Managerial Economics Q2.5 The business operations of Southwest Airlines are consumer or oriented, meaning that the airline is highly concerned about the welfare of its customers. Over and above this pursuit, the company also aims at offering quality services at the lowest prices possible. Promotional fares are the main variables that company uses, thereby offering competitive and affordable services. Local market share is substantial, with revenue improvement being focused to new markets in the airline industry. Total revenue maximization is central to the operations and business aspects that Southwest Airlines engages in.
Maximization of revenues must account for operational costs, output level and profit trends. With the company’s orientation in air travel that suits its business aspects and customer welfare, total revenue maximization would take place at output level that is greater than the short run profit maximizing output. Total revenue is maximized at the output level where marginal revenue is equal to zero. Given that the company operates in a competitive environment, the firm’s long run prices should be equal to the marginal cost. This is one of the primary profit maximization conditions.
This in turn affects the total output at which total revenue is maximized. The short run performance of the company in terms of costs, revenues and profits is likely to realize a fluctuating trend. This means that the short run maximizing output is likely to be higher or lower before economic variables harmonize to constitute a long run trend. For this reason, maximizing total revenue at an output level that is greater than the short run profit maximizing output level is compatible with the long run maximization of profits (Froeb & McCann 129). Q3.7 Supply is defined as the quantity of goods and services that sellers are willing and able to provide in the market at the prevailing market price (Froeb & McCann 243).
There are market forces and variables that tend to influence the supply of both goods and services in the market, accounted for by the interaction of buyers and sellers in the market. Supply function relates supply of products to the influencing factors in the market in form of a statement. This stated relationship constitutes the supply function. Quantities of goods and services are offered at a price by the sellers to the buyers.
Various price levels have quantities supplied related to them. The relationship between quantities of products supplied and their relative prices constitutes the supply curve. At this point, all other influencing factors are held constant. Changes in price levels affect supply of products, leading to fluctuations on the quantity supplied. This triggers movements along the supply curve. Factors that influence supply of products with the exception of price level causes shifts in the supply curve when such factors change.
Supply determinants that are non-price in nature are responsible for supply curve shifts. The entire supply curve can move to right, depicting an increase in quantity supplied, or to the left, depicting a decrease in product quantity supplied. Works Cited Froeb, Luke & McCann, Brian. Managerial Economics: A Problem Solving Approach. New York: Cengage Learning, 2009.