Markets, Equilibrium and Profits Discussion

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Markets, Equilibrium and Profits Markets, Equilibrium and Profits Discussion Student’s Name: Shriya Agarwal Institutional Affiliation: University of Cumberlands Course: 2023 Summer - Managerial Economics (BADM-535-B03) - Second Bi-term Instructor: Craig Hovey Due Date – 7/23/2023

Markets, Equilibrium and Profits Chapters’ Reflection The assigned readings contained concepts that were very worthy of my understanding. This reading has helped me understand some very important buyer and seller market concepts. Supply curves describe the behaviors of sellers and the quantity that can be sold at a given price while Market equilibrium is the price at which quantity supplied equals quantity demanded. At this point, the number of sellers are equal to the number of buyers. (Froeb et al., 2015). These concepts were very worthy of my understanding. According to the indifference principle, if an asset is mobile, then in long run equilibrium, the asset will make the same profit no matter where it goes. The higher price decreases the investments expected range of return. n equilibrium, differences in the rate of return reflect differences in the riskiness of the investment, e.g. risk premium Expected return = (E[Pt+1] - Pt )/Pt . These concepts were very worthy of my understanding. To increase economic performance, we should find a way either to increase the price of reduce the costs. Firms can adopt one of 3 strategies – cost reduction, product differentiation or reduction in the intensity of competition. Stock price = discounted flow of future profits. In order to keep progfits hight, firms should have a strategy to try to slow erosion. According to the Five Forces model of Michael Porter, the best industries are characterized by: • High barriers to entry • Low buyer power • Low supplier power • Low threat from substitutes • Low levels of rivalry between existing firms • (Cooperation from complementary products). To conclude, continuous stream of product innovations coupled with aggressive marketing and innovative control of its supply chain is the need of the hour in order to have a competitive advantage ( Froeb et al., 2015).

Markets, Equilibrium and Profits To increase a company’s performance, a manager suggests that the company needs to increase the value of its product to customers. Describe three ways in which this advice might be incorrect (Hint: Think about what else might or might not change that affects profit.) Although boosting a product's value to customers might frequently be a wise move, it is crucial to take the bigger picture into account. Here are three reasons why the recommendation to raise the product's value could not be sound: Demand in the market and price sensitivity: If the product's price is sharply raised to reflect the perceived rise in value, it may cause demand to decline. Customers may not consider the extra value to be considerable enough to justify the price increase or may find the higher price to be less reasonable. Despite the perceived value rise, this could cause a dip in overall revenue and profit if sales volume declines. Competitive Environment: In a market where there is fierce competition, a company may find that simply increasing the price of its product is not enough to improve performance. Competitors might respond by enhancing their own value or lowering their prices, which could undermine the company's attempts to enhance value. To acquire a competitive advantage under such circumstances, a more all-encompassing strategy that takes into account elements like marketing, branding, and customer service may be required. Cost of Value Addition : Adding value to a product frequently necessitates additional costs. These might have to do with customer service, product development, features, or quality

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Markets, Equilibrium and Profits enhancements. Reduced profit margins may result if the expense of value addition exceeds the advantages it offers. To make sure that the company's profitability is not jeopardized, managers must carefully evaluate the possible return on investment for each value-adding effort. In conclusion, while raising a product's value may be a sound strategy, managers must consider the broader consequences on market demand, competition, and cost variables to make sure the guidance is in line with the organization's overall profitability goals. To achieve long-term success, performance improvement frequently requires a comprehensive strategy that considers several facets of the business. References Froeb, L. M., McCann, B. T., Shor, & Ward, M. R. (2015). Managerial economics. Cengage Learning.

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