The organization has been selected is Boston Time Square Sdn. Bhd. The market structure of Boston Time Square Sdn. Bhd. is monopolistic competition, which their barriers to entry the market is high and they are selling differentiated products which is selling the timepiece or watches, They have the medium power to affect the price. Thus some of the product revenue is high because they are controlling the prices. Further, to entry in the watch retailer market, it may needed high capital assets to invest. Due to high barrier to entry market, their competitor is not much, and the substitute products are less. Thus the profit is existence.
Moreover, the reason of existence of profits for a successful profit-making organization is when the organization product’s market price (P) is greater than the average total cost (ATC) in quantity (Q). However, if the average total cost at quantity exceeds the market price, means the organization incur a negative profit or loss. Profit is the total revenue minus with total cost. Total revenue defined as the total income a firm receives, which is the market price (P) multiply quantity of product (Q). Total cost as the total expense incurred of an organization to produce product. Total cost (TC) equal to average total cost (ATC) of production multiply quantity of product (Q). Calculation for profit is the total revenue (TR) minus total cost (TC).
TR = P x Q
TC = ATC x Q (determine ATC by TC / Q)
Profit = (P x Q) – (ATC x Q)
The organization earning the profit when their incomes are higher than the cost of input they spend. Their incomes included the total amount for their products’ market price called output. On the others hand, total cost is the cost of their input they have spent. For instance, Boston Time Square Sdn. Bhd. product’s market price is RM 50.00 per each, and they sold out 6000 pcs. The cost they used to produce the output is RM 27.00 per each. Their total revenue is RM 300,000.00 per year and the total cost is RM 162,000.00 per year. Thus their profit is RM 138,000.00
As the figures shown, the revenue is higher than the cost they spent, and the expression is positive, which means the organization is earning profits. However, when their cost is higher than the revenue they earn, which means they are experiences loss of profit. Because of the excess revenue of an organization is more than the cost they have spent, hence the organization is earning the profit.
Explicit cost is called actual cost which the cost is incur and the firm or organization is making the physical payments, and all the money expenses in explicit cost is recorded in the books of accounts for practical purposes (Explicit Cost, n.d.). The items of explicit costs for Peter to compute are cost of fuel per month and maintenance per month.
Explicit Cost = cost of fuel (RM 8,000.00) + maintenance fee (RM 5,000.00)
= RM 13,000.00
Question 2 (ii)
Implicit costs are the costs which are not initially shown in the account book and it is the opportunity cost which owned by the firm or used in the business operation (Averkamp, n.d.). The items included in implicit costs for Peter to compute are estimated depreciation, rental may earn and salary may earn when working for competing construction companies.
Implicit Cost= estimated depreciation (RM 10,000.00) + rental may earn (RM 15,000.00) + Salary may earn (RM 5,000.00)
Implicit Cost = RM 30,000.00
Question 2 (iii)
Economic costs are the costs which is the applicable for internal accounting reports (Marquis, n.d.). Economic costs are the addition of explicit costs and implicit costs.
Economic costs = Explicit costs (RM 13,000.00) + Implicit Cost (RM 30.000.00)
= RM 43,000.00
Question 2 (iv)
Economic profit can be both positive and negative. The formula for economic profit can be calculated, total revenue minus total costs.
Economic profit = Total revenue – (Explicit Costs + Implicit Costs)
= RM 35,000.00 – (RM 43,000.00)
= RM – 8,000.00
The negative number of economic profit is shown that the operation did not make enough profit to cover the cost of doing business. Peters’ construction company did not make enough profit to cover all expenses or opportunity costs. Thus, Peter should not continue his business. He should working for the other construction companies, with earning salary RM 5,000.00 per month. I am suggested Peter to work with the competing construction companies and lend his capital and close his firm as the economic profit is negative and less than zero.
Gasoline produced during the refining process of the crude oil (Cathey, 2014). Basically, retail gasoline prices are mainly affected by crude oil prices as well as the level of gasoline supply and demand (Gasoline Price Fluctuations, n.d.). Crude oil prices determined by the worldwide supply and demand, when the markets that caused spikes in crude oil prices, it is the major factor affected in gasoline prices (Gasoline Price Fluctuations, n.d.). Moreover, crude oil shortages will cause the gasoline price increase rapidly (Gasoline Price Fluctuations, n.d.). Furthermore, the retail gasoline prices can change rapidly if supply of crude oil disrupts or problem occur during the refining process or with disruption of delivery pipelines (Gasoline Price Fluctuations, n.d.). One of the factor world crude oil prices increases is due to the worldwide oil demand relative to supply (Gasoline Price Fluctuations, n.d.). Other factors contribute in increasing of crude oil, such as political events or conflicts in major oil producing regions. In additional, when strong increasing demand for gasoline in the United States, it will place intense pressure to the rest of the world due to the available supplies (Gasoline Price Fluctuations, n.d.). Further, the developing country such as China’s increasing number of factories and number of people driving number. It also may cause high demand of gasoline. Thus, the price variation in crude oil is the general factors affect price of gasoline fluctuates.
Question 3 (ii)
One of the factor affect price petrol in Malaysia is the production of crude oil. Organization of Petroleum Exporting Countries (OPEC) reduce the amount of oil supply to the worldwide market and manipulate the selling price, it may cause the uncertainty of supply (Impact on The Retail Fuel Price in Malaysia, 2016). With the uncertainty supply, the rising demand cause increase in the price of crude oil, and as the cost for purchasing the crude oil price also increase (Impact on The Retail Fuel Price in Malaysia, 2016). Thus, the Malaysia government increases the retail fuel price or the gasoline price. Figures as below shown petrol price for Oct 19 in Ron95 is RM2.19, however due to the increase in world petrol price, thus in Oct 26, the price increase RM 0.01, which is RM 2.20 for Ron95. Following figure is shown the oil world price within the period from 19 Oct 2017 to 26 Oct 2017, closing price from 57.23 USD increase to 59.30 USD (Market Insider, n.d.). Overall shown, due to the increase world price of crude oil, will also affect the fluctuation in Malaysia petrol price.
Moreover, foreign exchange rate is also known as one of the factors affect price of gasoline fluctuations. The world crude oil price is set in US Dollars and the conversion of world oil price into Ringgit Malaysia changes every day in exchange rate market (Impact on The Retail Fuel Price in Malaysia, 2016). Due to the depreciation in Malaysia’s ringgit, hence, Malaysia pays more to purchase the same amount of fuel (Impact on The Retail Fuel Price in Malaysia, 2016). As increased cost of purchasing crude oil increases, cost increase in price of petrol. Malaysia government monitor the exchange rate before determine the retail price of fuel, thus the retail fuel price often fluctuates (Impact on The Retail Fuel Price in Malaysia, 2016).
Additional, subsidy of the government provided for fuel such as Ron95 and diesel also one of the factors affects the increasing in price of gasoline fuel. In year of 2013, Government has subsidies MYR 24.8 billion (Impact on The Retail Fuel Price in Malaysia, 2016). After the absence of subsidy, it causes retail fuel increase in Malaysia.
Question a (i)
Dependent variable is the quantity of demand. However, the independent variables are prices of the goods, income of the consumer and advertising. Dependent variable is value which depends on the independent variables.
Question a (ii)
Linear regression equation is Y = a + bX. Whereas the X is the independent variable and Y is the dependent variable. The slope of the line is b, and a is the intercept (the value of y when x=0).
SUMMARY OUTPUT Regression Statistics Multiple R 0.986332534 R Square 0.972851868 Adjusted R Square 0.959277801 Standard Error 6.987230599 Observations 10 ANOVA dfSS MS F Significance F Regression 3 10497.07165 3499.0239 71.669893 4.332E-05 Residual 6 292.9283486 48.821391 Total 9 10790 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0% Intercept 205.8623651 19.35443588 10.636444 4.07E-05 158.50377 253.22096 158.50377 253.22096 Price (x) -12.24176622 1.407116137 -8.6998975 0.0001274 -15.684855 -8.7986771 -15.684855 -8.7986771 Income 1.41400836 0.422247717 3.348765 0.015443 0.3808054 2.4472113 0.3808054 2.4472113 Advertising -3.344347666 1.798328298 -1.8596981 0.1122707 -7.7446985 1.0560032 -7.7446985 1.0560032 Q = f ( Price, Income, Advertising) Q = 205.86 – 12.24 * Price + 1.41 * Income – 3.34 * Advertising Question a (iii)
R-squared (R2) is the test to determine the “goodness-of-fit” of the estimated demand function. R2 is to measures the strength of relationship between the dependent variable and independent variables, and the scale is between 0% – 100 % (Frost, 2017). Regression model will fit the data well when differences between observation and predicted values are small and unbiased (Frost, 2017). R-squared evaluates the scatter of the data points around the fitted regression line, when higher R-squared values represent smaller differences between the observed data and the fitted values (Frost, 2017).
As you can see as above, the regression output for the R-squared (R2) show 0.972, which means 97.2%. Thus, there are smaller differences between the observed data and the fitted value, and the R-squared value is high. All the data points close fall on the fitted regression line. There is lower in the unexpected or unpredictable variability in this model.
In the result shown that, p-value for prices is 0.00 and income is 0.01, which is smaller than 0.05, hence, the predictor variables of prices and income are significant. However, the p-value for advertising is 0.11, greater than 0.05, which indicates there is not statistically significant which it may affect the dependent variable.
Question a (iv)
The economic impact on the coefficient will affect the market demand on the products. In term of products’ prices, the coefficient with -12.24. The product price and the demand relationship is negative which means prices may affect the quantity of the customer demand. When the products’ price is higher, customer demand for the products will be low and may switch to the substitute or similar products, which is much cheaper. Reversal, when the price is lower, demand of the products will be increase compare to the substitute products. Increasing in 1 % of prices, it may also decrease the quantity of demand in 12.24 %
Further, income of the people also will impact on the customer and their coefficient is 1.14, which is positive relationship between quantity and income. Increasing in Income of the customer, they are more likely to purchase products with high prices and high quality compare to the lower prices products. However, when they are low in income, they are more likely to purchase affordable prices products or the other substitute products. Hence, income of the people is affects the demand of the products. 1 % of increase in consumers’ income, will direct 1.14% increasing in quantity of demand
Last but not least, the numbers of the advertising will also affect the demand of the products in market. The coefficient for quantity and demand is -3.34, which their relationship is negative. Thus we are assuming that increase in frequency advertising, but it may not affect the increase in demand of the products’ quantity. It’s means that, increasing in advertising in 1 %, may not affect the increase in quantity of demand, but will decrease in 3.34%
Question a (v)
Price elasticity of demand (Ep) measures the sensitivity of the quantity demanded to the change in the price. In other words, how much change in price will affect the quantity of demanded.
Ep = (% Change Q) / (%Change P)
Ep = ((Change in Q)/ (Q1)) / ((Change in P)/ (P1))
Ep = ((Q2-Q1) / (Q2+Q1)) / ((P2- P1) / (P1 + P2))
In period 9, the initial quantity is Q1 = 160, and the price P1 is 5.00. In period 10, the quantity demand, Q2 = 200, and the price P2 = 2.00.
Thus, the equation of price elasticity of demand is,
Ep = ((200-160) / (200+160)) / ((2.00 – 5.00) / (2.00+5.00))
Ep = (40 / 360) / (-3.00 / 7.00)
Ep = (0.11) / (-0.43)
Ep = -0.26
The price elasticity of demand is less than 1, Ep ; 1, which indicate that it is fairly inelastic. In general, the changes in price have a relatively small effect on the quantity of the goods demanded. The result shown that, if the price increase by 1%, the quantity demand will decrease by 0.26%. Thus, the consumer is not too responsive towards the price changes.
However, Income elasticity of demand (Ei) is the ratio of percentage change in quantity demanded of a product to percentage change in the income level of the consumer. In other word, this is to measure the responsiveness of the quantity demand (Q) to the changes in consumer’s income (I).
Ei = (% Change in Q) / (%Change I)
Ei = ((Change in Q)/ (Q1)) / ((Change in I)/ (I1))
Ei = ((Q2-Q1) / (Q2+Q1)) / ((I2- I1) / (I1 + I2))
In period 9, the initial quantity is Q1 = 160, and the income I1 is 30. In period 10, the quantity demand, Q2 = 200, and the income of consumer, I2 = 35. Thus
Ei = ((200-160) / (200+160)) / ((35 – 30) / (35+30))
Ei = (40 / 360) / (5 / 65)
Ei = (0.11) / (0.08)
Ei = 1.38
The income elasticity of demand in positive, and it is normal goods or called superior goods. Normal goods, as income increases, the good’s demand increases, however when the income decrease, the product demand is also decrease. Normal goods have a direct relationship between income and demand. The income elasticity of demand is greater than 1, means it is a luxury good or a superior good for the consumer. Therefore, the increasing of consumer’s income, the demand of the product will increase.
Question b (i)
Nonlinear regression is a form of regression analysis in which observational data are depends on one or more independent variables and are not linear in parameters (Nonlinear Regression, n.d.). The equation of the non-linear parameter estimation, y = a+b / x + c In (x). x is the independent variable and y is dependent variables. The regression model also can be written as Y = a + b1X1 + b2X2 + b3X3. Y is quantity of the product, X1 is the price of the product, X2 is the consumer’s income, and X3 is the advertising. However, the coefficients a, b1, b2, b3 are the parameters to be estimated.
LN (price) LN (Income) LN (Advertising) 2.079441542 2.302585093 1.098612289 1.386294361 3.091042453 1.945910149 1.945910149 2.995732274 1.609437912 1.098612289 2.995732274 2.079441542 1.386294361 3.401197382 2.079441542 2.302585093 2.944438979 1.791759469 1.386294361 2.890371758 2.32238772 0.470003629 3.218875825 2.2300144 1.609437912 3.401197382 2.079441542 0.693147181 3.555348061 2.251291799 SUMMARY OUTPUT Regression Statistics Multiple R 0.9481669 R Square 0.8990205 Adjusted R Square 0.8485308 Standard Error 13.475709 Observations 10 ANOVA dfSS MS F Significance F Regression 3 9700.4315 3233.4772 17.806006 0.0021653 Residual 6 1089.5685 181.59474 Total 9 10790 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0% Intercept 167.47293 58.877907 2.8444104 0.0293963 23.403884 311.54198 23.403884 311.54198 Ln (price) -52.346321 11.160907 -4.6901494 0.0033603 -79.656077 -25.036566 -79.656077 -25.036566 Ln (Income) 32.106552 19.706507 1.6292361 0.1543858 -16.113534 80.326638 -16.113534 80.326638 Ln (advertising) -19.084301 22.31736 -0.8551326 0.4253013 -73.692915 35.524312 -73.692915 35.524312 Question b (ii)
The non-linear regression of the output for R2 is showing 0.899, which means it is 89.90%, there are smaller differences, and it is lower in unexpected or unpredictable variability. Which means that, knowing independent variable is assist us to calculate the dependent variable. Moreover, the logarithmic form to measure or predict the continuous variable. In the result shown that the continuous increase in prices will decrease the demand in quantity. For the income, the continuous increasing consumer income will also increase the quantity of demand. Further, continuously increasing the advertising, it also will not increase the quantity of demand. The standard error regression is 13.48% which means it is high confidence interval of estimate to determine the correlation between variables. Thus, the demand function is good, because the result shown that it is parallel with the linear regression model. It is forecasting the demand function.
Question b (iii)
Compare to the linear form and non –linear, as we can see linear form showing R2,, 97.2% is highly show that very small differences of the unpredictability variable and almost fit with the regression. However, with the natural logarithms, it is showing it is actually only 89% only. Thus it is still have some unpredictable variable which may affect the quantity of demand. Moreover, the prediction is same as the linear form, which is the relationship between the prices and quantity of demand is negative. However, the relationship between income and quantity is positive. On the other hand, the relationship between advertising and dependent variable (quantity) is negative. In the result of linear regression, the standard error is very small, which is 6.98%, which means it is very high confidence interval to estimate the relationship of independent and dependent. However, the standard error for nonlinear regression is 13.48%, which means over some period of time, the error will be increasing to estimate the correlation of the variable.
Question 1 (a)
Accounting profit is the company total earnings, which included the explicit costs of doing business and without taking account in implicit cost. Accounting profit is the total revenue minus explicit cost which taking in the account.
Accounting profit = Total Revenue – Explicit Cost
Accounting profit = RM 120,000.00 per annum – (rental + 2 worker wages + equipment expenses)
Accounting profit = RM 120,000.00 – ((RM 600*12) + (RM 700*2*12) + (RM 40,000.00))
Accounting profit = RM 120,000.00 – ((RM 7,200) + (RM 16,800.00) + (RM 40,000.00))
Accounting profit = RM 120,000.00 – (RM 64,000.00)
Accounting profit = RM 56,000.00 per annum
Thus Mustafa’s accounting profits is RM 56,000.00 per annum.
Question 1 (b)
Economic profit is the difference between the total revenue of the company and the explicit and implicit costs of a company. Compare to accounting profit, the economic profit is taking account the money they have spent and also the opportunity cost they will gain or used. The equation of economic profit is,
Economic profit = Total Revenue – (Explicit cost + Implicit Cost)
Explicit Cost = RM 64,000.00 (included rental, worker wages, equipment expenses)
Implicit Cost = Salary from private company (per annum) + 10% per annum rate of returns in savings
Implicit Cost = RM 15,000.00 + (RM 50,000 x 10%)
Implicit Cost = RM 15,000.00 + RM 5,000.00
Implicit Cost = RM 20,000.00
Economic Profit = RM 120,000.00 – (RM 64,000.00 + RM 20,000.00)
Economic Profit = RM 120,000.00 – RM 84,000.00
Economic Profit = RM 36,000.00 per annum
Thus, Mustafa’s economic profit is RM 36,000.00 per annum.
Question 2 (a)
Total Revenue (TR) equal to price (P) multiply with quantity (Q)
TR = P x Q
P x Q = TR
Thus, Q = TR / P.
Question 2 (b)
MR (Marginal Revenue) = Change in total revenue (dTR) / Change in Quantity (dQ)
Inversed demand function, P = F-1 (Q)
Q = 120,000 – 10,000P
10,000P = 120,000 – Q
P = (120,000 / 10,000) – (Q/10,000)
P = 12 – 0.0001Q
Total Revenue = P x Q, Thus TR = (12 – 0.001Q) Q
TR = 12Q – 0.001 Q2
MR = dTR / dQ = 12 – 0.002Q
Thus MR = 12 – 0.002q
Question 2 (c)
Total Cost (TC) = Fixed Cost (FC) + (Variable Cost (VC)*Quantity (Q))
TC = FC + (VC*Q)
(VC*Q)+ FC = TC
VC*Q = TC – FC
Thus, Q = (TC – FC) / VC.
Question 2 (d)
Total cost function TC = mq + b
m = variable cost = $ 1.50 per unit, b = fixed cost = $ 12,000
Thus, the total cost function is TC = 1.50q + 12000
Marginal cost is the derivate of cost
TC = 12000 + 1.50q
MC = dTC / dQ
MC = 1.5
Thus Marginal Cost function is 1.5
Question 2 (e)
Total profit (?) equal to the total revenue (TR) minus total cost (TC)
? = TR – TC
? = (P x Q) – TC
? + TC = P x Q
P x Q = ? + TC
Q = (? + TC) / P
Thus, equation for total profit is Q = (? + TC) / P
MR = 12 – 0.002q
MC = 1.5
MR = MC
12 – 0.002q = 1.5
1.5 = 12 – 0.002q
1.5 + 0.002q = 12
0.002q = 12 -1.5
q = 10.50 / 0.002
q = 5250
Substituting 5,250 for q in the demand equation
Q = 120,000 – 10,000P
5,250 = 120,000 – 10, 000P
5,250 + 10,000P = 120,000
10,000P = 120,000 – 5,250
P = 114,750 / 10,000
P = 11.475
Thus, the profit maximizing quantity is 5,250 units and the price is $ 11.48 per unit.
? = TR – TC
TC = 12000 + 1.50q
? = (P x Q) – (12000 + 1.50q)
? = (11.48 x 5,250) – (12 000 + (1.50 x 5,250))
? = 60,270 – (12000 + 7875)
? = 60,270 – 19,875
? = $ 40,395
Thus, the total profit at this output level is $ 40,395
Micheal Porter’s 5 forces of competition model is the tools to understanding the competitiveness of your business environment. Understanding of the forces around your environment can drives the competitive and profitability of the company. According to Porter, others fleeting factors, such as industry growth rates, government interventions and technological innovations may confuse the industry, however it is only the temporary factors which affect the profitable of the company (Porter’s Five Forces, n.d.). These five forces are the key to increase the competitive pressure within the industry (Porter’s Five, Forces, n.d.). With well managing the five forces, it is able an organization sustain and profitability. It is emphasize on analysis of the organization environment instead the internal factors (Five forces, n.d.).
The Porter’s five forces are included, threat of new entry, competitive rivalry, buyer power, supplier power and threat of substitution. Firstly, the threat of new entry, is emphasize on your position is affected by people ability to enter your market. It is describe on time, cost and level of barriers to entry the market. It is depend on the specialist knowledge and little protection for your key technology is required in your position. Moreover, how much would it cost and how tightly is your sector regulated. When it is low barriers and low in technologies protection, the rivals can easily and quickly enter your market and weaken your position. For instance, when an industry threat to new entry is high, the industry is making sustained profit. However, when new competitors easily to come in, it will drive your prices down and reduce the profits of the organization. If new entry only request short period of time and low capital entry the market, it is easily to affect your market position profitability.
Competitive rivalry is emphasizing on the number of the competitors in the industry, other differences with the other competitors and the quality differences of the output or the services. We should understand the strength and the weaknesses of the competitor. Intense of competitive rival, it may cause aggressive price cuts to attract customer. Thus, it also affects our company profit. Additional, a lot of rivals also affect the buyers and supplier switch to others when not getting good deal from you.
Buyer Power is to explain how buyers control on your product price, the size of your buyers and their demand level. We should understand how much cost them will switch them to the rival. For instance if you deal with few buyer, they have more power to control or drive your prices down, however, if you have many customer, your power to control on the price is increase.
Supplier power is emphasize on how easy your supplier control the prices, and any other potential supplier for you. How unique the product and service that they have provide. The more suppliers you can choose, it is easier to switch for cheaper alternative, but when it is fewer supplier, the stronger ability to increase the price, thus is can impact on the profit or cost of the product.
19858071161415Threat of New Entry
00Threat of New Entry
Lastly, threat of substitution describe on how easily the buyer find another substation on your product. A substitution is easily and cheap, it may weaken your position on the market. If your product is uniqueness, you have more control on the prices and it will increase organization profit.
200596594453Threat of Substitution
0Threat of Substitution
Question 2 (a)
To find maximize profits of the organizations of Alchem , MR L = MCL
Total Revenue = P x QL
QL = QT – QF. To find the QT
P = 10,000 – 10 QT
10QT = 10,000 – P
QT = 1000 – 0.1P
However to find the QF, Due to the Alchem has established the fixed price to the follower and allows other sell as much as possible, thus the demand function is horizontal.
ATR = MR
ATR = TR / Q
ATR = PQ / Q
ATR = P
Thus, MR = P
MRF = ?MCF. So P = 50 + 2 QF
2 QF = P – 50
QF = 0.5P – 25
QL = QT – QF
QL = (1000 – 0.1P) – (0.5P – 25)
QL = 1000 – 0.1P -0.5P + 25
QL = 1025 – 0.6P
To obtain P for alchem,
QL = 1025 – 0.6P
0.6 P = 1025 – QL
P = 1708.33 – 1.67 QL
To find the maximize profit:
TR = P x Q
TR = (1708.33 – 1.67 QL) QL
TR = 1708.33 QL – 1.67 QL2
MRL = dTR / dQL = 1708.33 – 3.34 QL
MR = MC
1708.33 – 3.34 QL = 100 + 3 QL
1708.33 – 100 = 3 QL + 3.34 QL
6.34 QL = 1608.33
QL = 253.68
The optimal output for Alchem is 253.68 units, and substituting in P = 1708.33 – 1.67 QL
P = 1708.33 – 1.67 (253.68)
P = 1708.33 – 423.65
P = $ 1284.68
The optimal selling price is $ 1284.68
Question 2 (b)
Since the price is fixed for the market, thus substituting $ 1284.68 into equation
QF = 0.5P – 25
QF = 0.5 (1284.68) – 25
QF = 642.34 – 25
QF = 617.34 units
The optimal output for the follower is 617.34 units.
Question 3 (i)
Kinked-demand theory of oligopoly is illustrates the high degree of the interdependence which existing in the oligopoly. The assumptions of Kinked Demand model are, firstly, there are only few firms in an oligopolistic market. There is not only one firm but limit number of the firm existing. There is no limit for the quantities. However, it is only few firms. In additional, in oligopolistic market, they are producing close-substitute products. Moreover, normally the firms do not spend on advertising. Prices of the products have been determined and prices rigidity or stability which the others firm wouldn’t simply changes the prices. Basically, if the prices reduce, the rival will follow it, and yet when the increases in prices, the rival will maintain and keep the prices unchanged.
Question 3 (ii)
The Kinked demand curve implies the oligopolistic market is characterized by price rigidity or stability. Price rigidity is explained the oligopolistic market behavior, which once the sellers find the equilibrium price, and they will maintain it, no one wants to change it. The markets will interdependence on their rivals to observe their competitor price. For instance, if one is going to increase the price then the others will grab the market share without doing the same. However, when one is going cut down the price, everyone will follow the trend to decrease their product prices as well. The rivals unlikely to match with price increase but rivals likely to compete with others when decreasing in price. Even if costs change, but market price still stable and rigid in an oligopoly. Thus, in oligopoly prices become rigid and nobody want to change it.
Motorola’s iridium, a go-anywhere mobile phone system is the world’s first portable telephone calls and pages, it is the low-earth orbiting satellite system which promises consumer capability to make the phone call and able to receive messages in most places in the world (Space Daily, 1998). Iridium is the beginning of the totally new innovation. It was the first audio transmissions from the astronauts and enable customer to receive a call and page or messages anywhere with existing cellular technologies or satellite. The special feature of this iridium system is designed for the traveling professionals and industrial user. Motorola iridium known as “global phone” which the first portable phone and provide something no other phone in the world has ever done. It’s provides unprecedented level of freedom to receive the communication/messages from others. Unlikely that any messages missed, it has an indicator will notify the user missed incoming messages and retrieval later. Thus Motorola iridium product was provided extraordinary flexible to ensure worldwide communication and it was the first portable mobile phone during that time.
In the early of 1990s, the emergence of 2G networks which provide more efficient in allowing for better cell phone service. However, in the year of late 1990s, the major improvement for cell phones which able to access to the mobile web. One of the challenges in managerial is innovation technology. Nokia has advanced their technology, and innovated first cell phone with able to check email and access the internet to compete with the rivals. Nokia introduce the world’s first media phone that based on the wireless application protocol (WAP) (Phones-Then and Now, n.d.). It enable to access internet content in the mobile phone easily. Nokia displayed their outstanding from the others by innovate and introduce the products which is unique from others. Web-enabled phones are shifting the personal communications from listening to viewing. The demand of internet service is rapidly growing. It also innovate the first downloadable media such as ringtones on the cell phones, video games and news.
In the late of 1990s, Nokia was continuously come out the products with more creative and innovative to compete in the market with the rivals. Nokia was launched mobile phones with variety of colors of features to give the customer to choose from. The next year, 1999, Nokia was launched a cool color features mobile phone, better graphics and much smaller in size. However, in year of 2000, Motorola to compete in the market, once again they have innovated something new, which is the world’s first touchscreen phone. Although, it is not advanced as technology today, but at that time, this feature was lead huge craze and the introduction of a promising technology. Motorola touchscreen phone was simple black and white touchscreen. Withstanding, Motorola has proactive to compete with the rivals. However, the next year, Nokia innovated the world’s first monochromatic display cell phone, which contains single color display but not grey background anymore. Thus this design has made this phone become great choice for public to purchase. Thus, Motorola always trying something new, however, they technology innovation is not competitive and advanced compare to Nokia.
Nowadays, iPhone is the trendy and fashionable mobile phone for the generation. With the extraordinary features, independent iPhone apple apps store software provider. To compete with iPhone and Samsung market, I have suggested Nokia to be uniqueness and more advanced than others. Nokia to show the outstanding from the rivals, they must create their own engine to support their own application. Basically, most of the phones are cooperate with Androids market. Therefore, Nokia with own apps market to support their own apps and they monopoly the market like what iPhone have done. They are the only one providing this technology and application. Moreover, nowadays, mobile phone is not only known as a communication tools but also as fashionable accessories. Thus, I strongly suggested Nokia, not only create useful items but a fashion features mobile phone. Nokia can promote their products with innovate the high capacity of battery life and portable. Further, Nokia should innovate some technology or apps which provide a very convenience and unique to attract the consumer. Overall, to attract consumer and compete with the rivals, new and unique technology is the must and important keys to success.