveyed, such dressing should be adopted.
The major cross cultural issues tat the company will have to deal with include language barrier, dressing code, the use of gestures to convey certain terms, approaching different categories of people and making them feel comfortable and finally conveying the message in the most appropriate tone (Carbaugh, 2010). The only solution will be for the company to take a through market study and involve the locals in its campaign. When it comes to communicating, there is a difference in meaning especially of the gestures used in United States and china. It will be important for the company to take a keen note of the gestures they use when promoting the products. It should never be assumed that certain gestures mean the same to different people. Even within china, there are different communities that have different interpretations of terms and gestures, adjustments will hence have to be made especially if the company wants to launch its product in the wider Chinese communities.
It should be noted that china is a technological nation where there a lot of investment in machineries. For a similar company to penetrate the market and gain acceptability there must be a lot of efforts involved. The first thing will be to get the attention of the people by ensuring that the tactics used are culturally and socially acceptable (Heywood & Peoples, 2006). The second thing will to convince the people that the services that are being brought by the new products are of quality by highlighting its benefits. Care must be taken to avoid making any comparisons with the locally manufactured products. Any statement that is directly aimed at undermining locally manufactured products must be avoided. The company will also need to protect its products against the risks of duplication. This will ensure that their company enjoys monopoly and avoid instances of their products being duplicated and sold at a cheaper price. Pricing will also be another factor that has to be considered. After comparing the prices of similar products, a decision should be reached at considering what people will be willing to spend on the product and the expected products (Prusty, 2008). It will be necessary for people to understand that no matter how much the products will be sold at, the price will be reasonable as per its quality.
References
Carbaugh, R., (2010). Contemporary Economics: An Applications Approach. California: M.E. Sharpe.
Cook, M. and Farquharson, C., (1998). Business economics: strategy and applications. Michigan: Pitman.
Fisher, F., (1985). Antitrust and regulation: essays in memory of John J. McGowan. Cambridge: MIT Press.
Heywood, J. and Peoples, J., (2006). Product Market Structure and Labor Market Discrimination. Michigan: SUNY Press.
Jain, T., (2003). Business Economics. New York: FK Publications.
Posner, R., (1999). Natural monopoly and its regulation. California: Cato Institute.
Prusty, S., (2008). Managerial Economics. New York: PHI Learning Pvt. Ltd.
Sexton, R., (2010). Exploring Economics. London: Cengage Learning.
Taylor, J. and Weerapana, A., (2007). Principles of Microeconomics. London: Cengage Learning.
