Assignment Sample on 5IB004 Economics of Managerial Decision Making
Task 1:
Over the last three years, the supermarket sector has made an extremely competitive landscape as buying habits, and customer preferences have shifted rapidly. Taxes on harmful goods, including alcohol and carbonated drinks, have been imposed by the government, and retailers have refused to compete with the customer. Vegetarianism and veganism have also become more popular as environmental consciousness has grown. Consequently, retailers such as Waitrose have already been capable of competing more effectively in the mass segment, offering higher rates for the quality and licensed goods of greater origins. Pricing rivalry between retailers supplying the lower and middle-income percentiles of the society, on the other hand, has caused some disruption. This is a detailed look at how the worldwide COVID-19 epidemic can impact this supermarket sector: “Sainsbury’s and Tesco” have made substantial investments in the electronic shopping and online delivery networks to meet growing e-commerce demand. Throughout the first quarantine in April 2020, customers tend to stock up toiletry and antibacterial goods and food with high-fat content, placing a burden on the “supply chain” of the industry. As new quarantine regulations were introduced across the United Kingdom, the ONS announced that online shopping as a percentage of total sales in the United Kingdom increased from 27.8% in September to 32.3 percent in October 2020.
a)
The companies selected for the examination of the structure in the supermarket of the United Kingdom are Sainsbury and Tesco. Sainsbury was involved in the market share in which this company tried to focus mainly on the quality of the company’s product. The product’s price can vary according to the quality of the product in the case of Sainsbury. Another company is ASDA that is also involved in the supermarket of the United Kingdom. All these companies are involved in the industry and the market share of the supermarket.
b)
The market structure that the supermarket of the United Kingdom operates is an oligopoly in nature (Laskovaia, 2019). This oligopoly nature helps to describe the type of the market in which a dominating condition and the situation is created with the help of large firms that are independent and few. The supermarket of the United Kingdom is known as Oligopolistic. The market strategy is independent, which means the cost set by the firms of the market can affect the other firms. So it is also required to try the price of the products in the market in the rigid condition and generally almost constant.
The barriers are generally large in number in the supermarket. Several facilities are also provided by the Supermarkets, such as TESCO Club card, which are involved for guarantees, “free home delivery“, and loyalty cards based on the non-price of the supermarket.
c)
The market structure in the supermarket is an oligopoly in nature, and the other three market structures are monopolistic competition, perfect competition, and monopoly. Based on the price, the oligopoly nature of the market sets the price at a high level. Still, in the case of the perfect competition that is another market structure, the price is at a low level compared to the oligopoly (Luan et al., 2019). The output of the oligopoly structure of the market sets its output level at the lower level. From this, it can be stated that the profit of the oligopolistic company is lower compared to the perfect competition nature of the market structure. In the case of the “perfectly competitive industry,” some of the factors always belong to the same level, such as Price, Marginal cost, marginal revenue, and the average cost. The oligopolistic nature of the market is able to deal with the few sellers in the company, and different types of goods can be produced by the different sellers. In the case of the monopoly structure of the market, the price is set above the marginal cost of the market. The structure of monopoly generally belongs to the geographical area (Valaskova et al., 2019). The monopoly nature warts their price according to the supply of the product and the product demands, but the output is in the limited number, whereas the output is in the better condition for Oligopoly nature. On the other hand, the monopolistic nature of the market structure belongs to perfect competition. The profit and output are greater than the oligopoly market structure. Profit is in the greater range in the case of perfect competition and monopolistic competition.
d)
For taking an entry in the supermarkets of the United Kingdom, several types of barriers can also be present. Different kinds of network issues can be barriers in online shopping that can be effective as the barrier in the profit and the selling of the products in the UK market. The barrier can also be present in the “High setup cost” that helps in the determination inn for initial entering in the market. Mainly the sunk costs are under this type of cost that is not able to recover, and this cost is generated at the time of leaving the market by a company. Sometimes the product’s prices can be lowered by the firm in a deliberate way to force the rivals that can be stated as another barrier in the market. The switching of the cost can also be a barrier in the supermarket (Polyakova et al., 2019). The price can be suddenly increased by the consumer for switching the suppliers due to the incorporation of the new equipment that increases the product price and can serve as the barrier in the supermarkets of the United Kingdom.
- a)
According to the data, supermarkets were preparing themselves for just a surge in demand as now as it was in February, and even before the social ostracisation steps were announced weeks ago, 10% to 12% of retailers had stockpiled products. Although this is just a small percentage of customers, it would be enough to put a huge strain on logistics infrastructure and supermarkets’ stocks, resulting in unavailability (Zaitseva et al. 2017). Originally, these were minor incidents. However, images posted to the internet and in the news heightened public awareness of the problem, prompting others to follow suit, developed a single hypothesis.
Out-of-stock goods were originally limited to a few categories; toilet papers and washing supplies were also to be affected, however as the stocking up trend spread, other classifications began to feel the pinch, including processed chicken and bread, which are now popular. During the year to end, through to the last week ending 24th June 2020, profit margins of beverages and foods consumed for domestic uses have increased by 12.2 percent over the same timeframe in 2019 (Papadopoulos et al. 2017). The next week ending On 24th March 2020, just before the official quarantine was confirmed on 26th March 2020, also saw the largest sales volume ever reported, with sales up 44.7 percent over the same week since 2019.
b)
Change has been the only constant in the universe. There were moments in the organized retail sector of the United Kingdom when the country’s economic supremacy over world economic structures was undeniable. The financial consequences have changed in the thread era since 2019. In the aftermath of the new economic uncertainties and economic collapse, the same value propositions must now be reinterpreted. Customers nowadays appear to be allowed to purchase everything and anything, at a certain moment, even at a cheap cost. Millennial, who now make up a significant age group in the United States, have particularly great expectations (Calabrese et al. 2018). Millennial claimed they wanted healthy food options in the UK study of supermarket shopping. They would also like to recognize how their food is grown and how this is produced; they expect businesses to be environmentally and socially conscious, as well as have clean, traceable goods. At around the same moment, they want bargains and discounts, which is understandable given that they’ll be the first group to be poorer than their ancestors. The industry, named Tesco, suffered the situation for their high rates of the products. It is highly recommended the industry Tesco should decrease the rate of their products for this pandemic time. The grocery items are being used for daily life. No one wants to buy things, foods, and beverages at a high cost. So if they want to recover their economy and attract the customer base, they should lower the cost of the products and add some discounts.
A profit-maximizing company must select its inputs carefully in order to decrease the waste of generating whatever product it chooses. Its productivity is determined by the world where it performs; it might just be a monopolist, for competing, or as an example with several or many different supermarket businesses. Even so, whatever the business’s products, the input package must be selected to reduce the price of generating the output (Papatheodorou et al. 2017). The “cost-minimization” issue of a business with only one variable factor and the issue of a business with two variables are fundamentally different, so it looks at them separately. Taxes on harmful goods, including alcohol and carbonated drinks, have been imposed by the government, and retailers have refused to compete with the customer. The GDP of the supermarket business should be decreased. In the pandemic situation, the country is suffering from unemployment at a high rate. Tesco should take a proper decision to decrease unemployment, and it can also be helpful for the economy of this sector. The company Tesco should take a proper step on the matter of investment. The company should make a proper strategy for increasing the profit with the help of lower investment. “Cost minimization” is a sustainable intensification aimed at achieving the much more cost-effective method of providing services and goods at the required specified quality.
It is indeed important to note that cutting costs doesn’t mean sacrificing service or small customers; meeting consumer demands is still a priority. Tesco should recognize those factors for the purpose of the supermarket business. The notion that benefits are maximized when the gross RevenRevenueed from purchasing a product exceeds the average cost of manufacturing the product has been a principle in trade thought (Kremer et al. 2019). The supermarket should consider those facts. The company Tesco should take a proper strategy for profit maximization when the actual investment for the grocery products is minimum. It can help to survive the supermarket business in this pandemic situation, and it can also help the customers to purchase the grocery products at a relevant rate. With the help of this theory, the company is able to help in employment for the United Kingdom. Tesco can provide a good salary for their employees when they are able to get the maximum profits.
4.
It can be concluded from the above discussion that the customer can also be involved in the new way for the development of the future of the UK supermarkets. The store of the groceries can also be focussed by the market authority that is based on the experience. Several kinds of factors can also be incorporated in the retailer of the grocery in the supermarkets. Instead of only being the item of groceries, the customers are also able to know the information about the item of the groceries in the supermarket. This is the new attempt of the supermarkets that is able to increase the interest of the customer. This initiation is required for increasing the quality of the cooking, and the taste quality of the item can be better by the involvement of the customer (Osadchy et al., 2018). In the supermarkets of the UK, a change in the steps in the business is tried to incorporate by the grocers that would be fruitful in the future of the grocery market in the UK supermarket. A unique benefit for these changes can be effective for the grocery sector that is stated by “Retail Think Tank” can be abbreviated by RTT. Some of the innovative technologies can also be incorporated for the progress in the business of the grocery sector in the UK supermarket.
Task 2
Q1.
In the pandemic situation, the necessity of hand sanitizer is increased, and as the demand for this product is so high, the price of this sanitizer in the global market is also increased. The demand reached a high level at the time of the pandemic situation. The situation was mainly used for the first time in 2020 in March and April. The vendors who are involved in the business started to invest their capital for the sanitizer as the demand increases at a higher rate. The cleansers that are aromatic in nature have some sweet smells that are attractive to customers. The innovation in the sanitizer can be able to boost up the market for developing the profit in the sanitizer product (Vasylieva et al., 2018). Different kinds of sanitizers were available in the market in which the chemical nature is able to affect the skin of the users. So the bio-based sanitizer and the organic sanitizer are more dependable by the users. The price can be higher for the high demand and the low availability of the products in the market. During taking the protection, the hand hygiene was maintained by the customers, and the business strategy of the firms of the other products gradually slowed down that was shown in the graph by the bar diagram. In the pandemic situation, the market share in hand sanitizer increases about 600% in 2020 than normal condition. The excessive use of sanitizers can be impacted by the rashes, or the dryness of the skin is also declared and recommended by WHO. The sanitizer that contains the isopropyl alcohol was more effective than the normal quality sanitizer. The supply chain for the sanitizer can also include several products such as glycerine, Hydrogen peroxide, etc., that are required for the preparation of the sanitizer (Tseng et al., 2018). The travellers and the packers are also involved; they lived in the supply chain of the sanitizer in 2020 in the pandemic situation.
Q2.
It is indeed worth noting that a rise in price leads to a significant increase in the amount demanded (Mesároš et al. 2017). Customer products are an illustration of a commodity, including the “price elasticity of demand”. There are goods that are rarely bought, such as a laundry basket or a car, and could be delayed if the value rises.
“Price elasticity of demand” should be included with some examples, and those examples are met with real life. The examples are- Fuel is said to be relatively elastic in general. Customers purchase from other gas pumps if a single gas pump raises its price. It is just as if a gas pump does have a “local monopoly” – for example, when there is a potential customer at a roadway gas pump. Individuals would have a “price elasticity of demand” in a central city with several options.
This “price elasticity of demand” has some factors which can affect the theory, and the factors are- “nature of commodity”, in the requirements of “nature of commodity” such as- vegetables, foods, beverages, medicines, and others, the demand of those products do not decrease, and the demand is not reduced for the reason of high price (Bai et al. 2019). “Availability of substitutes”, in this factor, a product with a huge number of alternatives would have a much more income elasticity. The explanation for this is that only a slight increase in its value would cause consumers to seek out alternatives. There are many factors available for the purpose of “price elasticity of demand”.
The implication of the concept of price elasticity of demand in managerial decision making is when it comes to determining how much to charge for a product, business firms consider the “price elasticity of demand”. It is because, based on the “coefficient of price elasticity”, a rise in the cost of a commodity can result in a switch in demand.
Q3.
Table 1: Calculation
| Output (Units) | Total Revenue | Revenue Price (£) | Total cost (£) | Profit (£) | Marginal Revenue | Revenue Marginal cost (£) | Change in profit (£) | |
| 0 | 0 | 0 | 3 | -3 | 0 | 3 | 0 | |
| 1 | 6 | 6 | 5 | 1 | 6 | 2 | 83.33333333 | |
| 2 | 12 | 6 | 8 | 4 | 6 | 3 | 66.66666667 | |
| 3 | 18 | 6 | 12 | 6 | 6 | 4 | 66.66666667 | |
| 4 | 24 | 6 | 17 | 7 | 6 | 5 | 70.83333333 | |
| 5 | 30 | 6 | 23 | 7 | 6 | 6 | 76.66666667 | |
| 6 | 36 | 6 | 30 | 6 | 6 | 7 | 83.33333333 | |
| 7 | 42 | 6 | 38 | 4 | 6 | 8 | 90.47619048 | |
| 8 | 48 | 6 | 47 | 1 | 6 | 9 | 97.91666667 |
From the table, it can be stated that the profit is present in the high amount in the case of output four and in output 5. The profit and the other marginal profit, the marginal cost was calculated, and the change in the profit is stated in the percentage. In the case of output 8, the change in the profit is in the maximum range that is also suitable for the total cost (Tetiana et al., 2018). It can be recommended that the marginal benefit can be measured for firm 1 that is required for thinking about the margin of the business condition of firm 1.
Q4.
a) Firm 1
| pollute | profit | |
| pollute | 5,5 | 5,90 |
| profit | 90,5 | 7,7 |
Firm 2
This is the payoff matrix which is created by the given data from the question.
- b)
| Player 2 | |||||||
| I | A | ||||||
| Player 1 | I |
|
|||||
| A | |||||||
(I, I) in this matter, no such player will maximize her payout by taking a different action than the one she is currently taking. As a result, this activity profile represents “Nash equilibrium”.
(I, A) Given player “2’s action”, player number 1 obtains “a payoff” of 1 rather than 0 by selecting A rather than I (Gaisina et al. 2017). As a result, this action model does not reflect “Nash equilibrium”.
(A, I) Provided player 2’s intervention, player 1 acquires a payoff of 2 instead of 0 by selecting I instead of A. As a result, this activity profile does not reflect “Nash equilibrium”.
(A, A) Neither player will maximize her payout by offering a new activity than the one she is currently taking (Calabrese et al. 2019). As a result, this activity profile represents “Nash equilibrium”.
c)
The “cooperative outcome” is able to maximize the value of the joint playoffs. In This type of outcome, the best outcome can be achieved. The cooperative outcome can be possible for the good nature of the cooperative outcomes. The collusion is another factor that is mostly identical with the “cooperative strategy“. In the cooperative outcome, the players who are involved in the work of the firms are able to work in a joint way for achieving the best outcome for the firm that is also known as the joint outcome.
d)
Game theory is very useful in nature and is used by several economists, and it is mainly used for the oligopoly nature of the firm behaviour. When firms are involved in specific types of the behaviours, such as in collusion and price-fixing, this theory helps in the prediction. During the competition with the players, this theory can serve as the framework by which a choice can be understood by the firm’s members (Kalugina et al., 2020). And most importantly, this theory helps the players for reaching in the optimal condition of decision-making in an independent and strategic manner.
Q5.
- a) Depreciation expense per year = 10,000/ 12 = 853.33
- Increase in average annual profit = 11,000 – ( 10,000+853.33) = 166.66
- Initial investment = 10,000
- ARR = ( 166.66 / 10,000 ) * 100 = 1.6%
So, firm 1 should choose the proposal of firm 2
- b) The discrepancy between the original cost of cash outflows and inflows across a period is known as “net present value” or NPV. So, here according to the data, firm 1should select project B.
Reference list
Journals
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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.
Gaisina, L.M., Belonozhko, M.L., Maier, V.V., Abdrakhmanov, N.K. and Sultanova, E.A., 2017. Deliberate reorganization of the system of social relations in oil and gas companies in the period of changes in economics. Espacios, 38(48), p.12.
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