ECO 201 Project Finished

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Feb 20, 2024

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ECO 201 Project Template Memo To: My Business Partner From: Richard Mauro Date: 08.20.2023 Re: Microeconomics Simulations Introduction This memorandum report identifies and explains key microeconomic principles using a set of simulation games. The outcome of these games illustrate how microeconomic principles can be applied within real-life situations to help us make better business decisions. This report is a summary of the simulations I played and their results, which include the key takeaways and their significance, for your review and reference. It is divided into the following sections: 1. Comparative Advantage 2. Competitive Markets and Externalities 3. Production, Entry, and Exit 4. Market Structures (including the Price Discrimination and Cournot simulations) 5. Conclusions 6. References

Comparative Advantage

Figure 1.1 The definition of opportunity cost is what we give up to get that item. If my costs decision outweighs the benefits to the business, then it is better to not go forward with the decision. You could also compare the opportunity costs of our company with a competitior. If we lower our opportunity cost to lower our opportunity costs to lower than that of our competitors, than we will have a comparative advantage over our competition. A comparative advantage is the ability to produce a good at a lower cost than another producer. This would be helpful because it would allow us to have an edge and possibly bring in more customers than others. We can also use each others comparative advantage for the benefit of both companies using trades. It is nearly impossible for someone to have a comparative advantages with and we can maximize our production and company gain. A production possibility frontier (PPF) model is a graph that shows the combinations of outputs that the economy can possibly produce given the available factors of production and the available production technology. If we look at the PPF regarding specialization and trade, we can use this model to show the different amounts of outputs the company is able to produce. You can determine the different combination amounts a company can make and what would also be an unrealistic number of combinations able to be produced. Using the PPF you can determine the most efficient production your company is able to produce. Competitive Markets and Externalities

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Policy interventions can affect the equilibrium with taxes. When the government imposes taxes on the buyer or the seller it will affect the supply and demand curve. When the tax is enforced it will raise the supply curve because the price of the product was increased. This will cause the equilibrium to shift lower on the demand and higher the price. Three determinants of price of elasticity of demand are the availability of close substitute, necessities, vs. luxuries, and time horizon. Products are more elastic when they have numerous products that are similar. An example of this would be tlevsion service providers. In the beginning of cable alright television, they do not have competitors in the same areas. They could price

whatever they wanted and lock the customer into contract and expect people to have to pay for them for the price asked. Then competition came in the form of streaming services now dish direct TV charter and others are now having to try to compete and keep the customers that are dropping the dishes and landlines and moving to internet streaming television. Another determinant would be necessities versus luxuries. And I would consider a luxury going to a restaurant to eat supper or dinner. And when we look at this luxury, we have to determine what cost we can afford it, the restaurant we choose. This may be a restaurant we have to bend to numerous times but when the price on the menu are raised this could cause the customer to realize and accessibility is the food but the luxury is going out to eat the food this is when customers could begin to make the same food at home for cheaper and the restaurant could lose its customers and money. Market interventions that cause a consumer or producer surplus is what controls these prices. When the market intervention changes the price ceiling or price floor, this can effect the supply and demand if the price ceiling is below the equilibrium or if the price floor is above the equilibrium. The price ceiling maximum on the price at which a good can be sold. This can cause a consumer surplus when the price ceiling is below the equilibrium. The ceiling can never reach the equilibrium because the quantity demanded could possibly exceed the quantity allowed to sell. Also, a price floor can have the same affect with product surplus, and when the price floor is above the equilibrium there will be a surplus of product because the demand will have been lowered due to the risen price.

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Production, Entry, and Exit There are few things some business owner would need to look at to determine my entry and exit into a market for business. When determining entry into a market, they will need to look at profit of the company. If the price of the product is more than the cost of production and then it would it be beneficial to enter the market. If they are looking at the long run, they will need to make sure the company is running and make zero economic profit and to accomplish this they would need to run on the minimum average total cost. This will not allow for an increase or decrease in the quantity supplied, but if the business owner determines that their costs are more than their revenue, then they would need to exit the market. This would cause the company they still have to pay the fixed cost, but it would also save money by not having to pay variable costs of producing the product. Marginal cost is defined as the increase in chill total cost that arises from an extra unit of production and every time a business owners company makes another product it will increase the marginal cost. When looking at the marginal cost of their company, they would need to determine how many products they can produce at the intersection of the marginal cost and the average total cost. Average total cost is the total cost divided by the quantity of output. The area that this crosses at is called the efficient scale of the ATC. This level of output will allow their company to produce product with minimal ATC and after the owner has found this level, they will need to determine if the company needs to adjust to meet the marginal revenue. Marginal revenue is the same as market price for the product and the average revenue. If the marginal cost is less than the marginal revenue, then they will need to increase output of the product. If the marginal cost is more than the marginal revenue then they will need to decrease

output. Once the marginal costs equals the marginal revenue or market price, then the company will be making maximum profit off of the product produced. Market Structures Market Structure Number of Firms Type of Product Sold Price Taker? Price Formula Freedom of Entry? Short-run Profit? Long-run Profit? Industry Examples Perfect Competition Stock Market, Monopolistic Competition Grovery stores, gas stations, streaming platforms Monopolies Nike, Natural gas, water and electric companies Oligopolies Soda companies, Vehicle companies Table 4.1 A monopoly is a firm that is the sole seller of a product without any close substitutes, and since they are the sole seller for the product they can determine wehat to sell it at without compeititon. As the book states, the efficient level of output for a monopoly would be where the demand curve and marginal cost curve intersects. Since monoplies can create their own prices, they can charge whatever it is they want too. Monopolistic competition is a market structure in which many firms sell products that are similar but not identical . This competition is considered an imperfect competition and is between perfect comp. and monopolsitc. Oligopolies set their prices through a collision and form a cartel and if this path is chosen, then the firms will agree on production output and pricing. This would create the oligopoly to act as a monopoly. Conclusions microeconomics play very beneficial role in our business the use of all the information provided will allow us to make business decisions that will make our company profitable we will be able to study and decide what to enter the market when we will also use microeconomics to make our prices on our product and through the use of price graphs we will know when we are making revenue and when do increase or decrease our prices are adjusted to the market. References Mankiw, N. G. (2021). Principles of microeconomics (#9 edition). Cengage.

ECO 201 Project Finished

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