Eco project

Memo

To: My Business Partner

From: Michael Rickman

Date: 24 July 2022

Re: Microeconomics Simulations

Introduction

This memorandum report identifies and explains key microeconomic principles using a set of simulation games. The outcome of these games illustrate how microeconomic principles can be applied within real-life situations to help us make better business decisions. This report is a summary of the simulations I played and their results, which include the key takeaways and their significance, for your review and reference. It is divided into the following sections:

Comparative Advantage

Figure 1.1

Figure 1.2

The amount of money lost while purchasing a good or service is referred to as opportunity cost. Comparative advantage, on the other hand, refers to the capacity to manufacture things at a lower opportunity cost than a rival. It is clear from figures 1.1 and 1.2 that this notion was worked out using the Burger simulation and the Fry's simulation games. Since the production cost of hamburgers and fries compares with and without trade, it is evident that opportunity cost appears to play a significant part in comparative advantage. To explore how the production potential frontier (PPF) affected the decision-making process, I performed these simulations while providing random results outside of the game. When leveraging comparative advantage in trade, producers that choose to give away less of their products in order to manufacture their own commodities frequently experience relatively low opportunity cost. There is a scarcity of commerce with comparative advantage if multiple producers of the same items charge the same price.

Comparative Markets and Externalities

Figure 2.1

Figure 2.2

In comparison to the earlier simulations, this one is a little more sophisticated as it advances into the externalities and competitive marketplaces. It is simple to take control of the supply in a way that will enhance its demand among the clients if policy initiatives are included. This decision will significantly contribute to the company's rise in earnings and sales. Basically, a number of factors that are useful for forecasting market change lead the elasticity of demand to fluctuate often. The availability of alternatives is one factor in the elasticity of demand since certain products are classified as necessities or luxury items while others are classified according to the percentage of money spent on purchases. Based on the conclusion of the scenario in both figures, it is clear that price elasticity may demonstrate to a company how far it can raise the price of a product before experiencing a loss.

Production, Entry, and Exit

Figure 3.1

According to the viewpoint of a business owner (figure 3.1), before entering a new market, a person should take into account a number of variables, including production, client base, and other variables. Additionally, it's critical to be aware of the market prices that your potential rivals have established their goods in order to determine the price at which you may outbid them. Decisions on marginal costs may depend on the volume of goods that must be produced and sold (Mankiw, 2021). The fixed cost of goods and services should also be emphasized because it depends on marginal cost. Understanding the period of year when you must modify the market pricing depending on the current market needs is crucial.

Market Structures

The four types of economic market structures are oligopoly, monopoly, perfect competition, and monopolistic competition. In oligopoly, there are only a few producers, few producers exist in perfect and monopolistic competition, and there is only one producer in a monopoly. No matter if a market has several sectors or just one, oligopolistic marketplaces determine their own pricing. Profit margins are thus bigger than they would be in a market that is highly competitive. With monopolies and monopolistic competition, a single product rules a market while also having a small number of competitors. These might interfere with cost assessments across the market.

Conclusion

It is clear from our review of the instances in the table above that simulation games play a significant role in the conception of economic ideas. Business owners may make better judgments and have a better understanding of the financial games life has to offer by understanding the visual side of these economic systems. We can better grasp how to manage this new business by examining comparative advantage, competitive marketplaces, externalities, production entrance and exit, and market structures.

Reference

Mankiw, N. G. (2021). Principles of microeconomics (9th Edition). Cengage.