Maintain Profitability and Switching Production †MyAssignmenthelp

Question: Discuss about the Maintain Profitability and Switching Production. Answer: Introduction: Profit is defined as revenue less cost. In the short run firms can enjoy a supernormal profit. In the long term, firms may attempt to maintain profitability by switching production to more demanding goods. However, in a competitive environment other firms follow the same strategy and end up with earing revenue just enough to recover cost in the long-term. Additional profitability then requires large-scale production. The monopoly power in the market is derived because of the existence of a single seller in the market. The factors determining monopoly power in the market are barriers to entry of new firms, exclusive ownership over a strategic input, huge sunk cost, realization of scale economics and others. The barriers to entry of other firms is the most impactful as lesser the competitors more is the monopoly power. In perfectly competitive market the working of invisible hand, ensure allocative efficiency. The equilibrium in the competitive market is at a point where price equals unit production cost and hence resource allocation is Pareto efficiency. Because of the existence of monopoly power, the monopolist always earn a greater profit by setting high price at a low level of output and leads to economic inefficiency. Network effect describes a positive externality that generates an additional value for the user of particular good and services. In the presence of network effect, the product value increases depending on how many other using it. Now social network like Facebook provides business a wider platform and increases value as more people get in touch there. Oligopolistic market form characterizes supermarket industry in Australia. The industry is highly competitive and concentrated. The large-scale production, Cost advantages and competitive edge of some players over other allow them to dominate the market. The strategic interdependence and resulted price war to undercut market share of rivals provide important game theoretic insights exits among the large firms. Productive Efficiency refers to carry out production without wasting resource and hence the chosen production point is on the PPF. Allocative efficiency describes a socially preferred production points. In competitive market buyers, face price equals to marginal production cost. The marginal production cost reflects not only firms cost but also social cost in a broader aspect. Business has to comply rules and regulation imposed by the government. The regulatory and economic policy of the government affect profitability and competitiveness of the business. The business should have well knowledge of policies implemented by the state, federal or local government. Business tax, licensing procedures and political stability affects business operation. The private sector runs by profit motive is more efficient than public organization. Therefore, private sector is thought of more reliable in meeting market needs. However, the scenario is different in Australia. In Australia, private firms often find it difficult to sustain because of high price. The influence of Australian government is greater than private sectors. Externality refers to the cost or benefit that a third party incurs from an economic activity and the agents do not consider this cost or benefit in their pricing strategy. The presence of externality leads to market failure and government intervention is needed to correct the externality. In times of negative externality government taxed and with positive externality government subsidized to achieve social optimal. The aggregate spending depends on consumption expenditure, government expenditure, investment expenditure and net export for an open economy. In times of recession, there is a downturn in economic activity leads to unemployment and therefore reducing consumption and investment spending. Inflation slows down during this time. In the recovery phase, the economy expands with expansion of government and investment expenditure creating upward pressure in price and reduces unemployment.