Assignment Sample on Economics of Managerial Decision Making

Task 1

1.0 Introduction

The supermarket industry in the UK has changed the behaviors, preferences, and habits of the consumers as well as of the industry as the days are changed and becomes faster and smarter. It is found that, in a particular period, the frequency of shopping has fallen with the growth of basket size. The shopping format has been changed to meet the demand of big-basket. As a result of the supermarkets in the UK in the last 3 years, it has been seen that the supermarkets have any guest in an uptick in sales in the UK. in recent years, UK supermarket has gained the strongest growth of 4.3 %. The growth of the grocery market in the UK supermarket is 7.6%. It represents that grocery stores of large-format have again faced the loss of sharing of “all grocery sales,” and for the first time, it has fallen under half (47.5%) for the very first time. The trend of market share of the supermarket company like Tesco is engaging with 27% in April 2021. in the last year, it was 26.8 percent, and in 2019, the share of grocery stores like Tesco was 27.3%. There are other supermarket companies like Sainsbury’s, Asda, Morrisons, etc. also hold the trend of good sharing value.

2.0 Structure of UK Supermarket

2.1 Identification of the companies and market share

There are several organizations and companies that are engaged in supermarkets in the UK. Tesco is considered the best supermarket retail company with its best performance. Besides this company, there are Sainsbury’s, Morrisons, Asda, Aldi, Iceland, Lidi, etc. the highest market share is Tesco with 27% as of April 2021 (Behúnová, et al., 2017). Sainsbury’s and Asda hold around 15%; Whereas Morrisons is engaged with 10% and Aldi with 8%. The share value of Waitrose is 5%, and the others like Iceland, Ocado, etc., are near 3%.

2.2 Market structure for operating UK supermarket

Several market structures are found in the different industries in the UK market. Market structure can be monopolistic, or oligopolistic, or monopolistic competition. But it is found that the supermarket industry in the UK is oligopolistic. That means the market structure is operated by an oligopoly (Schilbach, et al., 2019).  Here independent firms and a few large firms dominate the market. In this structure, all the firms are affected by output and the set pricing of the other firm. It is the reason for the rigidness of pricing in the supermarkets of the UK. There are high barriers to entry into the market. There is no existence of non-pricing competition, though (Ionescu, 2019). There are loyalty cards, online ordering, home delivery, guarantees, etc., as the facilities of the oligopolistic structure of supermarkets in the UK.

2.3 Compare and contrast the market structures

The market structure of oligopoly is different from the market structure of “perfect competition”, “monopoly”, and “monopolistic competition”.

“Oligopoly”: the market of “oligopoly” engages with a small number of big companies that sell identical or differentiated products or services. The dependency of competitive strategy on each other is there as there are a small number of players in the UK market. If any player decides to reduce the product’s price, other players can reduce the same (Papatheodorou, and Pappas,  2017). As a result, the players have to do strategic planning. There can be mutual competition in this structure. The market sharing by leading to supernormal profit, restricting production, etc., can be through an agreement among the players.

“Monopoly”: Here, a single company can represent the entire industry. In this structure, there is no competition, and it is the only seller of the particular products. Some factors are engaged in the structure like sole ownership of resources, high cost for initial set up,  ‘licenses issued by the government’, copyright and patent, etc. there are barriers for other companies to enter this market.

“Perfect competition”: this kind of market structure occurs when there are many small companies that compete with each other (Fosso Wamba et al., 2017). Homogeneous conditions are there as similar products are sold by them. These companies are free to make an entry or exit from the market. There is a lack of pricing influence for the commodities.

“Monopolistic competition”: it is a market with imperfect competition with the engagement of traits of a competitive and monopoly market. Here the sellers can consider the price charged by the competitors (Sarno, et al., 2018). The sellers can ignore the actual price on the competition and its impact. In this structure, demand can be high, and its marginal costs correspond with the company’s marginal revenue.

2.4 Major barriers for entry into the UK Supermarket

There are several kinds of barriers to entry the supermarkets in the UK. these are mentioned below:

• Effects of networks
• Controlling or ownership of the scarce key barriers
• “High set-up cost”
• High cost for research and development
• Competition of innovation
• Limit in pricing
• Costs of switching
• Predatory acquisition
• Sunk cost in advertising

3.0 Performance of firm

3.1 Impact of Covid 19 on UK grocery retailing performance

Due to the lockdown imposed by the United Kingdom, the civilians could only step outside of their home if there was an emergency or they had to buy essential things like food and medicine supplies. The economy of the United Kingdom slumped by almost 9% in the financial year 2020 due to the lockdown. All the shops were closed, the market fair closed, school colleges everything came to a standstill, only the shop which sold essential items such as grocery store, the medicinal shop was open and running its functions and operation  (Pavluchenko, et al., 2020). Food retailers and cross theory are important for people to survive. Most grocery stores updated their functions and operations by adopting digital technology, which transformed the way grocery stores connected with the customers. Grocery stores realigned their supply change and analyzed the parts of the work which wear essential to connect with the customers. As the customers were not able to run errands, the grocery stores started taking orders through phone and online media and started delivering the orders. Grocery stores were able to adjust their functions according to the needs of customers and used methods to deal with the shortage of labor.

3.2 Recommendations

Economic theories and models help an organisation to identify the relationship between variables, their interaction with one another. These economic models and theories are applied to various sectors and industries to identify the variables which can help them to achieve their targets by ensuring revenue and profitability in the organization. Supermarkets and grocery stores Like Tesco also use economic theories to maintain their performance despite certain conditions in the economy like inflation, unemployment, low capital, and other factors that may affect the business of supermarkets in a negative way. Analysis of economic theories a firm can focus on the aspects by applying strategies to increase profit and minimize operational cost.

Financial strategy is very needed for the development of the companies in supermarket industries like Tesco. There is no doubt that his company is the largest retail or grocery supermarket firm in the UK. Yet the strategies of financial aspects have to be concerned as the competition in the globalized business market is growing and there is a threat of this competition to the company. It is a recommendation that the company can engage more financial experts to develop the financial aspects of the company.

In the situation of a pandemic due to covid-19, the grocery market can perform its business in a solid manner. For this result, the strategy must have to be implemented in the company’s policy. Strategy is needed in the pricing of the products. As a supermarket grocery retail company, Tesco needs a proper pricing strategy. It is found that the company is in a good position, but it must be alert about the pricing of the product. The pricing of the product has to be set by analyzing the market pricing so that the consumers’ attraction can be gained in a significant way. For the pricing of the product, the company should analyze the targeted audience or the areas of the business. There must be an updated pricing strategy with the involvement of experts to execute the planning. In this way, the company can be developed with its pricing strategy.

Companies like Tesco, Asda, etc., have to be concerned about the cost minimization strategy for the super performance in the critical situation too. It is a recommendation for the companies that they should target where the cost can be reduced. For cost minimization, the firms have to avoid duplication and eliminate waste. The processes and procedures must be simple. There has to be the outsourcing of non-core activities like payroll administration, ‘call handling’, transfer processing, etc. there must be a negotiation of better pricing with suppliers. Besides this, grocery retail companies like Tesco have to improve the power of proper communication. The unnecessary communication should not be there. With the proper way of recruitment and training, the cost of the company can be reduced. There can be e flexible working practice, and indirectly it can reduce the cost.

Supermarket companies have to raise strategies for profit maximization. It can be done with proper decision-making and planning. The business company must focus on the crucial situation, and they have to produce more according to the situation. It can help the company like Tesco with bringing more profitable matters.

4.0 Conclusion

The assessment is based on the supermarket industries in the UK. There are several factors that are engaged in the industry, and those factors have impacted it in a significant way. It is found that disco in the supermarket industry is not affected too much with the impact of the covid-19 pandemic. The other companies of the industry also face the same result as the supermarket or grocery industry is the essential services for the pandemic. It can be assumed that there can be growth in the supermarket industry in the future days. It is because the strategy of the industry and its companies has been changed according to the customers’ behavior and demand. In the future, the strategy can make financial development, and the industry can be profitable with its financial strategies. All the companies in the industry are focused on maintaining sustainability and corporate social responsibility, and that is very much important for the industry in the future. The chance of decline of the supermarket industry is very low as there are several kinds of facilities that are provided to the customers and the customers cannot be unsatisfied with their facilities. Overall the future growth is there the companies of supermarket industries in the UK.

Task 2

Question 1

Demand and supply analysis on price fluctuations in March and April 2020

During the novel coronavirus or Covid-19 pandemic, the prices of articles were increased by a considerable rate. The price of essential products such as hand sanitizer, mask, and other essential products was suddenly changed due to fewer products available in the market, and the demand for the product was increasing, causing high charges for the products. In economics, “supply and demand analysis” is used to study the relationship between the “quantity of a product” that the producer desires for selling at different price rates and the product’s quantity that the customers want to purchase. When the product’s price is low, consumers buy the product, but when the price of the product is increased, the consumers look for substitute products. However, during March and April of 2020, it was observed that due to the pandemic, there was a great demand for hand sanitizers in the market (Vysochyna et al., 2018). As the demand increases, the price of the product increases. Due to the increase in demand for hand sanitizer, many e-commerce websites and retailers hike the prices of the products by almost 50%. In the United Kingdom, the price of a hand gel costing 3.49pound sterling was sold at 109.99 pounds sterling on a famous e-commerce company’s website. The sudden increase in the price of hand sanitizer was due to increased demand as people begin to stockpile the sanitizer for future use (Ersozlu et al., 2017).  due to stockpiling of hand sanitizer, the availability of the product became low in the market-leading to high cost.

“Demand and supply” analysis of a product can help the manager to predict the quantity of product that the organization must obtain to generate profit. The analysis also helps the managers to avoid stockpiling of products to avoid loss (Svetlana, et al., 2018).  The availability of the product in the inventory must be enough to satisfy the demand in the market.

Question 2

“Price elasticity of demand” and factors affecting it.

“Price elasticity of demand” is used for measuring the rate of consumption’s change of a commodity with respect to the change in the commodity’s price. The mathematical expression for “price elasticity of demand” is

Where, ‘e (p)’= ‘price elasticity’

‘Q’ = ’quantity of the product’

‘P’= ‘Price of the product’.

According to the outcome of price elasticity, there are five different cases. When price elasticity is perfectly inelastic, then the quantity e of the product remains the same. In the second case, the price elasticity is inelastic in nature; in this case, the price of commodity changes more quickly than the demand.  III case is unitary elastic; in this case, the pricing change of the products is equal to the quantity’s change for the product (Yumashev, et al., 2018). When price elasticity is elastic in nature, the quantity of commodity changes quickly, and then changes in the product prices. In the fifth and last case, the price elasticity is “perfectly elastic” in nature. In this case, there is no change in the price of the product (Wait,  et al., 2018). The demand law states that the price of a commodity is inversely proportional to the demand of the commodity when all other factors are constant. There are many factors which affect the “price elasticity of demand” of a product. When the price of an essential product increases, the consumer buys the product regardless of the change in price; for example, if a person travels through Subway and if the price of the tickets increases, the person has no option but to continue using the rail services regardless of the high cost of the ticket (Kubala, et al., 2019). In the case of luxury items such as diamonds and luxury cars, it is seen that the price of these status symbol goods increases, and the demand for the product also increases. In the case of inessential products such as soft drinks, if the price of the product increases by a significant rate, people will stop using the product and look for substitute products.

In “managerial decision making”, price elasticity of demand is applied practically to consider the rate of the product, which will increase its demand to an extent and the effect of the decision on revenue and profitability of the organization.

Question 3

The table below gives information about total revenue and costs. From the information provided in the question paper, we completed the table using the formulas:

For calculating the marginal cost,

From the table, profit is maximized when the output is either 4 or 5. From the table, it is observed that as the production of unit’s increases, the marginal cost increases. When low units of milk are produced, the marginal cost rather low, but with the increase of output units, the marginal cost increased (Usova, et al., 2019).  However, it is also observed that when the production of the output is in the mid-range, the form is able to get maximum profit.

Question 4

A)  Payoff matrix

B) Nash equilibrium outcome

In the payoff matrix in part A of question 4, both firms follow the dominant strategy. In the high-profit cell of both the forms, it is observed that both the forms follow a dominant state outcome to get more profit; it is in Nash equilibrium. The cost of cleaning water is expensive, and when both the firms do not clean water, they each get a profit of 50000 pounds. When Firm 1 pollutes the water of the canal, and Firm 2 does not, then Firm 1 gets £90000, and Firm 2 will get £5000 and vice versa. The profit is high when both firms do not pollute. The Nash equilibrium is (70000, 70000).

C) Cooperative outcome

A cooperative outcome is the best outcome for both the forms when they work together to achieve the outcome which is most profitable for them.

D) Significance of game theory in managerial decision making

“Game Theory” can assist the managers in making optimal decisions in strategies to increase the profit and revenue of the business (Luan et al., 2019). There can be several options for a business to choose from, but the managers in the organisation  have to select the project which will result in maximum profit by applying strategies. Game theory can be applied to assist in analyzing different sectors of the market and any strategic relation between some components and factors.

Question 5

1. A) Form 1 should invest in form 2 as the profit rate is 10% per annum and there is no other cost involved in the investment.
2. B) Selection of the project by Firm 1

ARR formula = “Average net profit/average investment”

Considering time= 1 year

ARR for first project=(£ 5280/ £88000) = 0.6

ARR for second project = (4880/ 61000) = 0.8

Thus, from the above calculations, Firm 1 should invest in Project 2 due to more ARR.

Reference list

Journal

Luan, S., Reb, J. and Gigerenzer, G., 2019. Ecological rationality: Fast-and-frugal heuristics for managerial decision making under uncertainty. Academy of Management Journal, 62(6), pp.1735-1759.

Valaskova, K., Bartosova, V. and Kubala, P., 2019. Behavioural aspects of the financial decision-making. Organizacija, 52(1).

Polyakova, A., Loginov, M., Strelnikov, E. and Usova, N., 2019. Managerial decision support algorithm based on network analysis and big data. International Journal of Civil Engineering and Technology, 10(2), pp.291-300.

Osadchy, E.A., Akhmetshin, E.M., Amirova, E.F., Bochkareva, T.N., Gazizyanova, Y. and Yumashev, A.V., 2018. Financial statements of a company as an information base for decision-making in a transforming economy.

Vasylieva, T.A., Harust, Y.V., Vynnychenko, N.V. and Vysochyna, A.V., 2018. Optimization of the financial decentralization level as an instrument for the country’s innovative economic development regulation.

Tetiana, H., Inna, N., Walery, O.K., Olga, G. and Svetlana, D., 2018. Innovative model of economic behavior of agents in the sphere of energy conservation. Academy of Entrepreneurship Journal, 24(3), pp.1-7.

Kalugina, I.V., Tarasenko, O.N., Bunina, A.Y. and Pavluchenko, T.N., 2020, July. Methodological Foundations of Managerial Accounting Policy. In International Conference on Policicies and Economics Measures for Agricultural Development (AgroDevEco 2020) (pp. 154-158). Atlantis Press.

Zaitseva, N.A., Larionova, A.A., Gornostaeva, Z.V., Malinina, O.Y., Povalayeva, V.A., Vasenev, S.L., Skrynnikova, I.A. and Ersozlu, A., 2017. Elaboration of the methodology for assessing the development of managerial competences in university students taught with the use of case-technologies. Eurasia Journal of Mathematics, Science and Technology Education, 13(11), pp.7339-7351.

Papadopoulos, T., Gunasekaran, A., Dubey, R. and Fosso Wamba, S., 2017. Big data and analytics in operations and supply chain management: managerial aspects and practical challenges. Production Planning & Control, 28(11-12), pp.873-876.

Calabrese, M., Iandolo, F., Caputo, F. and Sarno, D., 2018. From mechanical to cognitive view: The changes of decision making in business environment. In Social Dynamics in a Systems Perspective (pp. 223-240). Springer, Cham.

Kremer, M., Rao, G. and Schilbach, F., 2019. Behavioral development economics. In Handbook of Behavioral Economics: Applications and Foundations 1 (Vol. 2, pp. 345-458). North-Holland.

Papatheodorou, A. and Pappas, N., 2017. Economic recession, job vulnerability, and tourism decision making: A qualitative comparative analysis. Journal of Travel Research, 56(5), pp.663-677.

Mesároš, P., Mandičák, T., Romanová, A. and Behúnová, A., 2017, October. Developing of managerial competencies trough ERP systems in Slovak construction companies. In 2017 15th International Conference on Emerging eLearning Technologies and Applications (ICETA) (pp. 1-6). IEEE.

Bel, R., Smirnov, V. and Wait, A., 2018. Managing change: Communication, managerial style and change in organizations. Economic Modelling, 69, pp.1-12.

Ionescu, M.S., 2019. Data Science, Solution For Managerial Decision Within Business Models. In Proceedings of the INTERNATIONAL MANAGEMENT CONFERENCE (Vol. 13, No. 1, pp. 386-398). Faculty of Management, Academy of Economic Studies, Bucharest, Romania.

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