Explain how market structures determine the pricing and output decisions of businesses?
How market structures determine the pricing and output decisions of Ollo:
Firms’ pricing and output decisions depend onbarriers to entry and the behaviour of competitors.The actions of one’s competitors can easily influence the behaviour of afirm.This is proper for an oligopolistic industry whereby firms display mutual interdependence.Ollo is an oligopolistic business with Banglalion & Qubee as their major competitors.If Ollo sets a price higher than that charged by others, the company can expect to lose a lotof sales.Moreover, there are some barriers of entry Ollo must consider before ...view middle of the document...
Lastly, when considering the marketing aspects of pricing we must consider the following:
1. Brand loyalty.
2. Customers’ perception of prices.
3. Competitors’ price, and
4. Maximizing profit.
The assumption of profit maximization provides a basis for beginning to look at the output of individual firms.The optimal level of output is where either profit is maximized or losses are minimized. If a firm is trying to maximize its profits in the short-run, there are two equivalent ways in which the firm can achieve this objective:1. The firm can produce at the point where the difference between Total Revenue (TR) and Total Cost (TC) is at a maximum.2. The firm can produce at the point where the difference between Marginal Revenue (MR) and Marginal Cost (MC) is equal to zero. Although as a new company Ollo cannot aim to maximize its profits yet. Thus, in order to gain strong brand loyalty Ollo is offering relatively low priced packages to
exceed customers’ perception over their competitors.
They are providing a volume of 3.5 GB at the price of 500 BDT1 while Banglalion provides only 2.5 GB volume at the price of 600 BDT2
.Moreover, Ollo is providing prepaid modem at the price of 1499 BDT while Banglalion is charging 1999 BDT for their USB modem. There is a chance of loss but the firm will continue to operate in the short-run as long as there is a positive contribution margin and the firm is recovering some of its fixed costs.
3.2: Illustrate the way in which market forces shape organizational responses using range of examples?
Ollo’s response toward deman
Business cannot sell anything unless there is a demand for it. People must both want a
product and have the money to buy it. How people will buy Ollo’s service depend on the
For the individual consumers, a fall in the price of an item makes it cheaper compared toother goods. A fall in the relative price of an item increases demand for it.
A fall in the item’s price also means that people with lower incomes will also be able to
afford it. Thus the overall size of the market for the item increases.For these reasons, to penetrate and increase the market share Ollo has lowered theirservice price which has increased demand for their product.
People may change from one product to another, as the relative prices changes. As asubstitute product of Banglalion & Qubee, Ollo has decreased their price to attractcustomers to switch.
As the use of computers and laptops are increasing throughout the country, the demandand market for wireless service is rising as well. Feeling this Ollo has decided to expand theirservices to any one division among Shyllet, Chittagong, Barisal and Rangpur.
Ollo’s response toward supply –
Supply depends largely on price. The higher the price that a product can...