Simulation and Decision Making - Essay Example

Simulation and decision making Every firm or company in the business industry has the sole objective of profit maximization unless it is a parastatal. In pursuit of these profits therefore, different critical decisions have to be made in order to ensure that uncertainties are avoided. The business also has to come up with plans and simulation models that direct it to achieve its objectives. These models play a major role of preventing instances such as project failure. Hence, a project can only be implemented once the trials in the models prove to be successful.

Repeated trials are also important in ensuring success of the projects (GoldSim, 2012). A simulation played in the monopoly market would have no problem in the case of using pricing as a tool. This is because, since there are no competitors in the market, then the monopolist can choose to raise the prices up to the point where he makes supernormal profits. He or she however, still has to consider the possible effects of the high pricing on the firm due to cases of dead weight losses. In playing the simulation for a perfectly competitive firm, two factors have to be considered: the possibility of customers shifting to other buyers and the possibility of making massive losses due to low prices set.

In order to completely optimize the profits therefore, the business may decide to just maintain the same prices but improve the quality instead (Smith & Smith, 2011). In playing the simulation, for a monopoly market structure, the firm may limit the amounts of funds directed to advertising and promotion since the firm has no competitors. Some advertising may however be required to create awareness about new products in the firm or shifting of the location. In a perfectly competitive market and a monopolistic competition, firms need to promote their products entirely since the competition in the two markets is stiff.

For an oligopoly, the colluding markets should come together and choose the products that require advertising (Smith & Smith, 2011). Any new form of technology in a perfect competition market will be known by all firms since information is readily available to all firms. In playing the simulation therefore, I would choose to wait and observe the move of other firms towards the new form of technology. To keep up with competition, it is wise to make this decision depending on the decisions of the competing firms.

On this model however, I would assume that other firms adopt the technology, and then I adopt it too. For a firm in the monopolistic competitive market, a firm should acquire the technology but make some improvements on it to make it unique and differentiated. In playing the simulation for a monopoly market, the firm will have to consider the fact that an improvement in the technology might lead to an increase in prices leading to increased dead weight loss (Smith & Smith, 2011). The decisions I made in playing the above simulation include, increasing the prices in the monopoly market in order to optimize the profits.

The result of this decision is that the income increased, with the profits also increasing since the costs remained fixed. The firm also suffered some form of dead weight loss since the total sales still remained fixed. I also made a decision to increase the advertisement funds in the case of a firm in a perfect competition market. This is due to the large number of competitors thus, the need to attract and maintain customers. The result of this was an increase in the number of customers. Nevertheless, the number remained constant after a short period of time since other firms committed their funds to advertising too and thus, some customers shifted.

The decision to ensure intense promotions of new products in a monopoly market ensured that customers were kept aware of the new products trends in the market (Hirschey, 2008). Other key decisions include acquisition of technology in a firm that belongs to the monopolistic competition market. This mainly ensures that the firm is able to differentiate its products thus, increasing the potential customers. The decision to wait for the reaction of other firms in the case of a perfect competition might have negative effects or positive effects depending on the period that elapses after the reaction of the first firm is noted.

It would therefore be better to just make the decision without delay if prospective benefits have been noted. In the case of investment proposals, a firm can only invest in a project if it proves to be beneficial and profitable irrespective of the market in which it belongs. The result of the decision was that; investment losses were avoided while the firms also ensured that they benefitted from the profitable investment (Hirschey, 2008). The simulation model will thus, help the firms to come up with real strategies of building and maintaining a competitive advantage in the market.

The firms will also be able to make the right decisions for the success of the business. References GoldSim (2012, January 2). What is Simulation - GoldSim. Monte Carlo Simulation Software - GoldSim. Retrieved September 6, 2012, from http://www.goldsim.com/Web/Introduction/Simulation/ Hirschey, M. (2008). Managerial Economics (12th ed.). USA: Cengage Learning. Smith, T. J. (2011). Pricing Strategy: Setting Price Levels, Managing Price Discounts, & Establishing Price Structures. USA: Cengage Learning.