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Business Economics Introduction
Introduction of Business Economics
Business Economics
Introduction:
After globalisation the level of competition has significantly increased among the business units
in each and every industry. In present economic scenario there has been stiff competition that is
seen in each and every sector in the market. After globalisation, various business units have to
compete with not only the local competitors but the global competitors as well. Thus it is very
important that the business units establish competitive advantage in the market and they also
achieve their core competencies for attracting the consumers and attaining higher market share in
the industry. There are several factors that can significantly affect the business units in every
industry. The business units have to take into consideration all these factors for implementing
effective strategy in the market. These factors can include the market position, the trend in the
market, the demand structure for the product, the tastes and preferences of the consumers, the
market structure, and the competitors in the market. These are the microeconomic factors that
can affect the business. On the other hand the macroeconomic factors like the economic, social
and political condition of a nation can also affect the business as it is the external environment
where the business operates (Krugman and Wells, 2013). It is argued that the recent price wars in
the supermarket and mobile phone industry can significantly benefit both the consumers and the
respective industries. So the main aim of the assignment to critically analyse the statement using
the relevant theoretical models.
Market Structure and the Equilibrium:
At present the supermarkets and the mobile phone markets follow monopolistic competitive
market structure. It is known that the market structure can also affect the strategies imposed by
business units. Thus the market structure of supermarkets and the phone industry can be
discussed here (Pindyck and Rubinfeld, 2013). It is known that the competition among the
supermarkets and in the mobile phone markets have increased significantly and thus the features
of monopolistic market structure can be presented here.
It is known that in the monopolistic competitive market there are many buyers and many sellers,
selling partly homogenous but differentiated products to the consumers. The products are not
perfect substitutes of one another and each product has their unique features or qualities. It is an
intermediary market position and thus it resembles perfect competition as well as monopoly. In
the monopolistic competition no single buyer or seller can impact the changes in the price in the
market and thus no one has complete control over the market (Pindyck and Rubinfeld, 2013).
There is a certain limit of control or power that is enjoyed by the producers in the market. NonPrice
competition is one of the major features of a monopolistically competitive market. The
producers apply various non-prices competitive techniques like brand value increase, advertising
and promotion for competing in the market. There are a few barriers to entry and exit. The
market equilibrium usually occurs where the marginal revenue (MR) of the firm equals the
marginal cost (MC). The firm sets the price in terms of the average revenue curve and the firms
maximises the profit at that point. The supply and the demand for the product are also taken into
consideration. The producer produces and supplies the products on the basis of the market
demand (Sloman and Jones, 2011)
Business Economics, also called Managerial Economics, is the application of economic theory and methodology to business. Business involves decision-making. Decision making means the process of selecting one out of two or more alternative courses of action. The question of choice arises because the basic resources such as capital, land, labour and management are limited and can be employed in alternative uses. The decision-making function thus becomes one of making choice and taking decisions that will provide the most efficient means of attaining a desired end, say, profit maximation. Different aspects of business need attention of the chief executive. He may be called upon to choose a single option among the many that may be available to him. It would he in the interest of the business to reach an optimal decision- the one that promotes the goal of the business firm. A scientific formulation of the business problem and finding its optimals solution requires that the business firm is he equipped with a rational methodology and appropriate tools. Business economic meets these needs of the business firm. This is illustrated in the following presentation. Economic Decision Theory and problems in Methodology Business Business Economic Application of Economic Theory and Methodology to solving Business problems Optimal Solution to Business Problems it may be that business economics serves as a bridge between economic theory and decision-making in the context of business. According to Mc Nair and Meriam, Business economic consists of the use of economic modes of thought to analyse business situations. Siegel man has defined managerial economic (or business economic) as the integration of economic theory with business practice for the purpose of facilitating decision-making and forward planning by management. We may, therefore, define business economic as that discipline which deals with the application of economic theory to business management. Business economic thus lies on the borderline between economic and business management and serves as a bridge between the two disciplines.
25 May, 2018
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