Assessment Item 3: Assignment (30% - non supervised)
you are to undertake an economic analysis of a firm, its market and
the industry and economic environment in which it operates.
Assignment Task:
Select a business from anywhere in the world and then:
1) Provide an overall description of the business and the competitive environment in which it operates.
You should describe:
a) what type of business it is (e.g. retail, manufacturing);
b) what the business produces or sells;
c) who the main customers are (e.g. other businesses, government departments, young girls, older men);
d) where most of the customers are located (e.g. in Townsville, Jakarta, or on the net);
e) who the main competitors are (i.e. those producing similar products, and selling to similar customer base);
f) where the competitors are located; and
g) the (approximate) market share of key competitors including your business (e.g. ’your’ businesses has approximately 10% of the market, your main competitor has approximately 50% of the market, and may other small businesses share the remaining 40% of the market);
Given the above information, comment on whether or not you think the competitive environment in which the firm operates is likely to be closer to (a) perfect competition; or (b) monopoly. Comment also on the number of ‘close substitutes’ for your business’ products, and the cost of your product relative to ‘average’ income of your customers. Does this mean that the demand curve facing the firm is likely to be relatively elastic or relatively inelastic? What does this imply about the ability of the firm to ‘mark up’ its price above marginal cost?
2) Provide a description of the required factors of production, grouping them according to whether the factors of production are:
a) Fixed and hence unlikely to vary much according to the quantity of goods sold (e.g. overheads); or
b) Variable and hence likely to increase with increased production.
Use the above information to comment on the likely overall cost structure of your business. For example: Are fixed costs large or small relative to variable costs? Does this mean that the firm’s ‘optimal’ size is likely to be small, medium or large?
3) Provide a description of the macroeconomic environment in which the business operates noting:
a) The overall ‘stability’ of the political system/government of the country in which the business operates.
b) The general level of inflation, unemployment and ‘average’ interest rate of the country in which the business is physically located (and also the countries in which most customers live if different from the location of the firm). Also discuss any recent changes in those variables. Does the economy seem to be in a recession, boom or otherwise?
c) If ‘your’ business exports its products to other countries, provide some information about the (currency) exchange rate, discussing its current level, and recent changes in it.
Use the above information to comment on whether or not the overall macroeconomic conditions faced by the firm are likely to become more or less favourable over the coming years. In this section you should consider such things as:
a) Whether your main products are likely to be ‘normal’ or ‘inferior’ and hence whether demand is likely to rise or fall during recessions and thus whether the economic climate of the countries in which most of your customers live is likely to reflect well or poorly on your sales.
b) Whether you are likely to face problems getting access to key factors of production (e.g. are there skills shortages?), and whether this is likely to affect the businesses’ future operating costs.
c) If your business exports its products OR if imports factors of production…whether recent trends in exchange rates are likely to be good or bad for costs and/or revenues.
Word limit: 3000