Economic Issues in Organizations Economic Issues in Organizations Question In a monopolistic competition, the firm undergoes short-run equilibrium. There is maximum profit and the quantity where the marginal revenue is equal to the marginal cost. The optimal output is equal because above this point, cost increases more than the revenue hence less profit. When it is below the point, cost decreases than the corresponding increase in revenue. By increasing output, the firm has higher chances of making more profits. When it is below, profits are sacrificed hence incentive to increase output towards equilibrium.
When it is above, there is less profit hence some units of production may not pay their way through hence reduction in equilibrium is necessary (Shemain, 2003). Question 2 Agency problem interferes with the ability of the shareholders to achieve goals since the managers, and maybe the creditors work for their own interests. Managers may get in the way especially in cases where they own less of the company’s ownership. They may take advantage of the salaries and perks (Shemain, 2003). Question 3 Intermediate products are partly finished goods that are used in the production of other goods.
Monopoly motive is the sole provider of the raw or the intermediate goods hence it reduces the risk of lack of supplies. Power motive has control over the goods hence, giving out supplies to other firms in times of shortage. This is done by selling them at higher prices and storing of additional stock for future use. Benefits of this include: economies of scale such as specialization, marketing economies, bulk buying, and risk bearing. Disadvantages include: diseconomies of scale, for example, office politics, and duplication of efforts (Shemain, 2003). Question 4 Incorporating the suppliers intermediate goods into the firm will lead to ideas being sold out.
This, in turn, will create an advantageous loophole for the competitors since the ideas will be laid down. The competitors will have a greater advantage of producing better, quality products than the firm (Shemain, 2003). Question 5 Effective performance methodology shows the effectiveness and efficiency of a firm. This is through careful definition, selection, and application of indicators of performance. The role of effective transfer pricing is to determine the incomes and the expenses resulting in taxable profits (Shemain, 2003). Question 6 Decision-making leads to product substitutability, which leads to market definition, and eventual integration into market structures.
Its impact is felt through the opportunities which will affect the market’s outcome participating in the process (Shemain, 2003). Question 7 For a firm to enter or exit a market, there are several factors to be considered. They include government policy, and structure of the market. These two factors concentrate on taxation, and legislation regarding the operation of the firm. The level of profits will be a market signal determining the level of profits the firms will receive, and vice-versa (Shemain, 2003). Question 8 Baring the other firms from the market will lead to increase in cost of management.
Monopoly is socially undesired and may be discouraged by the government when its main aim is to get profits. The firm will encounter diseconomies of scale, and sacrifice of external economies of scale. Evaluation is done through market structures and strength of competitors (Shemain, 2003). Question 9 Competitive advantage is desirable since it gives a firm superior platform to outdo the other players within the competitive industry.
It allows a company to manipulate the various resources, over which it has direct control, and these resources have the ability to generate competitive advantage (. Shemain, 2003). Question 10 Strategic positioning benefits a firm by making it profitable. Advertising and branding help in creating sales hence profits, increase in awareness, flexibility that results in controlled pricing. The effect on the product demand curve is that if there is an increase in the demand, there will be a shift of the demand curve to the right (Shemain, 2003). Reference Shemain, M.
(2003). Economics: principle of action. New Jersey: Atlantic publishing company.