The Realization of the Consumer Behavior - Essay Example

Question The expressions short-run as well as long-run do not necessarily refer to a particular time periodlike four months or even five years. The main difference between the two comes in in the flexibility factor of decision making. Thus, short-run is the time period that quantity of an input or at least one of the many inputs is fixed while other inputs’ quantities can vary. Long-run on the other hand is that time period where inputs in entirety can be varied. Therefore, there is no specific time that can be taken as fixed or even marked on the dates of the calendar to distinguish short-run from the long-run. The short-run or long-run of one industry is often different from another. (Moffatt, 2011) A given firm’s costs may be reliant upon the time or period under consideration. Most of the decisions are fixed when a short-run time frame is taken into account and thus the long-run and short-run cost curves are different. Short-run costs and costs in the long-run are, however, related. For instance, a long-run average cost curve is more flat in comparison to a ‘U’ shaped short-run average cost curve. Short-run cost curves usually lie upon the long-run cost curves. Figure1. A graphical illustration of a short-run cost and a long-run cost curves Average costs LATC SATC1 SATC2 SATC3 Quantity Note: SATC stands for Short-run Average Total Costs while LATC stands for Long-run Average Total Costs. Short-run Average Total Costs of a firm differ from the Long-run Average Total Costs since the fixed costs in the short-run can be varied over the long-run. (Mankiw, 2008 p256) In the case of an operator of a port, cost efficiency occurs efficiency occurs where the throughput is made available at the lowest cost possible with resource-prices paid by the operator put into consideration. The economic cost of a port is represented by the relationship depicted by minimum costs of handling any given throughput levels. Over the short-run time period, there must be at least one of the port resources that should be fixed with regards to amount. For example, the buildings or the wharf of a port are some of the resources that cannot be varied in the short-run period. Unit costs in relation to a port’s costs are usually compared by dividing them with their throughput amounts. Figure 2: A graphical presentation of Short-run Total Costs, Short-run Variable Costs and Short-run Fixed Costs. That is; STC, SVC and SFC. Cost STC SVC SFC Port throughput Figure 3: Average costs in the short-run Cost per unit SATC SAVC SAFC Port throughput Note that SATC stands for Short-run Average Total Costs, SAVC for Short-run Average Variable Costs and SAFC for Short-run Fixed Costs. Short-run average total cost is gotten by dividing short-run total cost with throughput. On the other hand short-run average fixed cost is the short-run fixed costs divided by the throughput and short-run average variable cost is short-run variable cost divided by throughput. Average fixed cost reduces in a continuous manner as the level of throughput rises; that is, since a fixed cost continues to be divided by bigger and bigger amounts of throughput of the port. As the amount of throughput rises, average variable cost as well as short-run average cost reduce initially, get to a minimum and afterwards rise. In the port’s long-run, the costs in whole are variable. Therefore, long-run total costs that are incurred by the operator of the port of the port for the given throughput amounts are a total of variable costs. Long-run average total costs are equal to long-run total costs divided by total port’s throughput. A long-run average total cost curve has a negative slope for a given range of throughput and then it starts to increase. Figure 4: Long-run Total Cost curve and a Long-run Average Total Cost Curve. cost port throughput cost per unit LATC Port throughput (Talley, 2009 pp98-100) A convenience store is usually a type of retail business. Costs of a convenience store that maybe short-run may include costs of buying stock like batteries, beverages, and snack foods while long-run costs may include such outlays like expanding the store, opening up other stores or even buying existing stores. (Startupbizhub.com, 2011) Question 2 Cost minimization means the process of ensuring that least costs are incurred while pursuing a given end. (econguru.com, 2011) Profit maximization on the other hand is the characteristic of total revenue being more than total costs by the largest margins. Also, it is the point at which if one more unit was produced, the additional revenue equals the additional cost incurred in producing that extra unit. That is, Marginal Revenue is equal to Marginal Costs. (livingeconomics.org, 2011) Considering a telecommunications company like ericsson, one can see the existence of economics of scale in this industry. Taking into account the actual specific company’s results with regards to returns and subtracting all necessary costs, it shows the profitability of a company. It is of essence to note that the point at which a company gains maximum profits is different from another despite being in the same sector, though. Each and every company is unique and thus their optional price-setting is also not the same. For instance, one company can increase profits by raising traffic in the network while another decrease in price per the set time. Cost minimization also is unique to any given company. (ericsson.com, 2008) On the other hand a shipping agency’s profit maybe affected by the shipping activities. Shipping movements’ increase may directly cause a rise in the revenues of a shipping agency. The volume of shipping entering a given country’s waters like Australian may have the potential of escalating or decreasing revenues. Some of the other activities that may cause a rise in revenues or otherwise may include bulk carrier activities. Profit maximization, therefore, depends upon the most optimal point where maximum profitability is realized. Costs minimization may refer to the reduction in outlays of running the activities of a shipping agency like carrier expenses. (finance.gov.au, 2009) However, it is good to note that the function of profit maximization in a firm may also imply cost minimization. Although not synonymous, these two functions always go in tandem. There is clear line of demarcation for the two, though. (Beck, 1996) Question 3 -There is the realization of the consumer behavior, where in accordance to the USA’s Food Marketing Institute foods that are offered for the sale in their prepared form are gaining high preference by customers. -Approach to marketing is also another determinant in competition. For instance, the article says that niche marketing is taking centre stage for most convenient stores. This approach may also help in growth as per this study. -Focus on a single product may also do in determining competitiveness. For example, a convenience store that has its focus on products like pasta and sushi or even two types of offerings is likely to perform very well in a certain market. -The realization of the other market competitors as not just other convenience stores but also other business like supermarkets like a situation where supermarkets are setting up gas pumps to capture the convenience store clients. - There is the provision of customer friendly kind of display, (For example; the application of signage as well as way-finding devices so as to make good guidance to customers). This, to help customers navigate easily; there are the wide open passage ways. (Ambrey Alison, 2004) Question 4 (a) Equilibrium in economics refers to a scenario where the producer has a level of output where profits reach their maximum. Profits are equal to the difference between Total Revenues and Total costs Therefore, profits= TR-TC where TR= Total Revenue TC= Total Cost A producer attains equilibrium where marginal revenue equals marginal cost. That is, where if an extra unit is sold the additional revenue obtained equals the additional cost of that extra unit. Let marginal revenue be MR and marginal cost be MC. (Aggaarwal and Vijay, 2009 p158) (i) Output TC TR Profits 0 10 0 (10) 1 21 14 (7) 2 30 28 (2) 3 42 42 0 4 58 56 (2) 5 76 70 (6) Profit maximization point is 3 pizzas and profit= 0 (ii) Output TC TR Profits 0 10 0 (10) 1 21 12 (9) 2 30 24 (6) 3 42 36 (6) 4 58 48 (10) 5 76 60 (16) Profit maximization point is 2 or 3 pizzas and profits= (6) (iii) Output TC TR Profits 0 10 0 (10) 1 21 10 (11) 2 30 20 (10) 3 42 30 (12) 4 58 40 (18) 5 76 50 (26) Profit maximization point is 2 and profits= (10) (b) Aussie Pizza’s shut down point should be the point at which there are nil profits. That is, just before it starts making losses. Therefore, from the above tables at the point where they are selling pizzas at price 14 USD, the firm should close down so as to avoid losses. (c) Supply schedules at each price have been provided in part (a) of the answer. Reference list: Aggaarwal, Subhash and Vijay, Yogesh. (2009). Together with Economics. Rachna Sagar. P158. Beck A. Taylor. (1996). On The Equivalency Of Profit Maximization And Cost Minimization: A Note On Factor Demand. Retrieved 3 April 2011 http://frank.mtsu.edu/~jee/pdf/taylor.PDF econguru.com. 2011. Cost minimization. Retrieved 3 April 2011 http://glossary.econguru.com/economic-term/cost+minimization ericsson.com. (2008). There is always a right price. Retrieved 3 April 2011 http://www.ericsson.com/ericsson/corpinfo/publications/ericsson_business_review/pdf/20 8/3_right_place.pdf finance.gov.au. (2009). Case Study - Australian Maritime Safety Authority. Retrieved 3 April 2011 http://www.finance.gov.au/comcover/conferences/docs/Case_Study_AMSA_4.rtf. livingeconomics.org . (2011). Profit Maximization - Total vs Marginal. Retrieved 3 April 2011 http://livingeconomics.org/article.asp?docId=320 Mankiw, N. Gregory. (2008). Essentials of Economics. Cengage Learning. Edition 5, illustrated. p256. Moffatt, Mike. (2011). Short Run vs. Long Run. Retrieved 3 April 2011 http://economics.about.com/cs/studentresources/a/short_long_run.htm startupbizhub.com. (2011). How to Start a Convenience Store Business. Retrieved 3 April 2011http://www.startupbizhub.com/Starting-a-Convenience-Store-Business.htm Talley, Wayne K. (2009). Port Economics. Taylor & Francis. Edition Illustrated. pp98-100. Read More