Economic Assignment
Part A: Microeconomics
Question 1
The market set up in the case study is relate with oligopoly. According to Amir, (2018) the features of oligopoly market structure are dominance by on firm and interdependence of each firm present in the market. In oligopoly the firms produce and sells homogenous product. Here, two firms, Coles and Woolworth sells fruits and vegetables. As the firms are competing by cutting prices. Coles cut its price by 3.1% whereas Woolworth cut it by 1.9%. The case fit Bertrand model of oligopoly as both firms compete with each other through deduction in prices. Providing discount and spending on advertisement is another feature of Bertrand oligopoly model. The following graphs explained the situation.
Question 2
Both the firms are involved in price war with Bertrand model. Woolworth cut its price by 1.9% and Coles cut its prices 3.1%. The price war is to some extent successful as both the firms together able to capture significant part of the market share. Coles also spend high amount on advertising its discount policy. Therefore, the cost of advertisement reduces its revenue. The Woolworths although reduces its cost less than the Coles but resulted in more market share (43%) in total market.
Question 3
The small firms can not able to give competition with the super power in the market. The small firm have high cost of production as they generally apply low technology. Therefore, in Bertrand set up when a single firm reduces cost the other competitors in market reduces cost to earn more profit. Repeatedly reducing the price ultimately lead to the equilibrium condition where the prices are equal to marginal cost. Any firm cannot continue production for price beyond marginal cost. Hence, the small firm generally have high marginal cost which higher than the big firms. The small firm have no other opportunity but to leave market share for big firms.
Question 4
The price war enables the firm to earn high profit and more market share by making them capable of influencing the product market. The low prices favor the consumer to buy more which induced the firms to invest more for high production. However, the individual firm is only able to influence the market if the firm have high market share through price cut. As one firm cut its price and earn more revenue the other from follow the policy subsequently. The small firms have high cost of production and therefore, they are able to engage in price war by cutting their prices. In long run, they leave the market by shutting down their production due to continuous loss.
Eleonora Laura Tilvic Managing Business
TASK 1: THE COOL CAR COMPANY
Part 1
Explain how the different departments in CCC would need to work together for the organisation to effectively meet their goals. Identify at least 5 departmental links
An organization can effectively attain its goals if all the departments work together to fulfil the purpose of the organization. The cool car company has the following departments;- Sales team
- A marketing team
- The buying team
- Operations and logistics team
- Servicing and dispatch team
- Legal team
- Finance team
