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Microeconomics in Business Practice

Microeconomic models,

When GM wanted to introduce SATURN (a new brand of car) in 1991, they so!!ed "ore onecono"ics than "anufacturin!# GM$s econo"ics staff did a thorou!h wor% on &redictions and

e'auation of &oices# They used econo"ic "odes to anaye manufacturing costs(GM had s&ent anesti"ated * biion for SATURN)+ pricing mechanism, dealer services, and strategy to "a%e the'enture a success#

Microeconomic concepts.

The finest ea"&e, where country$s &oicy "a%ers and attorneys !ot down e'en to the basics of"icroecono"ics, is !i'en for anti-trust suit a!ainst Microsoft in USA# .n this case, econo"ists scurriedfor the definition of "ar%et to !au!e the sie of "ar%et of Microsoft#

Demand and supply model.

/e"and and su&&y "odes are fre0uenty used to anaye the "ar%ets such as a!ricuture, finance,abor, construction, ser'ices, whoesae, and retai#

/e"and and su&&y "odes are aso used to anaye !o't$s intentions (taes, subsidies, tariffs, &riceceiin!s, &rice foors, etc#) and its i%ey i"&ications on fir"s#

Indifference curves

.t is used to find out which is the costy a&&roach coupon issued to employeesor bonus/dividends# .nde'eo&ed countries, such as USA, i%ey i"&act of taes on retai buyin! and internet buyin! is aso

assessed by fir"s throu!h indifference cur'es#

Price elasticity of demand

.t is hi!hy usefu when a fir" is thin%in! of chan!in! its &rice to "ai"ie saes#

Income elasticity of demand

This conce&t he&s fir"s to ado&t ri!ht "ar%etin! strate!ies durin! recession and !rowth &hases of abusiness cyce#

Cross-price elasticity of demand

.t he&s fir"s identify the stretch (rou!hy) of the "ar%et of its &roduct on the basis ofsubstitutes2co"&e"entary !oods a'aiabe#

Elasticity of supply

3ir"s use the conce&t to !au!e the en!th of their su&&y &eriod ("ar%et, &eriod, short-run, on!-run) atdifferent e'es of &rices#

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Theory of production and cost

4ntire business, startin! fro" scratch, de&ends on theories of &roduction and cost# 4ercise done byGM for SATURN is a burnin! ea"&e of this#

Perfect competition and Monopoly

Many "ar%ets can be reasonaby described as co"&etiti'e, such as A!ricuture 5 co""odity "ar%ets+stoc% echan!es+ retai and whoesae "ar%ets+ buidin! construction, etc#

Si"iary, market power and sellers concentration is !au!ed by usin! the conce&ts drawn fro""ono&oy and "ono&oistic co"&etition#

4'en thou!h &erfect co"&etition and "ono&oy are rarey obser'ed the concusions of these "odesare considered as idea situations and co"&ared with reaity#

First-deree or perfect price discrimination

6o"&anies continuay see% new "ethods to achie'e near &erfect (first de!ree) &rice discri"ination#So"e 'endin! "achines in 7a&an use wireess "ode"s to ad8ust their &rices accordin! to outsidete"&erature# .n 1999, 6oca 6oa co"&any started with a 'endin! "achine with a co"&uter-chi& brainthat can auto"aticay raise drin% &rices (so"ehow "atchin! a &rice which consu"ers are wiin! to&ay) in hot weather or ower &rices (so"ehow "atchin! consu"ers$ wiin!ness to &ay) durin! off-hours to boost saes# Tryin! to "atch with wiin!ness to &ay is &urey an econo"ic conce&t#!econd-deree price discrimination

ubic 5 &ri'ate utiity (such as eectricity and tee&hone) co"&anies char!e different &rices fordifferent boc%s of units of saes#

Third-deree price discrimination

/isneyand in southern 6aifornia rarey "isses a chance when it co"es to increasin! &rofits(/isneyand indeed "ints "oney)# .n 199:, /isney char!ed "ost aduts ;: to enter the &ar% butchar!ed southern 6aifornians ony Whir&oo, G4, 4ectrou (3ri!idaire), Mayta!, andRaytheon > "a%e 9:? of US a&&iances saes, whereas the to& 1= fir"s in 4uro&e > ed by 4ectrou,

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@osch-Sie"ens, and Whir&oo > contro ony