Question

having in depth knowledge on a product

Answer 1

The Economic Transformation all over the world was motivated by two compellaing factor - The Determination to boost economic and to acclerate the developement of export oriented industries.

Here we consider a good with regular market. we will discuss it's dd and ss, its market eqmb and its market.

The Basics of Demand and Supply: Although a complete discussion of demand and supply curves has to consider a number of complexities and qualifications, the essential notions behind these curves are straightforward. The demand curve is based on the observation that the lower the price of a product, the more of it people will demand. There may be occasional exceptions to this behavior (and indeed economists have developed the theoretical possibility of such an exception), but they are so few and transient that economists refer to the negative relationship between price and quantity demanded as the "law of demand." Because of the law of demand, demand curves (such as D in the figure) are always shown as downward sloping, with the price on the vertical axis and the quantity demanded (over some period) on the horizontal axis.

The basic notion behind the supply curve is that the higher the price of a product, the more of it producers will supply. In other words, as with the curve S in the figure, supply curves are upward sloping. A justification for this upward-sloping relationship between price and quantity supplied is that the cost of producing additional units of the product increases as more is produced. So it takes a higher price to motivate additional output. But this is not necessarily the case when there is time for new firms to enter an industry, or for existing firms to expand their plant size. Such long-run adjustments to a higher price can permit more of the product to be made available at the original cost (or even a lower cost), in which case the supply is horizontal (or negatively sloped). But over periods of time that can extend to several months or more, it is reasonable to assume that supply curves slope upward....

• Market Clearing.

  The price and quantity that equates the quantity demanded and quantity supplied; equates the demand price and supply price; and achieves market equilibrium. In other words, the market is "cleared" of shortages and surpluses.

• Every product is produced by a firm and each firm has some rules.

• Production and Costs: The Theory of the Firm

  The Circular Flow Model
  Recall that in our initial discussion of the economy we identified two broad groups of economic actors (or units); they were households and firms. In our study of demand we looked at households as consumer units effecting demand for goods and services in the product market. On the supply side of the product market are the economic (or business) firms. They are the producers (and sellers) of goods and services. In this section we are going to look the behavior of an economic firm.

  

  Production and Production Costs
  Questions to be asked:

  How do firms decide what to produce and how much to produce?
  What factors constitute a firm�s costs?
  How do firms determine what price(s) to charge
  What determines a firm�s profit?
  What determines the shape and the position of a (firm�s) supply curve?

  Business Firm
  A business firm is an economic unit engaged in the production of one of more economic goods or services.
  Applying the technology available to it, a business firm combines economic resources (factors of production) to produce one or more goods for the purpose of making profits.
  A business firm buys economic resources (inputs) and sells the goods it produces (outputs).

  Production and Costs
  To produce a good or a service a firm needs economic resources or factors of production. In economics, the factors of production used by a firm in the production of a good or a service are generally referred to as inputs. What a firm produces is called output. A firm has to pay for the inputs it needs. Therefore, inputs, on the one hand, generate costs and, on the other hand, generate output.
  We first study the relationship between inputs and the output; that is "production function". Then we look at the relationship between the output and costs; that is cost function.
  

  Note: Studying the relationship between costs and inputs without regard to the output produced from the inputs is not useful. That is why we study the relationship between costs and output.

  Inputs: Factors of Production
  Factors of production:
  The primary factors of production are land and labor.
  Capital is another important factor of production.
  In economics we distinguish between physical capital and financial capital.
  Physical capital: tools, machinery, equipment, buildings
  Note: Non-physical assets such as copy rights and patent rights are functionally similar to physical capital.
  Financial capital: Financial assets representing physical capital (stocks) or used to acquire physical capital are financial capital.

  In addition to land, labor and capital businesses often use intermediate goods (raw materials and supplies) in the production process.
  Entrepreneurial Services: In market economies the function of entrepreneurs is also very important. The function of an entrepreneur is to acquire and combine all the needed factors of production to produce a good. An entrepreneur takes chances (risks) in the hope of making profits.

  Cost of production is simply the sum of the costs of all inputs used in production.

  Production Costs = Costs of Inputs

  Production in the Short Run versus Production in the Long Run

  In the theory of the firm the distinction between short run and long run is not necessarily based on the length of time. It is rather based on the degree of the variability of inputs.
  In the short run at least one of the factors of production remains unchanged (fixed).
  In the long run all factors of production are variable.
  In a two-input production process, in the short run, only one input is variable.

  In a two-input production model, in the short run, the changes in the output (physical product) are the result of changes in the variable input.
  Production in the Long Run
  In the long run all inputs used in the production process by the firm are variable.
  In a two-input production model, in the long run, both inputs (say, capital and labor) are variable.
  In the long run the level of the output of a firm can change as a result of changes in any or all inputs.
  A Short-Run Production (Function) Analysis
  Our model:
  A firm using two inputs:
  Capital (K); Fixed Input
  Labor (L);    Variable input

  We examine the relationship between the variable
  input (labor) and the output.

  We examine how changes in labor (the variable input)
  affect the out put.
  

  Output Measures
  Total (Physical) Product (output), TPP: The total amount of output produced by the firm over a certain period
  Average (Physical) Product (of the variable input), APP: Total (Physical) Product divided by the number units of the variable input
  Marginal (Physical) Product (of the variable input), MPP: The change in total product resulting from employing one additional unit of the variable input
    
  

  Production in Short Run

_​

• Average (Physical) Product and Marginal Physical Product
  
  

                                                               Change in TPP
  Marginal Physical Product = MPP =   ---------------------
                                                               Change in V. Input

                                                             Total Physical Product
  Average Physical Product = APP =    -------------------------
                                                                  Total V. Input
  

  The �Law� of Diminishing Return
  Increases in the amount of any one input, holding the amounts all other inputs constant, would eventually result in decreasing marginal product of the variable input.

  Explanation: Unless all inputs are perfectly and infinitely substitutable, as we increase the amount of one input, while keeping other inputs constant, at some point the productive effectiveness of that input starts to decline.
  

  Output and the Firm�s Revenue

  Total Revenue (TR) = Price x Total P. Product

  Marginal Revenue Product: The change (increase) in revenue resulting from the output produced by one additional unit (MPP) of the variable input

                     MRP = MPP x Price

  
    
    
    
  

  
  

  Optimal Input Level:

  Input Price = MRP

  
    
  

  
    
  

  Plotting the Cost Measures
  

  
  

  
                       K= 10                                            K= 20                                               K= 30
  

  
  Return to Scale

  
  

  Optimal Input Combinations
  Recall that in our short-run analysis to decide how many units of labor to employ we equalized the revenue resulted from hiring one additional unit of labor (MRP) and the price of labor (wage).

     This rule can be generalized and applied to all inputs.
          MPP_L * PRICE = MRP_L  =   Wage

        MPP_K * PRICE =   MRP_K =   Price of Capital
  

  Marginal Product and the Input Price
  Each time a firm wants to increase its output it would have to buy (hire) additional inputs.
  Additional input generates costs, on the one hand, and generates output, on the other hand.
  If the inputs are added one unit at a time,
              Change in cost = the price of input
                  Change in output = MPP
  The cost of each additional unit of out put will be:

  Change in cost           or                Input Price
  Change in output                               MPP

  MPP, Input Price and Marginal Cost
  Recall our definition for marginal cost:
                        Change in Cost
       MC    = -------------------
                      Change in Output

  When we increase our input one input/one unit at a time:

                                           Change in cost = Input price

                                          Change in Output = MPP

  Choosing the Optimal Mix of Inputs
  One approach to choosing the optimal (least costly) mix of inputs is to compare the (marginal) cost of producing one extra unit of out put across different inputs.
  The firm would likely use the input that increases its output at the lowest cost by comparing

  Input Price
      --------------       across all available inputs.
         MPP

  
                         Choosing The Optimal Mix of Inputs: An Alternative Approach

  Comparing the (physical) output of the (marginal) dollars spent across all inputs:
      MPP of any input
  -----------------------------
      Price of that input

  Example:
                   MPPL          MPPK           MPPm
                  --------         --------         ---------
                   Wage             PK                 Pm
  

  Optimal Input Choice: The General Rule
  For any given level of total output, a profit maximizing firm would want to minimize its cost. Alternatively put, for any given level of total cost, it would want to choose the mix of inputs that would maximize its output.
  The firm can achieve this objective by making sure that it is getting the highest amount of output out of each dollar spent on inputs.
  The rule: Equalize MPP per dollar across all inputs
  MPPa/Pa = MPPb/Pb =   MPPc/Pc =   MPPd/Pd

  Optimal Mix and Changes in Input Prices
  Starting from an optimal position,
                                              MPL        MPK
                                              ------ = -------
                                              Wage        PK

  A change in the price of one input would disturb the equilibrium and would require adjustments in the input mix.
    

  Suppose we consider an electronics good.

The electronics sector produces electronic equipment for industries and consumer electronics products, such as computers, televisions and circuit boards. Electronics sector industries include telecommunications, equipment, electronic components, industrial electronics and consumer electronics. Electronics companies produce electrical equipment, manufacture electrical components and retail these products to make them available for consumers.

The most profitable sector within electronics, the semiconductor industry, has a value of around $248 billion globally. The products produced by this sector are used in a variety of consumer and industrial electronics products. These industries are growing rapidly as a result of increasing demand from emerging market economies. As a result, many countries are increasingly producing more electronics. In 2007, Asia produced 56% of electronic products, with 37% produced in the United States and 22% in Europe. Investment in foreign production of electronics has increased dramatically and resulted in many new factories and factory expansions. Electronics retail is maturing as an industry, becoming increasingly competitive and experiencing unique challenges.

Electronics sector growth is greatly accelerated by increasing consumer spending around the world. As developing economies grow, consumer demand for electronics also increases. Countries that produce electronics now have strong consumer bases that can afford new electronic products. Increased competition is driving the costs associated with electronics production down and expanding the availability of affordable electronics products.

China, long a significant electronics producer, is now a major market for consumer and industrial electronics. Asia's proportion of the market for electronics is expected to represent half the global market within the next several decades. This increase likely means better profitability for the industry at large within the coming years. The supportive role of the electronics sector in providing equipment and components for other industries also supports a significant increase as consumers demand more automobiles, energy-efficient homes and medical technologies.

Electronics retailing is becoming increasingly fragmented and competitive. Many electronics brands are now offering their products at their own stores as a means of becoming more profitable. These stores compete with flagship retailers, such as Best Buy, for customer traffic. Online stores also compete for customer spending and offer products not available in traditional stores. As the variety of electronics products increases, stores struggle to offer enough of the more popular products to consumers and concede some of the market to online retailers.

Volatility in company valuations and in stock values is increasingly becoming normal for electronics retailers as the industry matures and experiences changing pressures. Changes resulting from store closures, mergers and acquisitions, and declining prices are pressuring the electronics sector to become more efficient and more profitable. While purchasing volume increases, many larger companies decline as the sector becomes fragmented with a greater number of companies offering electronic products.