Topic: economics pricing strategies

Order Description

Learning Objectives Learning  Objectives
1. Explain what a mono pol y  market is and what conditions mi ght cause a  p py g
market to be a monopoly
2 Derive the marginal revenue (MR) curve for a monopolist 2. Derive  the  marginal  revenue  (MR) curve for a monopolist
3. Show how a monopolist maximises its profit  (MR = MC) – and use  p p( )
graphs to show a firm’s profit (or loss)
4 Explain why a monopolist causes a loss in surplus (a deadweight loss) 4. Explain why  a monopolist  causes a loss  in  surplus (a  deadweight loss)
5. Explain possible option to regulate a monopolist, and outline their
strengths and weaknesses
Reading list Reading   list
EBDM: Chapter 11  p
Borland: B5.10
Whatis a monopoly?
Monopoly a single seller in a market
What is  a  monopoly?
Monopoly – a single  seller in  a market
Why are there monopolies? Why are  there  monopolies?
BUSS1040 Essay Assignment

This assignment requires you to explore a ‘r eal-world’ application of a firm’s pricing
strategy.

Your answer must be no more than 500 words in  length. The written a ssignment is due at
11.30am Friday 17 October 2014. Assignments must be subm itted electronically via
Blackboard. A hard copy of the assignment must  be handed in to the designated assignment
drop box in the Merewether Building. Submission is not valid unless both copies are
identical and both are received by the due  date. Should submission problems occur,
students should contact the unit c oordinator as soon as possible.

The question:

Ray works for a major Australian bank. Ray is in charge of IT purchases for the bank and has
to make a large order to replace all the deskto p computers in the head office. This question
explores the options for Ray as to how he should structure this purchase in order to get the
computers required by the bank at the lowest  possible price. More generally, it is about a
business designing the best procurement proces s it can to buy inputs into its production
process.
a. Assume that Ray, through his vast industr y experience, has perfec t knowledge about the
costs (and quality) of a computer supplier. Moreover, assume that the computer supplier
acts like a price taker in the negotiations. What offer should Ray make to the supplier in
order to get the best possible price? Make sure you highlight the intuition for your
suggestion. Practically, if Ray does not have  perfect knowledge, but instead has fairly
accurate information about the supplier’s costs, what are some of the potential problems
that Ray might face? Can these problems be mitigated (and how)? Ensure you explain your
answer.
b. Now assume that there are two computer manufacturers. Both manufacturers make
identical computers (in terms of the specificat ions of the computers) and both have the
same constant marginal cost per unit manufactu red (and no fixed costs). Ray is not exactly
sure of the costs for each potential seller. Wh at are the potential issues that Ray now faces
in designing the procurement process? Given th e aim of minimising cost, suggest a purchase
procedure for Ray. What is the expected price  per computer if Ray adopts your suggestion?
Again, use economic intuition to explain your answer. Is Ray better off splitting the order in
two, or having it as one larger order?
c. Once again, assume that there are just tw o computer manufacturers. Both have constant
marginal costs (and no fixed costs), but Ray knows that one of the suppliers has a lower cost
than the other (but he isn’t sure which one). Again, he isn’t really sure of the costs of
production for each firm, as in part (b). Each computer manufacturer knows their costs, and
the costs of their rival. What procurement  process would you recommend, and what is the
expected price Ray will end up paying for each computer? Explain your answer.

Please note:

1.   This essay is 500 words long, not including references, appendices and diagrams. Any
essays longer than 500 words will only be read and graded up for the first 500 words.
2.   Please submit an identical copy in the BUSS1040 drop box in the Merewether
Building and online on Blackboard.
3.   Apply the relevant theories from the unit of study when analysing the problem. The
content of lectures (and related tutorials  and readings) are relevant when answering
this question.
4.  You may need to undertake some research  to complete this assignment. Make sure
you reference your essay complete ly, consistently and accurately.
5.  In this assignment, you will also be reward ed for the depth of your analysis using the
tools that you will have been taught in the unit.
6.  You must back up with evidence or logi cal reasoning all statements that you make.
Your claims should be, where appropriate,  supported by references to the existing
work (detailed in your references).