Economics for Managers

1. Microeconomic analysis deals with the decisions made by individual consumers and producers as they operate in a market economy. This differs from macroeconomic analysis, which focuses on the overall level of economic activity by scrutinizing the group or aggregate behavior of the different sectors of the economy.

Microeconomic analysis deals with issues such as the determining of prices for both inputs and outputs and how each responds to change. In addition, decision about demand, supply, production, and market structure are all central to microeconomic analysis.

Macroeconomic analysis focuses on big-picture activity, outside the direct control of the various players within the economy. Issues include changes in the behavior of the private sector, monetary and fiscal government policies and changes in the foreign sector. Macroeconomic analysis can be exemplified by the circular flow model, the factors of which are the areas of interest to the macroeconomist.

2. Perfect Competition is characterized by a large number of firms in the market, undifferentiated products, ease of entry into the market, and the complete availability of information to all market participants. An example of perfect competition would be produce vendors at a farmer's market. There are few barriers to entry, a varied number of players in the market, and the products sold are undifferentiated. (A tomato from vendor A is synonymous to a tomato from vendor B)

Monopolistic Competition exists when there are several firms operating with in an industry, each of which produces a differentiated product and has only limited ability to earn above-average profits. Examples of this market structure include cereal producers, razor companies (Gillette, Shick, BIC, etc), and toothpaste brands. While each presents a differentiated product, all are able to achieve market share which limits their ability to earn above-average profits.

An Oligopoly is identified by a small number of large firms operating with market power that must consider their competitor's actions when making decisions. While firms in an oligopoly may have market power, their ability to wield that power may be limited. An example of an oligopoly in the US would be the four major wireless phone providers (ATT, Verizon, T-Mobile, and Sprint).

A Monopoly exists when a single firm produces a product for which there are no close substitutes, as well as having high barriers to entry which prevent competitors from entering the market. While legislation is in place to prevent monopolies from remaining in power, both the NFL and MLB existed as monopolies at one point.

3. Before opening a new car dealership in a medium-sized metropolitan area, a few economic variables must be considered. It would be important to confirm the relative prices of the type of car the individual would sell to ensure that a profit could be achieved