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Chapter Summaries

MBA 525 C: Managerial Economics

School of Graduate Studies: Trinity Western University

December 1, 2022
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Chapter 2: Market Forces: Demand and Supply

An organization's management context may be better understood by an examination

of market interest in the association or market. Supervisors often make the common error of

worrying only on the immediate, rather than the long-term, timetable. It is crucial to be aware

of the upcoming shifts. A downward inspection slant is assumed when price and size are

taken into account. Cost increases have this effect because they induce consumers to spend

less. Costs for linked items, purchaser pay, customer requirements, advertising, consumer

beliefs, and the population as a whole are all laid bare by the interest curve (Baye, 2005).

With every increment in salary, the price of everyday goods increases. If the opposite is true,

the great is downgraded to "second-rate great" status. The term "shopper surplus" refers to the

value that consumers get from a product or service that they don't have to pay for. When all

other variables are held constant, the market supply curve will display the total quantity of

items that may be supplied at substitute estimating.

Also explained here are the rules governing interest and supply and the differences

between the factors that influence these two economic indicators. The authors give helpful

background on harmony by defining "balancing" in an unusual manner. This section defines

value assurance in a critical market and shows how interest and supply are recognized via

harmonic shifts. The functioning of market capabilities is influenced by a number of factors,

and each capacity is crucial to the growth of the market. Terms such as "extract fee," "ad

Valorem charge," "value floor," and "value roof" are all explained in this section. This part

concludes by providing crucial insight into the steps necessary to analyze the functioning of

the serious market.

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Chapter 3: Quantitative Demand Analysis

The quantity sensitivity equation takes into account the reaction of a product to a price

change, defined as the percentage change in desired quantity divided by the percentage

change in the item's price. In an ideal world, elastic demand is endlessly flexible. Here, the

demand curve is flat. The demand curve is perfectly elastic at zero prices. There is, in fact, a

vertical demand curve. A commodity's price elasticity (how much it moves) is determined by

three factors: One may always look to another solution. In other words, other options exist.

The more choices consumers have, the more competitive the market. Thus, the demand for

unique items is more elastic than the demand for broadly defined commodities, such as food,

which is normally inelastic whereas beef is elastic. The more time buyers have to adjust to

price shifts, the more elastic the market for the product. People have the luxury of time to

think over feasible alternatives. Expenditures split among those involved. Products that take

up a smaller share of consumer spending tend to be less price sensitive than those that get a

larger share of consumer spending. That's why people's desires to eat are more malleable than

their desires to travel. Crucial to how firms set prices is the concept of cross-price elasticity.

The shortest line that minimizes squared discrepancies between the expected connection and

the actual data is called the regression line. The line with the smallest sum of squared

deviations from the actual data points is called the minimal square recorder. The Y=a+bX+e

equation is often employed in practice, along with its parameter estimate, values a and b. In

this case, a and b represent the row with the smallest squared discrepancy from the real data.

Comparison of anticipated coefficients against a standard error based on the same underlying

genuine demand but with varying estimations of the size of change in each coefficient.

Statistically speaking, a set of random variables is considered normal if it follows a uniform

distribution in all possible ways. With the use of regression, the entire unknown variation

may be estimated, and the F-statistics provide an average variance to do so.

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Chapter 5: The Production Process and Costs

Production mainly makes use of labour and capital. Output work exemplifies the

maximum feasible amount of production from a constrained set of inputs. The Production

Process and Costs, the fifth chapter, provides the financial groundwork for executives in

production and estimating roles. The section delves into the different efficiency ratios and

production levels. The different degrees of utility are represented by the terms "complete,"

"normal," and "minor." In addition, the authors characterize the relevance of a supervisor's

position in the production interaction and describe the administrator's duty inside the

production cycle.

The author then goes on to explain why numerical classifications of production

capacity are more accurate than graphical representations like tables and charts when it

comes to representing production ideas. Work in direct production, Leontief production, and

Cobb-Douglas production are all examples of logarithmic production capacity. The authors

explain how to cut down on manufacturing costs with the use of tools like isocosts and

isoquants. The authors go even farther, describing how to cut down on manufacturing costs

with the use of tools like isocosts and isoquants. In order to make the most profitable

decisions, managers might utilize the ideas of cost functions to process less information.

Short-term costs, regular costs, minimum costs, fixed costs, sunk costs, and out-of-pocket

expenses all fall under this category of expenditure possibilities. These skills provide the

groundwork for absorbing knowledge that may be used productively and for coming up with

new concepts. The authors wrap off by discussing how economies of scale, degrees of

economy, and cost complementarities affect the returns companies may provide.

Chapter 6: The Organization of the Firm

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In the section titled "The Organization of the Firm," the writers go through the steps

every business may take to stay within its cost function. Inputs may be gathered in a variety

of ways. Spot trading is a popular tactic. These are non-formal ties established between

sellers and buyers that don't require a special code to maintain communication. The strategy's

main advantage is that it frees up the company's resources so they may be devoted entirely to

the development of data collection mechanisms. Spot trading becomes applicable when data

sources are normalized. Agreements are another means of obtaining information (Baye,

2005). A contract is a legally binding agreement outlining the terms and conditions of an

economic exchange, often between two parties (the seller and the buyer). The hefty price tag

associated with signing an agreement is a major drawback. After some time has passed, the

data sources might be made available within the organization. With vertical integration, a

company makes all of its own products and services in-house rather than relying on outside

vendors. As a consequence of adopting such a tactic, the increased specialization that comes

from a free maker economy is lost.

The author provides examples of supervisory powers, such as incentive contracts and

extra-internal motivators (notoriety, takeovers). These perks encourage managers to be honest

and effective in their job. The author also covers the many problems that develop between a

supervisor and a specialist due to the fact that supervisors are unable to keep a close eye on

workers and workers are inefficient and frequently complaining. Workers will benefit from

the new setup, and their efforts will be recognized more widely. Examples of such

agreements include benefit and income sharing, piece rates, time clocks, and random audits.

Finally, Edward Lazear's research into the business practices of Safelite Glass Corporation

highlights the significance of arranging the impetuses for the representatives in a sustainable

fashion.

Chapter 7: The Nature of Industry

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Industrial settings are rich with contrasting elements. The structure of a market is the

hierarchical arrangement of the many companies operating within. Prerequisites include

reasonableness of price, originality of thought, access to an exit or a way out, and the ability

to make a request. The structure of the market determines the choices that managers must

make. The director's improvisation is affected by market conditions. The firm's size,

concentration, innovation, and potential for segmentation are all relevant factors. The top

companies show their dedication to overall yield by their fixation ratios. The four-company

concentration ratio is a common strategy. The economy and customer preferences may also

play a role in creating business contrasts. Due to the attractive interest rates, the company can

now afford to employ two separate businesses. Possible financial barriers to market entrance

(Baye, 2005). High initial investment thresholds make new entrants to a market more

unlikely. The need of obtaining a license before beginning operations in a new industry is

another barrier to entry. When companies buy up intellectual property rights to a product,

they may stop making competing versions of it.

Integration and merger operations differ amongst businesses since they depend on and

help achieve goals including lower transaction costs, greater size and scope, increased market

power, and better access to financing. In particular, the effects of upward, even, and

aggregate combinations and consolidations on various business sectors have been studied.

This is a ground-breaking piece of research since it examines advertising as a whole and

gives quantitative data to back up those findings. Finally, the book delves into the changes to

industries as a whole and the best administrative decisions to make in place of market

structures.

Chapter 8: Managing in Competitive, Monopolistic, & Monopolistically Competitive

Markets
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"Managing in Competitive, Monopolistic, and Monopolistically Competitive

Markets," focuses on the business's interactions with the market and the various market

structures that exist. There are less barriers to entry for new businesses when there is perfect

competition in the market. This kind of market is characterized by a big number of buyers

and sellers, great data on the lookout, and similar items. Competing for jobs is common in the

administrative field. Interest in this market is not set by any one company but rather is the

result of interaction between buyers and sellers. In the current environment, prices are set by

interest rates and supply and demand, with little to no input from individual businesses. In

this market, price is determined by the equilibrium between supply and demand. The

interdependencies of income, expenditure, and benefit may be shown using a Venn diagram.

Officials use this chart to figure out how to maximize profits and minimize losses. In a

syndicated market, one company has the monopoly power to do all of the business in the

industry. One seller and many buyers create a lack of competition in this industry. The

adoption of bylaws to govern some essential services, such as force and water, is one of the

major constraints on infrastructure markets. Sources of imposing business model force

include economies of scale, cost complementarity, licenses, and reasonable bounds. Large

factories are more productive than smaller ones because economies of scale occur when fixed

costs go down as output goes up. Amazing competition and the syndicated market

environment have merged to become the monopolistic rivalry of today. It is the most

frequently accepted economic environment and represents the characteristics of the two

business sectors.

If there are buyers and sellers, if a single company can develop, manufacture, and ship

out a specialized product, and if that company can join and leave the market with relative

ease, then that industry might be considered monopolistic. Besides this, a product needs

strong marketing to stay competitive and convince buyers of its worth. Finally, a ruthless
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monopolist will have the leeway to provide new items often in an effort to maintain or

expand their client base and revenue streams.

Chapter 9: Basic Oligopoly Models

Cournot oligopoly may exist in any market when a small number of firms provides a

large number of customers with the same or similar goods, or if there are significant obstacles

to entry. As a result, Cournot oligopoly sets the price according to the competitor's output. It

is a Cournot oligopoly if and only if the supervisors' decisions to set individual firm yields

have no influence on the profitability of other firms in the market. But Bertrand oligopoly

determines prices by looking at what the competitors are spending. Anyhow, Sweezy

oligopolies stick to steady costs despite the lookout expenditure changing, and they often

overlook cost increases. Moreover, the presence of a threshold beyond which changes in

peripheral expenses have no influence on the benefit-enhancing yield level is a basic

conclusion of the Sweezy oligopoly model. When a small number of companies provide

services to a large customer base and manufacture specialized goods, the resulting market

structure is called a Sweezy oligopoly. Both a trailblazer and a follower of Stackelberg

oligopolies exist. In this relationship, the pioneer confides in the supporter, and the supporter

devotes all of their attention to the pioneer's welfare. However, the pioneer stands to benefit

more from this paradigm than the follower.

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Chapter 10: Game Theory: Inside Oligopoly

Similar to how a player's choices in a game effect the actions and consequences of

other players, so it is in an oligopoly market. Due to the interdependence of oligopolistic

market participants, game theory provides an essential framework for understanding the

nature of oligopolistic cooperation. In an oligopolistic market, companies use a wide range of

tactics to stay ahead of the competition. The technique is represented by a choice principle in

which the actions a player does at a given decision point are central. The tasks in a game with

a standard structure are carried out, and the outcomes are attained, just as in any other game.

Nash harmony is an integrative approach that draws from many different areas of the game.

Using the idea of "Nash harmony," we may balance out the disparity that arises when no one

can better their outcome by altering their methods. In a one-shot game, the player has no

more choices after an opportunity has been missed, but in a game that is continually recycled,

the player always has choices. When two NPCs in a one-shot game bargain over an item of

substantial worth, they are engaging in Nash haggling. Always going over the same ground is

boring and never leads anywhere. Every time the game is played again, the player will get a

different outcome based on how well they used their previous strategies and inputs. The

extensive redundancies make present value an important subject to consider. There are two

types of endings in limited rehashes: ones in which players are unsure of when the game will

end, and ones in which players know for sure. Games with many levels allow players to level

up as they go through the game.

If disciplinary measures were more solidly based, it would be easier to defend the use

of conspiratorial methods. In the event of a conflict, the company has to know who to reject

and why. Companies turn away customers by offering temptingly cheap pricing, thus it's

important to know who those customers are for the competition. It is crucial to reprimand

adversaries for disobeying the complex strategy, or else the discipline would fail. The
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structure of the valuing game is affected by factors such as the number of enterprises, the size

of the firms, the market's history, and the disciplinary components. Last but not least, we

covered the rehashed games with questionable and particular terminal times, the passage of

moves in a row, and the haggling games.

Chapter 11: Pricing Strategies for Firms with Market Power

All clients pay the same base price for a service that is fundamentally priced the same.

Business owners that focus on the market have seen a rise in demand for their products. The

company raises its pricing, and the number of products sold rises. In addition, most

entrepreneurs without deep pockets can't afford to dedicate resources to a dedicated research

division or to hire economists to help them figure out how to balance supply and demand. To

maximise profits, this is essential.

Cournot Oligopolies: If several firms provide the same good or service, then the

demand elasticity of supply for any given firm's offering is N times the price stability of the

market. There are three components that together form the Cournot Oligopoly Quality Law,

and this is one of them. As the number of enterprises increases, the profit-maximization level

will rise beyond marginal expenses.

Cournot oligopoly will be more lucrative the more overhead expenses it incurs. In

addition to the items available for a single price, there are also four more methods of setting

prices. People paying different amounts for the same product or service is referred to as price

discrimination. Price Setting the initial price as the highest amount a single customer is ready

to pay for a product. We can finally put an end to the era of economic surpluses. Second-

degree pricing discrepancies—the practice of offering unique discounts for unique order sizes

of the same product—are not uncommon (electrical utilities). Consumers who make
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infrequent purchases are charged more than those who stock up. Even if you don't know the

person's name, you may still use it. The degree to which wants vary among consumers is the

third determinant of prices. The corporation has resources to measure the elasticity of the

market in order to maximize profits over a wide range of client kinds. If those who pay less

are forced to sell to those who pay more, then the practice of price discrimination fails. There

is a set price per unit and a separate fee for the privilege of buying. Set the price of one item

at MC and tack on a surcharge proportional to the additional funds the buyer provides. The

company stands to gain monetary profit in this manner. Then the manufacturer may get the

full amount of profit from the buyer. Customers are not limited to a certain range of pliability

while purchasing a company's wares.

Customers may save money by purchasing in bulk. In other words, they may conduct

either one or all of the deals. If you're selling in bulk, you may offer your customers a

discounted "block price" and have them pay for all of their units at once. Company profits

increase as compared to selling commodities unit alone. There is a maximum profit price that

may be earned on a package sale equal to the sum total of the price the client pays for the

commodity plus any premium the market is prepared to pay.

Chapter 12: The Economics of Information

The average is calculated by multiplying the probabilities of each outcome by their

respective payouts. The square of the dispersion around the random mean of the variable is

the formula for calculating variance. The standard deviation (or SD) is the quantity obtained

by taking the square root of the variance (or VA). Behavior and the unknown. Businesses and

other organizations adjust their decision-making processes in light of uncertainty. Those who

lack self-control tend to make it difficult for others to make purchases. The vast majority of
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spectators do not have high hopes for sporting events. The worth of a commodity People who

aren't frightened of trying new things might be enticed to try a new brand in two ways. Chain

shops Despite the fact that local businesses may provide superior selection, national chains

may remain profitable so long as they attract enough customers from outside the region.

Customers that are risk averse are ready to pay more for assurance. Insurance. Making money

is the point of the market. The prices paid by many businesses for the same product are not

readily known to the general public, which is why consumer analysis differs from business

analysis. Shoppers who choose to purchase certain items at fixed rates will always have

access to those items. They may use this as a free gentle nudge. Until the expenses of further

research are lower than the potential savings, shoppers may continue to shop around for

better deals. Stores won't lower their pricing if customers learn that competitors are charging

less for the identical item. When prices are this high, consumers aren't aware that they may

get a better deal elsewhere. The cost of your reservation is determined by the following: The

customer search guideline states that while looking for a hotel, it is ideal to look for one

where the price may be reduced above the booking price and a better bargain can be obtained

below the booking price. Each search has its own associated expenses, and this cost is

represented by the consumer price, c. The ideal search method is to hunt for a cheaper price if

a company charges more than the reservation price and doesn't check whether the price is

discovered below the reservation price. As the cost of a search increases, clients will pay

more to schedule a stay and fewer will be returned in a search. Customers now have more

bargaining power as a result of the recent drop in interest rates. Managers utilize it as a

resource when deciding what prices to charge for goods and services. Never charge more

than the market will bear, since there will always be others who will offer to pay less. A

customer's level of uncertainty predicts their behaviour. The Business Director should

consider these repercussions in order to get insight into customer preferences.

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Luke M. Froeb, Brian T. McCann, Mikhael Shor, Michael R. Ward, Managerial

Economics: A Problem Solving  Approach

Chapter 3: Benefits, Costs, and Decisions

Costs, advantages, and available choices are recorded here. All expenditures that alter

depending on yield are considered variable expenses. However, fixed costs are the same no

matter the profit. This subsection elaborates on the dynamic by investigating means of cutting

costs. Using this method improves the dynamic cycle and gives you more leeway in how you

go. You can make better choices if you know how much money you are making against how

much it costs you. Learning how costs change over time may help you weigh the benefits and

drawbacks of various options. The money needed to launch a firm, for instance, is an

example of a set, predictable expenditure (Froeb et al., 2018). The cost of labour, however, is

considered a variable cost since it varies with output. Expenses, both variable and overall, are

proportional to the profit made. There is a direct correlation between an increasing yield and

rising variable and absolute costs.

Whether or whether investors should put money into the company is reflected in the

financial returns. Financial growth below zero shows that the company is not generating

enough new capital to meet the expectations of its investors. However, not all accounting

perks are monetary in nature. For a company, this indicates that there is still value in

maintaining accurate books even if money is tight. Financial advantages consider observable

and explicit capital expenditures, whereas bookkeeping benefits do not.

The amount of each fee is determined by the items you give up, which in turn is

determined by the preferences of the organization. To be more exact, the costs and options
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are intertwined. Next, we look at the sunk-cost conundrum, the fixed-cost fallacy, and the

disguised-bed mistake. Expenses and benefits that are already committed to will be taken into

account in the sunk-cost analysis. Extraneous expenses and advantages are taken into account

in making this choice. When a company fails to factor in all relevant costs, it commits the

"hidden-costs mistake." Last but not least, weighing prices might be confusing for a business,

thus prioritizing the option under consideration is always recommended.

Chapter 4: Extent Decisions

First and foremost, we'll talk about the "extras" you may have to pay for. The chapter

uses Memorial Hospital as an example of both regular and unexpected costs. To supply and

sell an extra unit incurs minimal costs (MC) but generating marginal revenue (MR) is the

primary benefit. If the ratio of the two is more than one, there is an urgent need to boost sales.

For MRMC to occur, there must be a reduction in sales. When MR equals MC, it means the

company is selling the right amount of products and increasing profits.

No major decision requires extensive research. This is how many important decisions

are decided, such as when to hire more people, shift the focus of administrations, extend or

shorten notice periods, and settle on an appropriate rental halt. Correct answers are shown on

the intermediate test, but the significance of the topics is not rated. This is because of the

manner that MR decreases but MC increases with more progress. To assess whether further

improvements are meaningful, it is necessary to reevaluate the MR and MC (Froeb et al.,

2018). An incentive pay plan may motivate the force by decreasing MC or increasing MR.

Fixed cost utilization does not impact effort. Planned compensation is valid if it is tied to

quantifiable metrics that show effort was made to bring about a desired outcome.
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Chapter 5: Investment Decisions

There is talk of making a dollar trade in the not-too-distant future. Put simply, you're

making an investment. Profitable transactions are place when parties with different discount

rates negotiate lower rates for one other. Profits may be made when those with low discount

rates (the rate at which they value future dollars relative to present ones) lend to those with

high discount rates.

Discount rates vary from company to company and from person to person dependent

on their financial situation. We put our money into companies that can generate profits in

excess of our cost of capital. NPV states that if a project has no cash outflow, it must be

profitable (i.e., more money is spent than the cost of capital). Many companies still don't

utilize net present value (NPV) even though it's the most effective tool for analyzing potential

investments. Since it is straightforward and easy to comprehend, break-even analyses are also

used. When the contribution margin equals the cost of items sold, operations have reached

break-even. If you expect to make more money than the price difference, then it's a good idea

to make the investment. Discount rates vary from company to business and from person to

person depending on available resources. They will only put money into ventures that return

more than the initial investment. If the sum of a project's net cash flows at the current time

exceeds zero, the project will generate a positive net present value, according to the NPV

principle. The majority of companies don't utilize NPV to analyze deals, even though it's the

most effective method. This is what I use instead of a library when I need to conduct

research. Break-even. When all fixed expenses are subtracted from all revenue expected,

that's the break-even point. You expect to make a profit since your sales will exceed costs. A

market request or combined demand is what happens when several individuals all purchase

the same product at the same price.

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Chapter 6: Simple Pricing

The term "aggregate demand" or "market demand" is used to describe the collective

buying behaviour of a group of individuals at a given price. The scale of the project is a

major factor in determining pricing. If MR is more than MC, the price will rise (become

larger). The Boost cost will be lower if the MR is smaller than the MC (reduce the amount).

In this situation, MR 14 MC really shines.

Demand elasticity of 14 (the percentage change in desired quantity as a result of a

change in price) (percent change in price).

[(Q1 Q2)][(P1 P2)/(P1 - P2)] is the formula used to analyze the market's response to changes

in both price and quantity.

Someone, somewhere, needs something. Having several options makes meeting consumer

needs easier. It seems like someone doesn't desire anything. The elasticity of demand rises

with the number of available resources. Cost as a Fraction of Income The sustainable amount

is more than one (|e| > 1). Highly malleable: quantity changes more often than cost. Rapid

expansion of elastic demand is facilitated by products with low replacement elastic demand

or by nearby supplements. Companies have a harder time getting what they need, but brands

can usually obtain anything they want. In the grand scheme of things, it becomes less difficult

to provide for people's wants and needs. When costs go up, consumers are more apt to

revaluate their wants. Changes in demand may be quantified in a number of ways, including

the elasticity of pricing, income, and advertising, among others.

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Chapter 8: Understanding Industry and Market Changes

The section begins with a discussion of consumer values and the relationship between

supply and demand. Cheap goods are more likely to be purchased and customized by

consumers. Even though something is more affordable per unit if purchased in bulk, the

consumer ultimately has the last say in the final price. When a buyer sets the price they're

willing to pay, that's known as an interest bend. The primary interest curve also describes a

price drop that occurs with more purchasing. The phrase "shopper excess" refers to the

disparity between what a consumer spends and what they feel they get. Value of client

surplus increases in tandem with decreasing expenses. A group's collective spending patterns

may be shown by summing the individual interest bends of its members. Request bends are

often used to go from a rough estimate to a more precise precise number.

In general, the quantity you get decreases as the price does. Income falls as the cost

rises and rises as the value falls, but it still increases as the value does because of the interest

rate's inelastic nature. And last, with an inelastic interest, earnings increase with a rise in cost

but decrease with a decline in value. Benefit analysis and interest rate flexibility go hand in

hand, with interest rate flexibility having a negative effect on benefit enhancement. As a

result, the interest becomes much more variable at higher costs. It's about time we have a

conversation about demand forecasting, cost monitoring, and the proper way to place a

monetary value on adaptable, cost-driven assets.

Chapter 9: Market Structure and Long-run Equilibrium

The section begins with some sobering discourse about the corporate world and the

ways in which long-term peace might be attained inside institutions. Businesses in unrelated

sectors may experience shifts or be affected by developments in a neighbouring sector. As

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soon as there is a transfer of resources (labour and capital), the two companies' bottom lines

will be intertwined. In a perfectly competitive market, there are no exit or entrance barriers,

no significant costs, and numerous competitors. A market like this has a wide variety of

potential profit centres (level). Actual company profits aren't necessarily proportional to the

rate of return. When this is not the case, more firms will join the market, increasing the

available supply of stocks and resulting in higher-than-average profits. When profits are

below average, it's more difficult for a company to get out of a venture. As a result, the

standard rate of return remains unchanged (Froeb et al., 2018). Businesses recoup their

investments and the cost of living is stable, but profits are down and expenses are flat. There

is a temporary drop or rise in prices if there is less demand on the market. However, no profit

can be earned under these circumstances.

The adaptability of resources is the key factor hurting the company. When the payoff

is negative, it's time to go. Passages are same whether there is a positive advantage and when

there is no benefit. Long-term peace has relied on the redistribution of labour and capital

from lower-paying to higher-paying activities. As long as resources can be reallocated to

meet changing needs, everyone wins. Money and employment opportunities are two

examples of highly portable resources. There are a few elements that keep monopolies secure

from rivals: a lack of competitors, a lack of near alternatives, and a watchful eye. However,

there is little gain for powerful corporations in the long term. After that, the section addresses

the barriers to entry and exit that firms face. Ultimately, it satisfies the requirements of

ruthless enterprises operating in a monopolized industry. The following part discusses what

causes an organization's search to begin and end at various times. As a result, it satisfies the

requirements of companies who want to take a monopolistic market seriously.

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Chapter 10: Strategy: The quest to keep the profit from ending

Increasing P (price) or decreasing C (cost) is a straightforward method to boost

economic output (cost). According to the IO economics school of thought, the market

mechanism itself is the single most crucial factor in determining long-term productivity. The

attractiveness of an industry may be considered using the 5 Forces model. These sectors are

appealing places to work because of their cheap energy provider costs, big purchasing power,

high entrance hurdles, minimal alternative risk, and lack of competition. The improved

capabilities of the resources-based vision (RBV) enable any organization to demonstrate

sustained improvement in performance over time. For these assets to serve as the backbone of

sustainable competitive advantages, they must be crucial, distinctive, and infeasible to

replicate or replace.

The strategy is a method of balancing a company's strengths and skills with the

opportunities and dangers it faces in maintaining a competitive edge in the marketplace over

the long term. In order to get an edge over their competitors, successful firms should be on

the lookout for any suggestions that suggest doing so requires investing in significant

resources and developing key competencies. One may keep ahead of market pressures by

lowering prices, differentiating one's offering from the competition, or reducing the level of

rivalry.

Chapter 13: Direct Price Discrimination

The benefits of itemized pricing will be discussed in the next section. Discriminatory

pricing occurs when one company uses one set of prices for one set of clients and a different

set of prices for another set of customers. A significant discrepancy exists between the price

of programming, music, or medicines and its actual market value. Excellent price difference
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for such products. Right immediately, you may utilize this method of pricing inequality to

divide the less-important from the more-important and have the latter pay a lower rate. This

prevents them from selling the inferior goods to influential individuals. Understanding your

diverse segments of customers is crucial for charging the appropriate fees to each one. A

more flexible interest rate is blamed for cheaper pricing while higher expenses are associated

with a lower interest rate. According to the Robinson-Patman Act, all customers must be paid

the same rate unless there are significant disparities in the quality of service provided. As a

general rule, it's smart to reduce prices until they're at or below those of the competition. Last

but not least, protecting your high-value clientele requires keeping value segregation a secret.

Chapter 14: Indirect Price Discrimination

Even if a business owner has no way of knowing which clients are more valuable or

how to prevent an argument between two groups, he may still exercise bias. In order to

achieve this goal, he must develop goods and services that are attractive to a wide range of

consumers.

Measuring the use of a resource may be used to categorize high-value items (for

example, by how many cartridges they buy). In this scenario, the printer's mark should be

smaller than the pads'. If you supply a low-priced item that expensive customers want, you

risk losing their business to competitors that provide more value. When paying for a single

individual, the per-person cost should not be adjusted. You might also provide bulk

discounts, two-for-one pricing, or freebies to a select business.

If the store is willing to pay more for the bundle than it would for the separate items, then the

client will save money by purchasing the bundle.

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Chapter 16: Bargaining

Players might get an edge over their opponents by focusing their attention on key

areas as they search. When negotiating, one might choose to be kind or forceful. If both

parties put forth a lot of effort, they will fail to reach an agreement and will thus get no

compensation. If both parties are interested in the extras, then they will divide them up. If

both parties are willing to put in extra effort, the game is still far from balanced after both

have finished cooperating. Each side of a negotiation strives to achieve its own goals by

exerting as much influence as possible on the outcome. As with any kind of bargaining, the

first person to make a move often comes out on top. If a group is serious about making a deal,

they'll stick around to maximize their gain (Froeb et al., 2018). In a negotiation, the best bet is

to avoid taking any risks at all. The most beneficial arrangement is for the group that works

together just on one task. It's difficult to concentrate under these circumstances since they go

against people's individual preferences.

Depending on the situation, bartering may be crucial. Discussions about price depend

on factors such as who will be the primary mover and what aesthetic will be used. This

approach is heavily predicated on rigid rules that fail to account for nuanced situations. The

value of the agreement determines the ratio in non-key exchanges. The theory behind this

approach is that the victor of a negotiation is the party whose interests are served best by the

terms struck between the two parties (either by weakening the competitors' external position

or by increasing their own advantages). If they forego some of the reward from a transaction

because of a more advantageous external option, they become more effective negotiators. In

this situation, his interest in the agreement is low, thus he can afford to be demanding of the

other side.
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Chapter 18: Auctions

In oral or verbal auctions, only the second highest bidder will drop out. Whoever has

the most cash at the end of the game is the victor. Those that ultimately don't end up winning

the auction are the ones who determine the final bid.

At a second-price auction, the highest bidder wins the item at the previous-highest

price. The second-highest bidder wins. Similar to their English counterparts, these auctions

are facilitated with less hassle and more accessibility for users thanks to their migration to the

web. Both of these things are identical.

When an auction is held with bids hidden from everyone except the highest bidder,

that individual sets the opening price. Prospective bidders should consider both their odds of

success and the potential financial rewards of a successful bid. The highest bidders want

more money, and the greatest bids they've had are less.

Potential bidders might increase their earnings by avoiding competing with one

another. If you suspect bribery, you shouldn't have an open auction, a small auction often, or

reveal the identities of the winners.

In an auction with a shared value, everyone participates knowing just a ballpark figure

for their own worth. If you want to escape the "curse of the winner," bidding below the

anticipated value at a general interest auction is one way to do so. You won't find many folks

who would offer you an optimistic estimate. Since more information is provided during an

oral auction, more money is often obtained.

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Chapter 19: The Problem of Adverse Selection

It's not uncommon for customers to make poor choices in industries like insurance.

Those who can maintain their objectivity and who refuse to either pay full price or split up

their purchase are at danger. When it comes to hazards, for instance, insurance firms take no

sides. People who don't need the dangers cause issues for them (hazard loath). Avoiding

problems requires a keen ability to foresee potential pitfalls and take preventative measures.

Investors are said to be making an "aggressive decision" when they are acting on less

knowledge than the owners of the firm. Investors should be aware that the competitive bids in

the marketplace are a strong predictor of the company's future success. If there are several

bidders, your chances of striking a good bargain decrease (Froeb et al., 2018). Businesses

should not prioritize serving reliable clients above acquiring new ones. Contradictory

decisions may result to unsatisfied yet profitable business relationships.

Screening is used to cope with the flaws of consumers who provide a low risk while

dealing with them. In screening, the most knowledgeable person learns more about the most

knowledgeable person. Using tools like drop-down menus to quickly locate relevant data

might make this data collecting process much more efficient. Customers who pose a risk

should not be screened using the same criteria as those who pose no such danger. By

"flagging," the more knowledgeable members of the group strive to avoid providing the less

knowledgeable ones with even the most fundamental information about the topic at hand.

Great kinds’ of invulnerability to imitation by lesser kinds is what allows for the existence of

signs. There are two main categories of signs: marking and advertising. These should be seen

as a warning if the low-quality vendors are unable to recoup their marketing and promotion

costs.
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Chapter 20: The Problem of Moral Hazard

The moral hazard occurs when there is less of an incentive for careful insurance

purchase decisions. There are several contexts in which moral hazard may arise. Planning

and, if at all feasible, preparation for executing a profitable deal (i.e., make sure that

customers continue to pay interest when its advantages outweigh their costs).

A lack of knowledge may lead to both bad rivalry and a moral threat. In this situation,

you can't predict the character of the individual you'll have to collaborate with.

Attempts to level the playing field in terms of IQ are the basis of correspondence

strategies (e.g., by tracking them or changing their incentives). Avoiding responsibility might

be seen as immoral. People who take out loans see them like hazardous investments because

of the greater potential reward, but the borrower bears the greater risk. People who have little

to lose are uncomfortable with the inquiry.

Chapter 21: Getting Employees to Work

Agents often have distinct goals from their principals, despite leaders' expectations

that they would operate in the principal's best interests. That's a major conflict of interest.

Moral hazard and adverse selection are exacerbated by conflicting incentives and information

asymmetry. Information regarding the employee's productivity (adverse selection) and

behaviour might help the principal lower the cost of conflict management (moral hazard).

Below are three methods for resolving conflicts: Three methods are presented: (1) incentive

compensation and no supervision; (2) variable spending and control (shirking, unfavourable

filtering, and expense monitoring); or (3) service management and tracking (counts and cost

mitigation for some agencies). Businesses that are well-run have access to the data that

allows their leaders to make educated decisions and make the most of available possibilities.
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One may improve staff incentive programs by delegating decision-making power. Decision-

makers will have access to all the information they need if authority is centralized.

Chapter 22: Achieving Optimal Division Work

In this section, we'll look at the many different approaches used by different

departments within the organization to guarantee its success. Corporations work hard to make

sure their departments are running smoothly. Its primary goal is to maximize hierarchical

production by having all of their representatives functioning at the highest possible levels.

Divisional inquiry runs in tandem with expert examination, allowing for a fuller

understanding of the problem, the breadth of information accessible for analysis, and the

depth of insight available to commanders. Decision-making power may be transferred to

another division or the parent firm, data progression can be changed, and motives for both or

either division can be adjusted to solve the head division problem. Organizational units

should not be valued on the move while they are being sold or reorganized. The most widely

accepted form of authoritative design is the utilitarian divider. In this setup, each department

is responsible for a different set of responsibilities. There might be several departments

involved, including manufacturing and sales. As a result of this setup, information may be

shared throughout workers while also being consolidated to improve workers' practical skills.

Still, it's difficult to work toward a common goal in such a setup.

Many businesses are structured with functional departments that are responsible for

certain tasks like product development or customer service. Banks use what are called

Multidivisional or M-structures to organize its association and adjustment employees in a

hierarchical fashion. An M-structure department has its workers undertake all the duties

required to service customers of a single product in a certain geographical area. Last but not
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least, one benefit of the M-structure is that it allows customers to modify orders to meet their

precise specifications.
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References

Baye, Michael R., Managerial Economics and Business Strategy

Luke M. Froeb, Brian T. McCann, Mikhael Shor, Michael R. Ward, Managerial Economics:
A Problem Solving  Approach