Simulation_Analysis

Simulation Analysis This paper will provide understanding of decisions that are made in each type of market structures and the impact of those decisions. Examples of pricing strategies that succeeded in maximizing profits and how decision-making differ among the market structures of monopoly, oligopoly, monopolistic competition, and perfect competition will be defined. It will also use strategic variables to maximize economic profits, identify pricing and non-pricing strategies; allocate funds for technology, research, development, innovation, and efficiency. In 2003, being the pioneer with the design and manufacturing of an optical notebook computer; Quasar lead the way in the computer industry. Having a patent for three years, Quasar had a monopoly on optical computers. If Quasar sells 5.3 million computers at a price of $2550 their total profit will be $1.29 billion which can be the maximum profit where marginal costs equals marginal revenue (University of Phoenix, (2012). By 2004, quasar reviews the advertising budget and the impact on promotional activities on demand, price, revenue, and profits. A $600 million budget increase is recommended by Robert. He thinks volumes will rise and profits will increase if the company invests in brand building. Consumers will have to buy 7.7 million of computers at a price of $2450 each in order to have a profit of $2.74 million (University of Phoenix, (2012). In 2005, Quasar reduces production costs by streamlining the manufacturing facilities, so David recommends an upgrading of the production process. He thinks that during the production process, the amount of waste increased the production costs. In his opinion, upgrading the machinery and production process will result in the reduction of cost per unit. If the computers are sold for $2200, 9.4 million would have to be bought in order to have a total profit of $2.21 billion which will be the maximum profit point. Jane’s opinion is that with the lack of competitors, the production costs can be paid by customers by increasing the price of the computers to $2300. This will leave a total profit of 1.52 billion if 8.8 million of computers were sold. This will result in a 0.6 difference of computers sales and a $0.69 less of total profits (University of Phoenix, (2012). In 2006, Quasar’s patent expires leaving the market opened for other computer manufacturers to enter. Orion Technologies enters the competition and gains a 50% of the market for the optical notebooks. Orion produces a similar model for the price of 1750 dollars which results in a total profit of 162 million dollars and a revenue of 120.3 million dollars. If Quasar wanted to sell their computers at 1750 dollars their profit would be 56 million dollars with revenue of 120.3 dollars. The difference of total profits between Quasar and Orion will be 106 million dollars (University of Phoenix, (2012). As a result of consumers’ purchases of the computers for personal and corporate use, Quasar has an increase in sales. But due to competition the market share has a decrease; by 2010, profits in optical computers are proving to be difficult. There is an impact of brand building initiatives on production capacity utilization. In that same year, Quasar produces and launches a few new models with low barriers to entry and the ease of differentiation. The company spends 200 million dollars for brand development. Robert recommends launching again the Neutron computer through the same investment and advertising, a more aggressive promotion, and increasing optimum quantity (University of Phoenix, (2012). Rajat has a different opinion; he recommends a variant of the notebook for the publishing industry, a new model called Ceres. He thinks that Quasar would be able to set a premium price and earn higher margins because there is a low target volume. The profit for Neutron would be 520 million and for Ceres a profit of 785 million dollars which combined would produce a profit of 1305 million dollars. Quasar would be able to use 12 million units of unused optimum production capacity and decrease the average production costs for both products (University of Phoenix, (2012). Quasar currently does not have the capacity to retain a market based on the uniqueness of their product. When they sold their market share they preserved only a small percentage of the market. With similar products on the market, customers are not eager to pay a much higher price for any company’s uniqueness. Quasar must evaluate that with a lot of competition in the market, a more accessible price would be appropriate (University of Phoenix, (2012). It was observed that through the years the prices and costs of production changed from the time of the initial investment; profits also changed. Continuous improvement is recommended by David because it ensures the company has found ways to cut on costs. Cutting costs may result in high levels above the competition, but only for a short period of time, because with a Perfect Competition model, any competitor in the market will be doing the same thing immediately (University of Phoenix, (2012). To a certain degree, Quasar can still manage its prices because a substantial amount of non-price competitors exists. This can lead to price discrimination, so Quasar should focus on gaining and retaining their customers. By integrating this into their pricing strategy they will be able to promote an indisputable price. Their non-pricing policy should be centered on the development of products that are exclusive to their brand and image. This can primarily consist of both the improvement of their products and research. Another non-pricing strategy can be considering the synchronization of their prices with endorsements. Quasar should consider serving other type of customers based on their finances and market position (University of Phoenix, (2012). In a Perfect Competition model all companies are tied to the same market price. Production, machinery, and the logistic of each company will be different therefore costs and utilities will be different for each company. Contrary to the Perfect Competition, a monopoly determines higher market prices and the production level will be less, in other words: less products and higher prices. The monopoly model has the power to innovate and generate technology because of its power in the market and their resources. When other competitors see the benefits obtained by the monopolist, they will look for a way to integrate themselves in the same industry with innovative technologies to reduce costs and have the profits (McConnell, C. R., & Brue, S. L., (2008). As with Monopoly and Perfect Competition, Oligopoly and Monopolistic Competition look for ways to maximize their profits. All companies look forward to minimize their costs by using good resources. In order to have a better and productive efficiency they apply new technologies and new ways to improve productions by researching, developing, and innovating. Any company that gets better results in the quest of efficiency will have lower costs and higher profits (McConnell, C. R., & Brue, S. L., (2008). References McConnell, C. R., & Brue, S. L., (2008). Economics, 17e. Downloaded on August 24, 2012 from https://ecampus.phoenix.edu/content/eBookLibrary2/ University of Phoenix, (2012). Simulation: Economics for managerial decision making: market structures. Viewed on: September 16, 2012 from: https//portal.phoenix. edu/classroom/coursematerials/ eco_561pr/20120828/OSIRIS:40058360