Question

You are required to prepare a business plan on the business you about to start in the near future using microeconomic theories/concepts.

The business plan should include:

1. A general description of the business and products/services.
2. An industry and competitors overview: Discuss and justify the potential market structure for your business that you are about to enter.
3. An analysis of the advantage and disadvantages of the product/services: Explain the possible restrictions that might be faced by your company to enter that particular market structure.
4. Targeted group of customers: Analyze the elasticity of demand on the product offered by your firm.
5. Identify the potential costs that might be involved in your business.
6. Explain the potential externalities that can be created by your business.

Answer 1

• Form of business is sole proprietorship, product : deal in clothes merchants

Sole proprietor :sole proprietorship is a type of enterprise that owned and run by one person and in which there is no legal distinction between the owner and the business entity also called sole trader.

Description about product is :dealing in suiting, shirting Raymond (fabric dealing)..

• Market structure for business is monopoly :monopoly means single seller of product

Advantage :1)single seller :In monopoly there is only single seller of product.

2)source of revenue - the government gets revenue in form of taxation from monopoly firms.

3)Massive profit: Beacause of absence of competitors leads to high number of sales monopoly firms tend to receive super profits from their operations.

4)Stability of prices- In monopoly market the prices are stable most of the times . This happens because there is only one firm involved in the market.

DISADVANTAGES

1)Higher prices- no competition in the market means absence of such things as price wars that have benefited the consumer and result in charge higher prices for goods and services

2)Exploitation of consumers- a monopoly market is best known for consumer exploitation. The firm may find it easy to produce substandard or Inferior product if it wishes because they know very well that the items will be purchased because of no other competitor.

3)Price discrimination- monopoly firms are also sometimes known for practicing price discrimination where they charge different customer, different prices for same product.

RESTRICTIONS faced to enter into market structure

1)Legal Patents. A pure monopoly can provide legal patent because other firms can’t use its patent

2)Fixed Costs: monopolies tend to form in industries where there are involve high fixed costs. A high fixed costs firm requires a large number of customers in order to have a meaningful return on investment.

​​​​​​​Elasticity of monopoly: monopolies operate always where demand is elastic because when demand is inelastic the firms will just continue to increase prices as their revenue will increase. So it will only stop prices where demand becomes elastic.

Potential cost :potential cost to operate monopoly firm is fixed cost and patent cost. Monopoly tend to form an industry where there involves high fixed cost

Potential externalities monopoly concerned about whether consumers will spend money or purchase something altogether different, the monopolist need not worry about the actions of other firms.

As a result, a monopoly is not a price taker like a perfectly competitive firm.

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