How market structures determine the pricing and output decisions of businesses Essay
How market structures determine the pricing and output decisions of businesses
3.1 Explain how market structures determine the pricing and output decisions of businesses
There are different kinds of markets in different economies/sectors/goods. Accordingly, there are different kinds of output and pricing decisions which take place. Usually, output and pricing decisions are interdependent except for the case of perfectly competitive markets. In perfectly competitive markets, a single firm is so small compared to the market that it cannot affect the prices. In that case, it must take the price as given, and then decide the quantity to be supplied. Price in this market is equal to the marginal cost of production. In monopoly, however, things are different. The monopolist can change the prices, as it is the sole provider of the good and thus has the market power. But here also, if the price increases quantity demanded decreases. Therefore, the monopolist must take under consideration both the positive and negative effects of increase in prices. In another market oligopoly, pricing is a bit more complicated and it depends upon the strategic interaction among the firms. Market structure is the number of buyers and sellers in a market.
There is different market structures such as Perfect Competition, Monopoly and Oligopoly and are discussed below: A place where different sellers of the same product then the firm’s price purpose and the output decision depends upon the demand for their products. In a competitive market buyers actually decide the price and firm take the output decisions as compare to the demand for the product because every firm tries to offer lower prices to their customer to increase their market share is known as Perfect competition. A scenario/market structure where a sole provider then price determination and output decision lies by the firm because in a monopolistic market the firm is the price maker and they can charge whatever price they want and customer have to pay because customers will not have the choice to buy somewhere else with a lower price, In Pakistan we can find such an example with WAPDA.
This is known as a monopoly. Market structure where several sellers of the same products then the sellers have a bit of command over the price due to the ongoing rate for their products. For example they all charge the same price and then it depends upon the customers from whom to buy. Sellers may charge the same price but there will be difference in the way they advertise their products and attract customers to purchase their products,; known as Oligopoly. 3.2 Illustrate the way in which market forces shape organizational responses using a range of examples Forces that determine the price level in the economy. Market forces can be a number of elements such as demand, supply, internal stakeholders, customers and suppliers. Two things can happen with the demand and the organizations are bound to give.
If the demand for product increases the organization’s response for the increased demand will be they will hire more workers and will produce with full capacity. If the demand for the product decrease there will be decrease in cash inflow of organization due to which their costs will exceed than their profit. Organization response for such situation will be that they will cut jobs of their employees to cut their costs. Same as the demand two things can also happen with supply of the products. When there is increase in supply of products the demand will decrease while if there is a decrease in supply of the products the demand will increase. Employee is also the factor that can change the behavior of the organization. If government announces mini wage the organization must accept it and must pay their workers with a minimum wage. If do not pay it to their workers, their employees will leave their jobs and will work for other organizations.
Every organization aim is to satisfy their customers with their products. If any organization producing fashion product but they do have continuous interaction with their customers as fashion changes after every specific time period the organization will lose their customers because they won’t be able to fulfill customer requirements and won’t be able to satisfy their customers with their products. An organization is dependent to its supplier and without supplies the production process is unable to run. If supplier increases price for the raw materials it will automatically increase the cost of production of an organization. 3.3 Judge how the business and cultural environments shape the behavior of a selected organization Political decisions also have an impact on business activities such as health and education for workers and the infrastructure of the economy. Nokia transferred one of its manufacturing facilities to India, it is important that Nokia have to follow all the rules in regulations set in India. The rules and regulations by India for Nokia may include that Nokia must be aware of the minimum wage, working hours per week and health and safety for workers etc.
All the new law and regulations by the government affect Nokia’s operations. Economic factors may include the economic situations as a whole. These factors include interest rate, exchange rate, inflation and economic development etc. Nokia’s Economic situation in Finland went to recession period once which decreased the level of income and resulted in decrease in demand for Nokia’s product. Due to an increase in costs Nokia cut jobs and unemployed some of their employees. Nokia must be aware of all such economic situations to be ready to handle them well. Social is about the society. Social factors may include change in taste, change in level of income, change in fashion etc. All the above factors affect the demand for the product; normally it happens with Luxury and fashion products. Nokia operates in all over the world with their products and consider the culture of every place they operate, now a day people want to have good looking and smart up to date phones, Nokia tries to be aware of every social trends in the society and come up with the demanded products by their customers.
Technical; this refers to a change and development in the way of production, as new technology improved the quality of products, increase in productivity etc. Legal; the new laws applied on businesses by the government. Government passes different new laws after every specific time period which increases cost of the businesses. Such laws may include age discrimination, increase in minimum wage etc. For example, Apple operates where it is very difficult to have a product different from its competitors. Environmental factors include a change in weather, climate. Environmental changes affect businesses such as farming and tourism. Environmental factors are the external factors which firms have to consider due to a global change in the economy. Nokia must be friendly with their customers to operate in appropriate manner as they water proof cell phones, phones with a plastic body which can be unbreakable etc. Environmental Culture is the attitude, behavior and the knowledge in a society is called the cultural environment.
Cultural environment can be of two types: Internal Culture – Any attitude, behavior, action or policy developed among people in the company is called the internal culture of the company. Apples internal culture is that there is a team work system among employees and every employee has the freedom to give in input of their ideas for the success of the company. External Culture – company’s own mission and needs of the customers that the company can quickly respond is called the external culture. Nokia’s external culture is that they give customers service to their customer as their first aim is the customer satisfaction and to achieve such satisfaction they always try to come up with high quality of products. Nokia always have an interaction with their potential customer to gain new ideas from them. Nokia always conduct their business in ethical, legal and socially responsible fashion.