Republic of the Philippines

POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

Managerial Economics
Final Examination – 2nd Semester A.Y. 2021-2022

TAGALOG, JESSEL B.
BSA 1-1

Answer the following questions.

1. Discuss the what is the importance of choosing the right Market Structure for new businesses. Make a
table differentiating Perfect Competition, Monopoly, and Oligopoly as to the number of firms, nature of
the product, control over price, and barriers to entry.

Both economics and marketing are fundamentally based on the idea of market structure. Strategic decision-
making is a topic that both disciplines are interested in. Market structure plays a significant part in decision-
making analysis due to its influence on the environment. Choice behavior among the participants is
influenced by the level and nature of market competition. Market structure is important in that it affects
market outcomes through its impact on the motivations, opportunities and decisions of economic actors
participating in the market. The goal of economic market structure analysis is to isolate these effects in an
attempt to explain and predict market outcomes

PERFECT COMPETITION MONOPOLY OLIGOPOLY

NUMBER OF MANY ONE 2 OR MORE

CONTROL PRICE TAKERS MAXIMUM PRICE PRICE FIXING

BARRIERS TO NONE SIGNIFICANT SIGNIFICANT

PERFECT COMPETITION
- There is generally a large number of buyers and sellers.
- There is generally a large number of buyers and sellers.
- Competitors are free to enter into the market, conduct business or leave the market
MONOPOLY
- There is one seller of a particular product
- A monopoly maximizes profit by producing output when MR = MC and by charging maximum price that
consumers are willing to pay for that output.
- There are barriers to entry of the market to prevent competition
OLIGOPOLY
- Few very large sellers dominate the industry and compete with one another.
 - Price-fixing is a form of collusion where firms establish the price of a product or service, rather than
allowing it to be determined naturally through free market forces.

2. Why is it important to consider the number of competitors in competitive situations? What do you think
is the best way to outdo the competitors and their products for you to survive the competition?

There will be more options for potential customers to pick from if there are more competitors in a sector
offering comparable goods or services. Market competition forces companies to enhance their offers, which
are then passed on to customers as more specialized, effective, and superior possibilities. You must develop
strategies for staying one step ahead of your rivals if you want to build a successful company. Often, it is
simpler to say than to accomplish, and there is no quick fix for how to outperform your rivals. There is
competition in every market. Smart businesses counteract the effects of rivals to gain market share.
Offering more competitive pricing is among the simplest strategies for outperforming your rivals. You need
a comprehensive understanding of what your competitors' products or services are priced at in order to
choose the right price point. Find out which rivals are the most affordable. The next step is to decide if what
you are offering adds more value than the competition and should be priced higher as a result. But if beating
your rivals is your main pricing concern, go with a pricing strategy focused on rivalry. By employing this
tactic, you disregard consumer demand and product costs. Instead, you concentrate on the going rate for
your goods or services on the market. Then, you establish your price so that it is in line with what your
competitors are willing to charge. Examining the prices of your rivals may only take a few hours, and it
typically takes less time than other strategies for lowering competition. The best pricing strategy isn’t
always about lowering your prices. Since the market is segmented by lower, middle, and upper-tiered
customers, you need to figure out which group is your audience.

3. What is Market Failure? What are the different types of Market Failure?

In terms of economics, market failure refers to a situation where there is an inefficient allocation of
products and services on the open market. When markets fail, individual incentives for rational behavior
do not produce outcomes that are rational for the entire population.
MARKET FAILURE DUE TO MONOPOLY
A monopoly is by definition an inefficient method of providing goods and services, according to certain
contemporary economists. According to this idea, it interferes with the producer-consumer equilibrium,
causing shortages and high prices. Some economists contend that only state monopolies result in market
failure.
MARKET FAILURE DUE TO EXTERNALITIES
Externalities lead to market failure because a product or service's price equilibrium does not accurately
reflect the true costs and benefits of that product or service.
MARKET FAILURE DUE TO IMPERFECT INFORMATION
Lack of sufficient information among the buyers or sellers can also lead to market failure. This indicates that
a good's price does not accurately reflect all of its benefits or opportunity costs depending on supply or
demand.

4. Is the uncertainty in business inherent? How can we minimize uncertainty and risks?

The only real certainty in business settings is, well, business uncertainty. Daily potential disruptions include
natural disasters, foreign conflict, market declines, COVID-19 pandemics, and a variety of others. While it's
crucial to have preparations in place to get through these crises, forward-thinking companies are also
prepared to use these moments as chances to strengthen their market position and competitiveness by
taking advantage of uncertainty advantage. A willingness to adopt unconventional solutions, a deeper
 comprehension of the risk factors most likely to jeopardize your operations and supply chain, and the
development of value-focused, proactive strategies are all necessary to harness the power of business
unpredictability. Even while it could seem like an uphill battle, putting in the time and effort can pay off
handsomely both during crises and the recoveries that follow them. Using probabilities and ranging
estimates to characterize variables rather than single-point estimates is a better strategy to manage risk
and uncertainty. Probabilistic analysis, which makes use of sophisticated quantitative modeling and
analytical techniques, enables you to take into account the whole range of potential outcomes while having
a far better knowledge of the likelihood of each.

5. What is the general rule in acquiring costly information? It pertains to the principle of acquiring
information which involves costs.

The general rule in acquiring costly information is a decision maker should acquire costly information IF and
ONLY IF the expected value of information (EVI) exceeds the test cost.

6. Information nowadays is easily acquired due to technology enhancements and accessibility. What is the
importance of the value of information in the business industry in terms of competition? Do you think
there’s a risk of imperfect information?

Many economic transactions take place while there is incomplete information, meaning that neither the
buyer nor the seller, or both, are completely certain of the characteristics of the goods being bought and
sold. Asymmetric information, in which one party has more knowledge about the economic transaction
than the other, may also be used to describe the transaction. Let's start with a few illustrations of how
transactions in the labor, capital, and products markets are complicated by incomplete information. A fall
in prices or sales volumes might readily result from the presence of incomplete information. Buyers and
sellers do, however, have an incentive to develop systems that would enable them to conduct profitable
business even in the presence of incomplete information. It modifies the competitive landscape by changing
the structure of the industry. By presenting businesses with fresh methods to surpass their rivals, it gives
them a competitive advantage. It creates whole new businesses, frequently from within an organization's
current operations. The first thing that managers need to realize is that information technology is not only
about computers. Information technology today needs to be viewed broadly to include both the
information that organizations produce and utilize, as well as a wide range of more convergent and
integrated technologies that process the information. Thus, data recognition technology, communications
technology, manufacturing automation, and other hardware and services are involved in addition to
computers.

7. We know that the suppliers or businesses that provide the needs of the consumer are more
knowledgeable and have access to the data and information. Apparently, that’s why Asymmetric
Information exists. Discuss the advantage and disadvantages of it both for business owners and
consumers.
The benefit of asymmetric information to business owners is that they can continue to sell a particular
product and turn a profit even when the thing they are selling has a secret feature, whereas for customers,
there are no benefits that I can think of. I see numerous drawbacks.

The drawback of asymmetric knowledge for business owners is that they will allow lower-quality or inferior
products to remain on the market while consumers may experience issues with the goods they purchase.

8. What is the difference between bargaining and negotiation? Does it help to solve business disputes?
 BARGAINING NEGOTIATION

DISCUSSIONS BETWEEN PEOPLE IN ORDER TO A NEGOTIATION IS A STRATEGIC DISCUSSION THAT

By definition, negotiation is the process of settling disputes. To overcome dispute and arrive at a
compromise that both parties can accept but neither is wholly satisfied with, it employs conversation and
the exchange of arguments. Therefore, exactly how can negotiating end conflict? Do we really need
anything more than to converse while seated at the round table? As you would have anticipated, both
conceptually and practically, negotiating is a complex process. It requires time, effort, and resources; it
doesn't just happen. Successful negotiations help you forge stronger relationships, which is a key factor in
commercial success. Deliver long-lasting, high-quality solutions as opposed to inadequate, transient ones
that don't meet the needs of either side. help you avert issues and confrontations in the future.

9. What is an Auction? Does it practice a fair business principle? Differentiate the 4 types of Auction.

A mechanism of buying and selling products or services by putting them up for bids and selling to the highest
bidder is known as an auction. Each new bid is higher than the prior one as bidders compete with one
another. An auction sale must include competitive bidding. The seller receives the maximum financial
return when there is a free and open competition amongst bidders. Any agreement that limits this
competition is unenforceable and against public policy. Indeed, collaboration to coordinate bids among
vendors invalidates the auction and may constitute fraud or even criminal activity. In order to encourage
competition, there are either successive bids for the item or subsequent offerings at various prices in every
type of auction.
4 TYPES OF AUCTION

OPEN BID AUCTIONS

ASCENDING BID AUCTION The most popular kind of auction is sometimes referred to as a "open
ascending auction." The buyers will begin their bids with a low price,
(ENGLISH AUCTION) and as more bids are placed, the cost will rise until no more buyers are
left. The winning bidder is the one who placed their bid last and at the
biggest number. If the seller has set a reserved price in advance, we
must ensure that the highest bid exceeds that amount in order to
prevent the item from being kept by the seller, who values it more
highly than any other bidder.
DESCENDING BID AUCTION Dutch action is the opposite of English auction, it’s also known as Open
descending auction. The seller will initiate a high value and bidders will
(DUTCH AUCTION) bid down from this high price, in other words, the bid price will go down
until a bidder’s willing to take it. Dutch auction usually takes a short
time to complete, if there’s more than one item in bid, the bidding
process will continue until the supply is equal to demand.
 SEALED BID AUCTIONS
FIRST PRICE AUCTION In a first-price sealed-bid auction, the highest bidder wins, and if there
are many goods, the remaining items go to the bidders with the second-
highest, third-highest, etc. prices.

SECOND PRICE AUCTION Both buyers and sellers will posts their acceptable prices to a board/list
and double auction will find a match for buyers and sellers, then
(VICKREY AUCTION) execute the trade at the desired price.

10. What is your favorite topic in Managerial Economics? Discuss it. Is it a helpful tool for being a Future
Accountant?

Bargaining and negotiation became my favorite topic besides because this is what we reported, I found out
what is the difference between these two before I thought that when you say negotiations it is just the
same as bargaining. The ability to negotiate is a crucial one for accountants. Your ability to do your work
effectively, form lasting connections, and advance the objectives of your company depends on your ability
to bargain, whether you do it internally with coworkers or outside with vendors, clients, and regulators.

- NOTHING FOLLOWS –

“Trust in the Lord with all your heart and lean not on your own understanding.” - Proverbs 3:5

Prepared by: Lea Catherine Laus