4. SJ24603 - APPLIED COMPETITIVE MODEL.pptx

applied competitive

1. SJ24603 INDUSTRIAL ECONOMICS APPLIED COMPETITIVE MODEL (INDUSTRIAL ORIENTED)

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5. CONSUMER SURPLUS It refers to the  difference between the price that consumers are willing to pay  for a good or service and the actual price they pay. In other words, consumer surplus is the benefit that consumers receive when they are able to purchase a good or service at a lower price than what they are willing to pay. Presentation title 5

6. From the perspective of consumers,  consumer surplus is a measure  of their economic welfare. It represents the additional value that they gain from being able to purchase a good or service at a price lower than their  maximum willingness to pay . This surplus can be seen as a form of economic gain or benefit that consumers enjoy when they are able to find good deals or take advantage of lower prices. Presentation title 6

7. From the perspective of firms, understanding consumer surplus can help firms  determine the optimal pricing strategy  and market  structure that will maximize their profits . By  analyzing consumer behavior  and their willingness to pay for a good or service, firms can make informed decisions about  pricing and market segmentation . Presentation title 7

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9. To calculate consumer surplus, we need to consider the demand curve for a particular good or service. The  demand curve shows  the quantity of a product that consumers are willing to buy at different prices. The consumer surplus can be calculated by finding the area below the demand curve and above the actual price paid by consumers.

10. Suppose the demand curve for a concert ticket shows that at a price of $50, 1000 tickets will be sold. However, the actual price of the ticket is $30. By calculating the consumer surplus, we can determine the additional value consumers receive from purchasing the ticket at a lower price. In this case, the consumer surplus would be the area between the demand curve and the actual price, which is $20 multiplied by the quantity of tickets sold, resulting in a consumer surplus of $20,000. Presentation title 10

11. Consumer surplus can vary depending on  market conditions and consumer  preferences. Factors such as changes in income, tastes and preferences, and the availability of substitutes can influence the magnitude of consumer surplus. For instance, if the price of the concert ticket decreases to $20, the consumer surplus would increase because consumers would be receiving even more value from their purchase. Presentation title 11

12. Understanding  consumer surplus is essential for industrial organizations as it provides insights into consumer behavior and market dynamics . By analyzing consumer surplus, organizations can make informed decisions regarding pricing strategies, product differentiation, and market segmentation. Moreover, it helps organizations gauge the  effectiveness of their marketing efforts  and  identify opportunities for growth . Presentation title 12

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14. Implications for Industrial Organization Presentation title 14

15. Consumer surplus and market power are two key concepts within the realm of industrial organization. Understanding the implications of these concepts is crucial for businesses and policymakers alike, as it enables them to make informed decisions that can shape market dynamics and consumer welfare

16. Market power, refers to the ability of a firm or group of firms to  influence market prices  or conditions. It arises when a company has significant control over the supply of a particular product or service, allowing it to manipulate prices and exert control over the market. Example: A monopolistic company that is the sole provider of a specific good or service has substantial market power. It can set prices at levels that maximize its profits, potentially leading to higher prices and reduced consumer welfare. Presentation title 16

17. Market Efficiency: Consumer surplus highlights the potential gains from trade in a market. When markets are competitive, firms are forced to set prices closer to marginal costs, resulting in higher consumer surplus and overall market efficiency. Presentation title 17

18. Market Concentration: Market power, particularly in the form of monopoly or oligopoly, can lead to reduced competition, higher prices, and lower consumer surplus. Concentrated markets may stifle innovation, limit consumer choice, and hinder economic growth. Presentation title 18

19. Regulatory Interventions: Policymakers often intervene in markets with high market power to protect consumer welfare. Antitrust regulations, for example, aim to prevent the  abuse of market power and promote  competition, thereby enhancing consumer surplus. Presentation title 19

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21. The Formula for Producer Surplus Is: Total revenue - marginal cost = producer surplus Presentation title 21

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23. Maximizing producer surplus is a key objective for industrial firms, influencing their strategies in several ways: Presentation title 23

24. Innovation and R&D Investment : Continual investment in innovation and R&D can lead to production efficiencies and product improvements that increase producer surplus by either reducing costs or enhancing product value. Presentation title 24

25. Market Segmentation and Differentiation : By differentiating products and targeting specific market segments, firms can command higher prices, enhancing producer surplus. Presentation title 25

26. Cost Management : Rigorous cost control and efficiency measures in production and supply chain operations can widen the gap between the price received and the cost of production. Presentation title 26

27. Pricing Strategies : Employing dynamic pricing strategies that reflect market demand, production costs, and competitive dynamics can optimize producer surplus. Presentation title 27

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29. TUTORIAL ACTIVITY 3 Presentation title 29

30. Market Changes Scenario Introduction : Introduce a scenario that changes market conditions, such as a technological advancement that reduces production costs (shifting the supply curve rightward) or an increase in consumer preference that boosts demand (shifting the demand curve rightward). Adjust the Graph : Adjust the supply and/or demand curves based on the scenario. Discuss how the equilibrium price and quantity change. Analyze Surpluses : With the new equilibrium, identify how the consumer and producer surpluses have changed. Discuss the areas of increased or decreased surplus on the graph.

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