Managerial economics is the application of economics, with which economic analysis would be formulated by considering the rational managerial decisions. This study has highlighted different concepts related to the managerial economics. In this study, how a medium sized firm would survive in the monopoly type market structure, would be discussed. With the help of this concept, this study is benefitted to identify the demand and supply of the food manufacturing market. In order to increase the sales of the organisation in the competitive market, the organisation requires to follow the pricing strategy and also requires to focus on the brand as well as also on the quality of the product. In this context, this study would highlight the type of pricing strategy, which would be implemented by this firm. On the other hand, this study is also helpful to identify the impact of reduction of price on the purchasing behaviour of the consumers. On the other hand, this study would also discuss how it necessary to focus on the quality of the product in order to maintain a long-term relationship with the consumers.
As per the case study, a medium sized food manufacturer firm has planned to expand their business by involving their own brand in the Australian supermarket shelves. As per the statement of Hirschey (2016), it can be mentioned that the food manufacturing market of Australia is of monopoly type. Coles and Woolworths have played the role of monopolists. They are assumed as the profit maximized firms in the market. They are treated as the price maker in the market. In this point, it can be mentioned that that medium sized firm would belong from a competitive market. In order to survive in the market, this firm requires to maintain their brand, quality of the product and also on the price of the product (Essl et al. 2016). On the other hand, the products are perfectly substitute to each other, therefore, in order make successful their business, the medium sized firm requires to focus on the target consumers, pricing strategy and also requires to identify the real competition.
According to Keat and Young (2014), it can be stated that in order to expand their own brand line in the monopoly market, the organisation requires to increase the consumer awareness in front of the consumers about their products. The organisation also needs to adapt new marketing policies in order to increase their sales. In this context, it can be mentioned that the medium sized firm can provide offers and discounts on the purchase of the products (Lang 2015). Therefore, the consumers will be willing to purchase the products. It is known that the consumers are seeking good quality of products in turn of affordable prices. It is noted that as the medium sized firm is belonging from monopoly type market, therefore, the organisation also requires to consider the pricing structure of the monopolists (Thomas and Shughart 2013). Based on the prices of the monopoly firms, the medium sized firm requires to set the prices of their products. This will be helpful to get success in the long run. Therefore, it can be assumed that the medium sized food manufacturing company will be successful in the long run by these business strategies (Froeb et al. 2015).
More specifically, it can be mentioned that after identifying the target market, the medium sized firm requires to focus on the demography, income statement of the consumers. As opined by Thomas and Shughart (2013), the organisation also requires to organise a free campaign, which would be helpful to increase the consumer awareness. This would help to the consumers to get an idea regarding the quality, price of the products. As the food manufacturing market of Australia is monopoly type, therefore, it would be difficult to expand the own brand into the market (Hirschey 2016). Moreover, it can be mentioned that the medium sized firm requires to set affordable prices for the product, so that the consumers are likely to purchase the product. On the other hand, Rylková (2016) cited that the organisation can adapt the pricing for the market penetration. As per the concept of market penetration, the organisation aims to attract the buyers by offering lower prices on the products. On the contrary, Rahman (2015) criticised that while a firm use this technology to survive in the competitive market, therefore, penetration pricing would lead an initial loss of income for the firm. However, this would lead to make long run profitability (Keat and Young 2014).
Moreover, Png (2013) added that this would increase the consumer awareness over the long run and this would in turn drive the profitability. In the long run, this strategy works on the expectation and the consumers would like to switch to the new brands as the price of the product is lower. On the other hand, after adapting the market penetration pricing strategy, the medium sized firm would increase the demand for the product, which would be discussed with the help of the following figure:
Figure 1: Demand and Supply for the New Product in Monopoly Market
(Source: Created by author)
From the above figure, it can be observed that the initial demand for the new product is D1, which is downward sloping. Initially the supply curve for the product is S1. Initially the equilibrium was E1. The equilibrium occurred when the demand curve and the supply curve intersect to each other. Initially the equilibrium price is P1 and the equilibrium quantity is Q1. In order to increase the sales of the product, the medium sized firm has planned to reduce the price of the product. Therefore, the organisation has set the price at the level of P2. In order to maintain the equilibrium, it can be observed that the demand for the product has increase and the demand curve has shifted to the rightward. Now, the new demand for the product will be D2. The new equilibrium will be at E2. In order to meet the demand for the product, the organisation has increased the supply of the product in the market. Therefore, the equilibrium quantity will be increased from Q1 to Q2. Therefore, in the long run, it can be seen that the medium sized firm would increase their profitability by increasing the sales by following the market price penetration strategy.
On the other hand, it can be added that the medium sized firm also requires to maintain the quality of the product. As it is known that the Australian food manufacturing sector is belonging from the monopoly market and the consumers are willing to purchase the products from Coles and Woolworths. Woolworths and Coles would like to provide greater quality of goods to the consumers (Nguyen 2014). In this essence, in order to survive in the market, the medium sized food-manufacturing firm requires to earn the trust of the consumers and therefore, the firm needs to focus on the brand on the product. This will increase the satisfaction level of the consumers and the organisation will be able to maintain the long term relationship with the consumers (Lang 2015).
Conclusion
This study has highlighted the concepts of managerial economics. In this context, the study has explained that a medium sized firm requires identifying the targeted consumers and also implementing fair price policy in order to survive in the monopoly type market structure. After analysing the study, it can be inferred that after reducing the price level of the product, the consumers are highly willing to purchase the product from the organisation. Therefore, the demand for the product has increased and in order to maintain equilibrium, the organisation has increased the supply of the product. Therefore, it can be seen that the sales of the product has increased. On the other hand, in order to maintain the long-term relationship with the consumers, the organisation also requires to focus on the brand as well as also on the quality of the product.
In order to survive in the competitive market, the organisation also requires to maintain a greater relationship with the suppliers and also with the investors. On the other hand, it can be recommended that the organisation can consult with an expertise in order to survive in the market and also improve the business strategy. In this essence, it can be also suggested that the organisation can take the help of social networking sites for make people aware about the product.
References
Essl, A.M., von Bieberstein, F., Englmaier, F. and Feess, E., 2016. Three essays in behavioral and managerial economics (Doctoral dissertation, Universität Bern).
Froeb, L.M., McCann, B.T., Ward, M.R. and Shor, M., 2015. Managerial Economics. Cengage learning.
Hirschey, M., 2016. Managerial economics. Cengage Learning.
Keat, P.G. and Young, P.K., 2014. Managerial economics: economic tools for today’s decision makers. Macmillan; Maxwell Macmillan Canada; Maxwell Macmillan International.
Lang, B., 2015. ECON 550-03 Managerial Economics.
Nguyen, H., 2014. FIN 321 Managerial Economics, Section 1.
Png, I., 2013. Managerial economics. Routledge.
Rahman, H., 2015. A critique of the various aspects of managerial economics part 6.
Rylková, Ž., 2016. Economic Value Added in Managerial Economics. Scientific papers of the University of Pardubice. Series D, Faculty of Economics and Administration. 38/2016.
Thomas, C.R. and Shughart, W., 2013. The Oxford handbook of managerial economics. Oxford University Press.
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