Question

1. (a). Define each of the four product markets with at least one example of each market.

(b). Suppose you are a mid-level manager of a Corporation working in the Sales Department. What are the two most important aspects of the market you must keep track of? Explain fully.

2. Assume the following inverted demand function of a firm in the short run: P = 100 - 2Q. Obtain the MR function from this inverted demand curve.

Now assume the total cost function of this firm is : TC = 90 + 160Q - 8.5Q^₂

The above cost function yields the MC function as 160 - 19Q

What is the profit maximizing price and output of this firm?

3.

Assume the price of a popular brand of ladies shoes was selling at $400.00 per pair of shoes in a group of stores in a week. At this price the stores sold 100 pairs. Then the price of the shoe was reduced "buy one get one free". The sale resulted in an increase of quantity sold to 120 pairs of shoes in a week in the same group of stores.

(a) Calculate the price elasticity of demand and interpret your results.

(b). Was the decision to put the shoe on sale correct. Why or why not?

What is the amount of short-run profit or loss of this firm? Explain fully.

Answer 1

1)a)Four product markets are:

Monopoly: where there is single seller and many buyers. Here the seller acts as monopoly and chooses his prices or output. There are barriers to entry, which could be natural or legal. Eg: Railways operated by government.

Oligopoly: The number of sellers in this type of market ranges from 2 to 10. The sellers can form cartels and act as monopoly or they could try and gain maximum share of market individually. The product sold is homogeneous or differentiated in nature. Eg: Airlines  

Monopolistic competiton: In this type of market structure, differentiated goods are sold ie the goods are differentiated by a brand or logos. There are many number of buyers and sellers and the entry does not have high barriers.

Eg: restaurant business

Perfect competition: In this type of market, there is free entry and exit and there are many buyers and sellers, so each of them have a tiny share in the market. The goods sold are homogeneous and each of them earn zero profits in short run.

Eg: Vegetable vendors.;

b)Two important aspects which a sales manager should keep in mind could be :

Substitute goods: It is essential that the prices of other goods or the schemes which the rival companies are selling should be kept track on. This enables the manager to know the competition that lies in the market and help change or modify the techniques accordingly.

Eg: If rival companies are selling goods online, bu just selling the goods in stores, the company may lack sales that others are achieving.

The tastes or preferences of consumers:Another important factor should be the consumer: what he prefers, the taste or habits etc

This means that if the company is unaware of the shift or changes in the consumer behaviour , it would become difficult to achieve the market sales.

Eg: if consumers have started preferring organic goods, then a shift in the company's production should also be done to increase sales.