Business Environment - Essay Example

Introduction The study attempts to analyze a hypothetical situation, where Pinky, Minky and Tinky (PMT) are three sisters who jointly own and run a relatively successful beauty business based in Ealing. About half their total revenue (TR) is generated by their beauty salon and the other half from supplying organic soaps, perfumes, and cosmetics. They do not manufacture these products, but rather source them from a number of producers who produce them using the PMT branding. The girls sell these products through their website. The website sales represent around 70% of their total organic products sales (the remaining 30% from salons, chemist, and health food stores).   A recent visit to their business advisor at the bank has informed the girls that the PED (Price Elasticity of Demand) for most of the services offered in the salon is fairly elastic whereas the PED for the organic products is inelastic.   The beauty salon faces a great deal of competition from similar rival businesses. This element of the business only ever manages to return a normal profit. Monopolistic Competition The firms and producers in a monopolistically competitive industry, according to the model, will sell similar but unique products. It will be like one firm selling red-colored mint toothpaste and the other selling white-colored toothpaste with a wintergreen taste (Suranovic, 1997). (Graph courtesy: www.egwald.com) The diagram above shows the industry and firms demand and marginal revenue curves. The slopes of the firms demand and marginal revenue curves are greatly exaggerated. In reality, they are almost coincident horizontal lines. The firms own demand schedule intersects the industrys demand schedule at the firms "equilibrium level of output and price," given the output levels of the other firms in the industry. (Wiens E, 2002) The PMT brand of organic products is also part of a monopolistically competitive industry, but a recent visit to their business advisor informed them that the Price Elasticity of Demand for their products is inelastic, which would mean it was Ed Read More