微观与宏观

Micro Theory and Application

Abstract:This essay will talk about the Virgin Mobile phone market’s structure and the structure’s characteristics, the price and output behaviour of diagram. The essay also analyse the roles of profit in the mobile phone market to attracting Richard Branson and the influences of the shape of the total cost, average cost and marginal cost.

Key words: Perfect competition; Oligopoly; Cost; Profit.

I. Oligopoly market and Perfect competition market structures’characteristics and diagram of two structures.

1. The Virgin Mobile phone market is believed to be an oligopoly, only has a few sellers and each offering a similar or identical product to the others. Oligopoly also means that there are only a few sellers of a particular commodity, so the mobile phone market is easy to make huge profit. One characteristics of this market structure is can earn super normal profits in the long run, another characteristics is there are very few players in the market place, the Virgin Mobile is making profits though as a niche player after having been late in entering the mobile phone market.

2. The diagram of oligopolistic market structure as the following figure shows:

Price and output behavior under oligopoly

Price and output behavior under oligopoly:

i).As above, price is OP and output is OQ. At price is higher than P demand is elastic, this means that reduce prices will increase the share of market .At prices lower than P however the fear is that cutting prices will force rivals to follow suit and there will be little gain in the way of additional sales.

ii).Oligopolies therefore are not keen to indulge in severe price competition, because they fear they will reduce prices but their market share will remain much the same as before. So the oligopoly must rely upon other types of Non-price competition, such as advertising, loyalty schemes, free gifts, special offers, sales etc.

3. The perfect competition is also called purity competition, is a market that doesn’t have any impede and disturb. One of characteristics of perfect competition is that a large

number of buyers and sellers of the commodity, so that no one firm can affect the market price through its own action. Another characteristic of perfect competition is that buyers and sellers could entry and exit to the market free.

4. The diagram of perfect competition market structure as the following figure shows:

Average Revenue equal to Marginal Revenue equal to Price.

No one gain an advantage and firms can sell their goods up to the point at which they have maximised their profit because of the characteristics of this form of market. In this market, firms are ‘Price Takers’because any change in output of one firm is too insignificant to affect the price.

II. There are two roles would profit have played in attracting Richard Branson to the mobile telephone market.

1. For the entrepreneur profit is an incentive to undertake a risk in the belief that a gain can be made. Therefore profit is the Reward to entrepreneurs and the incentive that encourages them to take risks.

2. Profit is also a reward. It must be earned, as we have seen, generally in an imperfect competitive situation. Many businesses fail and for many different reasons. Large firms can survive even if not efficient because they have a very large share of their market. This may allow them to exploit customers to continue making profits.

3. Profit divided into Normal profits and Supernormal profits

i). Normal profit is the minimum amount of profit, which is necessary to keep a firm in a industry.

ii). Supernormal or abnormal profit is anything above that minimum amount of profit. III. Sales Revenue Maximisation Theory and Individual Motives will the alternatives to profit maximisation as a goal of the firm.

In the summary of profit maximisation we suggested that many business people may