Law of supply in managerial economics

Managerial Economics

Please read the following scenario and answer the questions below by providing the analysis based on the relevant theories and applicable examples.

If your business earns superior profits, existing and potential competitors will do their best to get a piece of the success. It is essential for firms to examine a variety of business strategies to enhance the prospects of sustainable profitability. Out of all factors that impact an industry’s sustainable profitability, this CLA2 assessment focuses on the most damaging threat to sustainable profit, the entry of competitors into the market.

Entry into the market heightens competition and reduces the margins of existing firms in a wide variety of industry settings. For this reason, the ability to existing firms to sustain profits depends on how barriers to entry affect the ease with which other firms can enter the industry including the formation of new companies (Wendy’s entered the fast-food industry in the 1970s); globalization strategies by foreign companies (Toyota entered the U.S. automobile market the middle of the last century), and the introduction of new product lines by existing firms (computer manufacturer Apple now also sells the popular iPhone).

Your CLA2 is a paper of a minimum of eight pages, APA formatted, including one Industry Report and one Company Report that you recommend to the CEO of a company how to create a moat and prevent the threat of entry to the market.

Industry Report
Please select an industry and write a rigorous industry report for your selected industry that incorporate the followings:

The market structure of the industry by determining the concentration ratio in the industry and how market structure affects the entry into the market
The nature of the industry and the network effects
The production structure of the industry, initial capital requirements, sunk costs, and economies of scale
The prospect of the industry in the future in regard to technological innovations
Company Report
Now assume you are managing a company in this industry and are asked to write a Company Report about the long term strategic decision making of the company. The purpose of this report is to recommend a few policies to the CEO that assures a sustainable competitive advantage and long term profitability for the company.

Please include the following variables in your Company Report:

Sustainable market share and how it can be achieved
Branding, reputation, and a considerable base of loyal consumers
The managerial efficiency in strategic decision making regarding:
The integration and merger activity, vertical and horizontal integration
Preventing the entry of rivals by pricing and cost policies such as limit pricing, predatory pricing, and raising rivals’ fixed or marginal costs

DEMAND AND SUPPLY OF OIL INDUSTRY 1

PA1: Demand and Supply of Oil Industry

Westcliff University

Bus 505: Managerial Economics

Professor: Nima Salami

Date: July 11, 2020

Demand and supply are a qualitative tool that, like the genie, empowers managers by permitting them to look the “big Picture.” It is a qualitative tool that you can use to forecast

Predict global market dynamics like price shifts for your company's products. Related products (replacements and supplements), and input prices (such as labor) Resources required for your operations.

Demand is the economist term and it is the purchaser's choice and potential to purchase a great or service. It is the underlying force that drives monetary increase and growth. The Law of demand is one of the fundamental principles of economics. It really works with the law of supply to explain how marketplace economies allocate sources and determine the fees of goods and services that we have a look at in ordinary transactions. The law of call for states that amount bought varies inversely with a price. In different words, the better the price, the decrease in the amount demanded.

Supply is an essential financial concept that portrays the entire sum of a particularly great or benefit that is accessible to shoppers. Supply can relate to the sum accessible at a cost or the sum accessible over a run of costs in the case shown on a chart. As the cost of great rises (falls) and other things stay steady, the amount provided of the great rises (falls). Makers are willing to deliver more yield when the cost is tall than when it is low (Prince, Baye, & Jeff, 2017).

The supply and demand curve are where the deliver curve and call for curve meets on the identical chart. It creates what is known as an equilibrium factor. This is wherein the deliver curve and the demand curve intersect. The following figure shows the supply and demand curve (Boyce, 2020).

What is Supply and Demand? | Definition | BoyceWire

Fig: Supply and Demand Curve

Fig: 2 Demand, Supply and Equilibrium

The Market Structure for oil Industry

A years ago, many observations predicted a step by step growing global scarcity of crude oil. This shortage did now not materialize in part because of the swiftly growing manufacturing of shale oil within US. The production of shale oil (also known as tight oil) exploits technological advances in drilling (Kilian, 2015). First, although the oil rate decrease has been in large part handed directly to consumers in superior international locations, there was a good deal less bypass-via in the rest of the arena. Many governments – as an instance, in China and India – have taken advantage of the decline to reduce subsidies on gas consumption and thereby support their fiscal role. A second reason is that, commonly, a deliver-driven oil price decline increases international demand for through moving resources from high-saving oil manufacturers to clients with a higher propensity to spend. Third, the fall apart in oil fees has led to a primary short-time period drop in investment within the oil industry, with international funding in production and exploration falling from $700 billion in 2014 to $550 billion in 2015, with spill-over to the energy commodities (Rogoff, 2016).

The supply and demand for oil in that market structure

Many variables that are determined to affect the price of oil, however, one of the most crucial visions may be won from the demand and supply for aspect. The intake aspect of the enterprise is majorly full of masses and millions of customers who are personally no longer able to be turning the tables however collectively can influence the market.

The oil fee fluctuations affect the nation's commercial enterprise sectors mainly the manufacturing region in oil-exporting worldwide places. Its fluctuation in a surge of price has a fast effect at the improvement of oil industries manufacturing and lag one-of-a-kind areas like manufacturing, agriculture (Faheem, Azali, Chin, & Mazlan, 2020). It concludes that 35 to 50 percent of the oil rate fluctuations can be explained with the help of oil Supply and oil demand shocks. It additionally concludes a lower in oil expenses ends in excessive economic activity in advanced economies and that the pliancy is important to understand the supply of actions in oil prices (Kyritsis & Serletis, 2019).

The pricing of oil at the presence of OPEC and the role of Speculators

This complete extra demand for non-OPEC countries is satisfied with the oil supplied by means of the OPC global locations exceptional why shale oil is a substitute for oil and explain the news regarding the Cross elasticity of demand (Ghassan & Banerjee, 2015). It has been found that the foremost driving force of oil charges has been an international demand. Enlargement of the worldwide financial system demands extra raw inputs, along with oil, and that accelerated call for pushes the rate. However, the hypothesis of expenses also has been currently contributing a lot closer to the pricing behavior of oil.

Speculation is the act of buying something these days with the anticipation of promoting it at a better price later. The method of speculation usually consequences in tipping the fees of the commodities involved beneath future trading.

Elasticity of Demand

Shale oil is an alternative to traditional crude oil. However, it must be noted that the extraction method of shale oil from oil shale is more expensive in both financial and environmental terms than the extraction of crude oil. Cross Price elasticity of demand for shale oil is the proportion alternate in the amount demanded of shale oil against consistent with unit percent change in the rate of traditional crude oil.

The maximum placing function of the oil market is the low-price elasticity of demand. That means demand for oil is not very attentive to adjustments in expenses. The supply of oil is even much less elastic than most different goods because of the specialized investments that are frequently had to extract oil (Investopedia, 2020).

Conclusions

In a conclusion, A lower in oil prices results in excessive economic activity in advanced economies and that the elasticity is essential to recognize the source of moves in oil expenses and OPEC has ended up the dominant producer of oil because of its marketplace conduct and cost structure.

References Boyce, P. (2020, July 5). What is Supply and Demand? | Definition | BoyceWire. Retrieved from BoyceWire: https://boycewire.com/supply-and-demand/ Faheem, M., Azali, M., Chin, L., & Mazlan, N. S. (2020). New Evidence of Oil Price Fluctuations and Manufacturing Output in Saudi Arabia, Kuwait and United Arab Emirates - ProQuest Central - ProQuest. Retrieved from ProQuest: https://co21nm5je-mp01-y-https-search-proquest-com.proxy.lirn.net/central/docview/2410834476/B8C56BFC93D145F9PQ/1?accountid=158986 Ghassan, H. B., & Banerjee, P. K. (2015). A threshold cointegration analysis of asymmetric adjustment of OPEC and non-OPEC monthly crude oil prices - ProQuest Central - ProQuest. Retrieved from ProQuest: https://co21nm5lc-mp01-y-https-search-proquest-com.proxy.lirn.net/central/docview/1695129510/32E53EEAD244FCAPQ/1?accountid=158986 Investopedia. (2020, Jun 7). How Do Supply and Demand Affect the Oil Industry? Retrieved from Investopedia: https://www.investopedia.com/ask/answers/040915/how-does-law-supply-and-demand-affect-oil-industry.asp Kilian, L. (2015, Jan 14). Lutz Kilian - Agenda Contributor | World Economic Forum. Retrieved from World Economic Forum: https://www.weforum.org/agenda/2015/01/how-has-shale-oil-affected-the-global-oil-price/ Kyritsis, E., & Serletis, A. (2019). Oil Prices and the Renewable Energy Sector - ProQuest Central - ProQuest. Retrieved from ProQuest: https://co21nm5lc-mp01-y-https-search-proquest-com.proxy.lirn.net/central/docview/2258123971/70376E979C504971PQ/2?accountid=158986 Prince, Baye, M., & Jeff. (2017). Managerial ecinimics and business strategy(9th ed.). McGraw-Hill Education. Rogoff, K. (2016, March 2). What’s behind the drop in oil prices? | World Economic Forum. Retrieved from World Economic Forum: https://www.weforum.org/agenda/2016/03/what-s-behind-the-drop-in-oil-prices/