PART 1– Analytical Report
Write a short analytical report (4 pages) on how organizations with market power set the price of their product in a mass market in accordance with the prompt below. In this topic, you have to introduce different price strategies that involve price discrimination.
Go to the library and find and read the following articles.
Vara, V. (2017). How frackers beat OPEC: the surprising ingenuity of the American shale-oil industry–and its huge global consequences. The Atlantic, (1). 20.
Oil & gas firms call for extension of pricing freedom to existing fields. (2016). FRPT- Chemical Snapshot, 14-16.
Ford, N. (2016). Winners and losers in an era of cheap oil: the impact of low oil and gas prices varies from country to country but the effects are not as straightforward as might be expected. African Business, (431). 51.
You may also find helpful information at:http://www.economist.com/topics/oil-prices
The Organization of Petroleum Exporting Countries (OPEC) is a cartel that attempts to keep oil prices high by restricting output. As part of that process, each member nation is assigned a production quota; most members have nationalized their oil industry so that the government controls overall production. However, member nations routinely exceed their production targets. Explain why OPEC often has difficulty keeping output low and prices high.
Public utility companies (you may stay with the topic of oil/gas) customarily charge more to business customers than to residential customers. Discuss this price discrimination as it relates to gas and oil.
What kind of changes do you predict will impact the oil industry based on the following trends in new energy sources: fracking, hydrogen fuel cells, biomass or bio fuel, solar, or a break-through in car batteries for electric cars? What are these market types and how does that matter to the pricing and production of oil.
For all of the industries that you discuss in this paper, state which of the four market types that it is (Perfect Competition, Monopoly, Monopolistic Competition or Oligopoly).
Ensure that you include Porter’s Five Forces Model in describing the pricing effects or strategies from these newer industries (or you may select one and discuss it in depth).
Part 2 – Quantitative Analysis Case
Write a Quantitative Analysis report on the following problems:
The manufacturer of high-quality flatbed scanners is trying to decide what price to set for its product. The costs of production and the demand for product are assumed to be as follows:
TC = 500,000 + 0.85Q + 0.015 Q2
Q = 14,166 – 16.6P
Determine the short-run profit-maximizing price.
Plot this information on a graph showing AC, AVC, MC, P, and MR.
An amusement park, whose customer set is made up of two markets, adults, and children, has developed demand schedules as follows:
The marginal operating cost of each unit of quantity is $5. (Hint: Because marginal cost is a constant, so is average variable cost, Ignore fixed cost.). The owners of the amusement park want to maximize profits.
Calculate the price, quantity, and profit if
The amusement park charges a different price in each market
The amusement park charges the same price in the two markets combined.
Explain the difference in the profit realized under the two situations.
(Mathematical solution) The demand schedules presented in Problem 2 can be expressed in equation form as follows (where subscript A refers to the adult market, subscript C to the market for children, and subscript T to the markets combined)
QA = 20 – PA
QC = 30 – 2PC
QT = 50 – 3PT
Solve these equations for the maximum profit that the amusement park will attain when it charges different prices in the two markets and when it charges a single price for the combined market.
This Has To Be 150 Words
In certain industries, firms buy their most important inputs in markets that are close to perfectly competitive and sell their output in imperfectly competitive markets. Cite as many examples as you can of these types of businesses. Explain why the profits of such firms tend to increase when there is an excess supply of the inputs they use in their production process.