Macro a mid term
For this assignment, choose a product or service. Feel free to use something produced by your current, former, or prospective employer. For example, it may be a certain drug produced by Merck which operates in the pharmaceutical industry. Answer the following questions (3-5 pages total). Be sure to start each answer with a new paragraph or use question numbers. Two people will work on this assignment together (they will receive the same grade).
Describe the product/service: Is it a normal/inferior good? Is it a necessity/luxury? Does it have complements / substitutes?
What specific factors influence the demand for the products/services by consumers (e.g.: advertising, weather, location, interest rates…)? Explain briefly how each of these factors influences demand for the product.
What factors influence the supply of this product by the company? (e.g: cost of labor & components, technology). Explain how each factor affects the firms willingness to sell the product.
What fixed costs does the production of this product mostly likely include?
What variable costs does the production include?
Describe the firm and industry (your firm + all competitors): Is the industry perfectly competitive, monopolistically competitive, oligopoly or monopoly? Why do you think so?
What are some of the barriers to entry for new firms in this industry?
What strategies is the firm pursuing in order to stay competitive and profitable price cuts, bundle pricing, promotions, advertising to differentiate its products, lowering costs, etc?
Explain how the firm can increase its profits by using price discrimination. What segments of the market could be charged higher / lower prices, and why? What might be your guess for the range of these prices?
In part 2 and 3 you identified demand and supply shifters for your product. Choose one demand and one supply factor. Sketch two SD diagrams to illustrate how an increase in this factor will shift D or S curves, and what happens to the market P and Q in each case. Explain briefly.
Handwritten graphs are easier and faster than fancy graphs.
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