I need corrections addressed by my professor made to a business proposal

Future Growth Inc. 3

Economic Analysis

Future Growth Inc.

Andre McNally

Business Proposal

Market

Market is a place where buyers and sellers interact with each other and fix a deal for buying and selling of goods and services market plays an important role for a firm as well as for customers. It is market condition which affects the price and demand of a product in an industry. So before deciding the price and quality of a product or service it is important for firms to first review the market condition so that they can make an idea about the nature of the market and can deal with it accordingly.

Market Structure

Market structure introduces the basic nature of the firms and industry as a whole. Which give an idea to the firm owner that what is the nature of his firm or others? How can they make a stand in the market and the competition with the rival firms? So market structure gives all information about the price, number of buyers and sellers, nature of competition, policies, and the market structure in which they lie. All these markets are differing in their characteristics and nature which is explained below.

Oligopoly: This market structure is different from that of monopoly. In this market there is a limited competition because of small number of buyers and sellers in the market. There are only few large firms are there in this market as the sellers and buyers are less. This market also restricts the entry as there are high barriers to the entry of firms in the market this limits the competition. Oligopolists have choice to produce either homogeneous products or differentiated products. Future Growth Inc. (FGI) deals in building, selling, and financing own brand of building and forestry equipment is one example of this market structure. Profit maximization is there with a kinked demand that is the firm faces two demand curves one is relatively elastic and other is relatively inelastic (Mankiw, 2014). Really only a few firms that do what FGI does? Did you consider monopolistic competition?

Competitive Strategies that Future Growth Inc. can adopt to increase their profit are:

· Cost leadership: in oligopoly the prices are interdependent in nature, every firm keeps check on other firm because of competition in this market structure and one firm’s decision will affect the others. Price wars and price leadership is the main problem in this market form. In the oligopoly there is a problem of collusion because of homogenous products in the market and single firm’s price policy will affect the other firm’s demand.

· Product specialization: as there are few firms so it is important to have a product specialization in case of oligopoly to earn more profits in the market.

· Low cost focus: this will help Future Growth Inc. to increase the competition in the market by setting low price in comparison to the rival firm.

· Product Differentiation: this is very important for firms to sustain in market and help to earn more profit.

The positive effect of oligopoly market on Future Growth Inc.:

· Fixed price

· Restricted entry to other firms

The negative effect of oligopoly market on Future Growth Inc.:

· Less competition

· Risk of price setting

Elasticity of Product

Demand and price have an inverse relationship and the elasticity plays an important role in this regard and this can be inelastic, elastic and unit elastic. Price elasticity is the measurement of elasticity of price that measures the quantity demanded for a good that is affected by change in prices of that good. So we can say that price elasticity is the percentage change in quantity demanded divided by percentage change in price (Inkmann, 2010).

Ed = (Q1 – Q2) / (Q1 + Q2) / (P1 – P2) / (P1 + P2)

Price elasticity is said to be elastic when it will be greater than 1 that means demand will be more price sensitive, it is said to be unit elastic when it will be equal to 1 in this case change in price and demand will be at same proportion and it will said to inelastic when elasticity will be less than one which means the demand will be less price sensitive (Inkmann, 2010). A close substitute of a product can affect the elasticity of demand and a substitute product will have an elastic demand. In this case the elasticity for given price and demand is

Price	Demand	Elasticity	Column4
1,990.10	123	2.78966597	Elastic
1,732.00	182	10.88067661	Elastic
1,634.30	350	0.310266985	Inelastic
1,252.00	380	0.097854124	Inelastic
732.1	400	0.806972746	Inelastic
622.3	456	1	Unit elastic

Relationship between Price & Elasticity of Product

As shown in the above table and graph when prices are high the demand is low and the product is elastic till the price $1732. As price is decreasing the demand is increasing and product is inelastic till the price is $732.1. And when the price is lowest and demand is highest the product is unit elastic at point where price is $622.3 and demand 456 units.

Effect on Marginal Cost & Marginal Revenue

The microeconomic concepts that play an important role in profit earning of an organization are marginal cost and marginal revenue. Marginal revenue is the additional amount that gains from an additional unit sold on the other hand marginal costs is the additional costs that incurred by an additional unit purchased. To understand a company's cost structure and profitability it is important to understand both marginal cost and marginal revenue and these concepts are useful for purchasing policies and internal decision-making process in pricing. Marginal revenue at constant prices for all units should remain the same, but there are number factors that affect the marginal revenue (Subramanian, 2013).

If marginal revenue is greater than marginal cost, then the profit can be increased by the firm by increasing the production of their product because extra production will adds more to revenue than to cost so this will increases profit. On the other hand if marginal cost is greater than marginal revenue, then the firm can increase profit by decreasing production because reducing production will reduce revenue less than decrease in cost so this will increase profit. And lastly if marginal revenue is equal to marginal cost, then by producing more or less output the firm cannot increase profit because at this point profit will be maximized (Paulson, 1948).

Non Pricing Strategies

There are various non pricing strategies that can be adopted and will affect the business. As pricing strategies plays an effective role in any business same way non pricing strategies will also influence the business. Some of these strategies may include:

Advertising: one of the most common and important non pricing strategy is advertising. This plays an important role in influencing the growth of a business. Using attractive and effective advertising one can attract the customers to their products or services and this will lead to increase the number of customers and profit (Stengel, 2011).

Product Differentiation: except in the case of monopoly product differentiation plays an important role in business. This is also one of the important non pricing strategies used in the business. As to deal with the same products and competition in the market one have to be unique in the products they offer in the market so their products should be different from others as to be unique. This will attract more consumers as they want change and love unique products.

Out of these strategies product differentiation is the one which can increase the barriers to the entry of a firm in the market. As this will increase the completion in the market so the new firm will think twice before entering to the market (Stengel, 2011).

Fixed & Variable cost

Fixed and variable costs play an important role in any business and while adopting strategies these may affected. Variable cost is that cost which varies with the output or the sales revenue of a company. This includes energy usage, raw material, distribution costs, labor, etc. on the other hand fixed costs are those costs which are independent of output. These costs remain constant or unchanged and are usually considered as sunk cost. These costs include machinery, buildings, rent, etc. business with high variable costs is different from the businesses with high fixed costs. This will affect the financial structure of the business as well as its profits and pricing. The breakeven point in businesses with high variable cost in comparison to businesses with high fixed cost is at a much lower level of output, but their rate of contribution is also much lower (Subramanian, 2013).

· Describe the current global economic conditions and their effect on local macroeconomic indicators for your good or service. 

· Describe the local economy's stage in the business cycle.

Describe how current credit market conditions affect your planning or operating decision for your good or service

References

Inkmann, J. (2010). Estimating Firm Size Elasticities of Product and Process R&D. Economica New Series , 384-402. Mankiw, N. (2014). Principles of Economics. USA: Cengage Learning. Paulson, W. E. (1948). Characteristics of the Marginal Cost Curve. Journal of Farm Economics , 467-499 . Stengel, D. N. (2011). Managerial Economics: Concepts and Principles. New York: Business Expert Press. Subramanian, A. (2013). Product Market Competition, Managerial Compensation, and Firm Size in Market Equilibrium. Managemant Science , 1612-1630.

Elasticity 123.0 182.0 350.0 380.0 400.0 456.0 2.789665970109439 10.88067661477132 0.310266985333902 0.0978541238206559 0.806972745688848 1.0

Demand

Price