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    Management Economics

    Introduction Of Management Economics

    In the present scenario, there are several business organizations which make use of economic theories and concepts with an aim to make suitable decisions. Now, economic theories and practices are highly significant which in turn helps in developing competent and effectual framework in the near future. Demand and supply are the major elements whose appropriate estimation is highly required for getting the desired level of outcome or success.
    The present report is based on TSG pharma which offers caplets and antibiotic products to the customers. In this, report will develop an understanding about the concepts related to elasticity of sales and demand aspect. Further, it will also shed light on the extent to which information in relation to income elasticity is highly required for ensuring high management. Report will also present the combination through which cost can be minimized and profit will be maximized. Along with this, it will describe the characteristics of different market structures. This assignment will also provide deeper insight about the factors due to which market structure gets affected.

    PART A

    a. Assessing the changes which take place in predicted sales level

    In the pharmacy sector, sales aspect of firm is highly influenced with the level of population rather than price factor. The rationale behind pharmacy products is related to the health aspect of people (Askari and et.al., 2015). Thus, customers give more priority to the quality of product in comparison to price factor. However, company is required to offer high quality pharmacy products at affordable prices. Moreover, income level is the biggest factor that influences decision making of customers. Thus, by taking into consideration such aspect, it can be said that population is one of the main elements which influences the sales and profit margin of firm. Thus, manager of TSG pharmacy must have ability in relation to make proper prediction of sales revenue. Along with this, company also needs to make focus on employing effectual strategies which may result into reduction in the cost level. In this way, by making control on cost business unit can enhance its sales revenue and profit margin.

    Elasticity showcases the sensitivity of variables which occur due to the changes take place in other factors (Naoum and Egbu, 2015). In this regard, by making evaluation of the factors such as revenue and population, company can assess the extent to which change will occur in sales in terms of percentage. Hence, by evaluating the elasticity aspect, business unit can take suitable decision in relation to the products or services offered. Hence, it clearly presents the quantitative expression of business issue and thereby, aids in decision making to a large extent. By making assessment of the level of elasticity, business unit can assess the impact of price level on unit sales. Through the means of elasticity, prices can be easily altered.

    On the basis of cited case situation, TSG pharmacy is required to evaluate the changes take place in sales level with regard to the level of population (Meara and et.al., 2015). Thus, by applying the economic theories and concepts, manager of the firm can take suitable decision which in turn helps in achieving success.

    Computation of changes in sales revenue:

    From the above table, it has been assessed that both the variables are highly associated with each other. On the basis of this aspect, it can be said that population has high level of impact on the sales revenue (Coale and Hoover, 2015). As per the calculation, it has been identified that sales revenue will be inclined by 6.15% in the near future with rise in population level such as 7.69%. Thus, with an aim to enhance the customer base and profitability level, TSG pharmacy needs to make focus on satisfying the needs, wants and expectation level of customers. In this regard, business unit needs to place emphasis on offering a wide range of pharmacy products that overcome issues which are being faced facing by the people.

    b. Evaluating the changes if elasticity level is -1.1

    Price elasticity exhibits the relationship that takes place between changes take place in price and quantity demanded (Ashraf and Galor, 2013). Through this, sensitivity of the price level can be measured effectually. Price can be said to elastic only when large quantity is demanded by the customers due to small changes take place in the worth of product. Hence, such measure helps in evaluating the extent to which one variable is dependent on another. Economist or manager of TSG can assess the level of price elasticity by using the following formula:

    Price elasticity of demand = % change in quantity demanded / % change in price level

    In the real world, there are several factors that have high level of impact on the price elasticity. Some of them are as follows:

    Availability of close substitutes: Elasticity of demand increases when closer substitutes of product are available in the market (Ghamkhari and Mohsenian, 2013). Moreover, in this, there is possibility that customers will switch on the products and services that are offered by others. The rationale behind this is that customers always look for the low cost producer or manufacturer who provide them with highly effectual products.

    Income level fluctuations: Living or spending pattern of the people is getting changed in accordance with the changes take place in income level (Ashraf and Galor, 2013). Moreover, customers prefer to purchase high quality product when they have more disposable income. Hence, patients seek for the high quality medicines when their income level increases.

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    Price level: Inflation and deflation are the major two conditions which have high level of impact on the price of products and services offered by business organization (Zhao and et.al., 2014). Moreover, during the period of inflation, price of products get increased and vice versa.

    According to the calculation, it has been assessed that price elasticity of demand of TSG is negative. This aspect shows that management of Pharmacy Company fails to meet the demand of customers from one period to another (Cina, 2013). Moreover, customers are highly differing in relation to their needs, wants and expectation level. Thus, due to this, negative price elasticity has been occurred. Along with this, it has been identified that negative price elasticity of demand will negatively affect the sales revenue of company. In addition to this, quantity demanded for pharmacy product reduced significantly in the current year. Due to this, TSG suffered loss which in turn closely influenced its financial position and performance. Thus, company needs to place emphasis on reviewing the existing strategic and policy framework. By considering this, company can reduce the burden of cost and thereby, become able to satisfy the expectation level of customers to a large extent.

    c. Identifying the level to which information regarding income elasticity is important for management

    Income elasticity implies for the changes that take place in quantity demanded for goods or services in relation to variations take place in income level and by dividing the percentage change in quantity demanded from the proportion to which income level vary (Sorescu and Sorescu, 2016). Hence, by taking into consideration such aspect, business unit can develop competent and effectual framework for the near future.

    Income elasticity > 1: When quantity demanded increases at a high pace as compared to the income level then it is said to be more elastic. EY>1 occurs when quantity demanded increases by 20% irrespective of the aspect that sales revenue has inclined by 10%.

    Income elasticity = 1: Unitary elasticity level implies for the situation when changes take place in quantity demanded and income level are equal. The below mentioned situation presents unitary elasticity:

    Changes in quantity demanded = 15%

    Changed take place in income level = 15%

    Income elasticity < 1: It presents the situation where quantity demanded is lower than the enhancement that takes place in income level (Greenwood, Sanchez and Wang, 2013). For example: elasticity can termed to be less than 1 when 10% increase takes place in the quantity demanded due to 20% rise in income level.

    Thus, positive income elasticity implies for the one in which changes take place in quantity demanded in accordance with the level of earnings (Zhao and et.al., 2013). Hence, by using such measures or aspects, TSG can take suitable action for attaining success in the near future. On the other side, when demand falls on the rise of income level then it is considered as negative income elasticity. The rationale behind this is that customer’s preference is shifted from inferior goods to luxury one when their income level increases. In the present time, high standard of living is the major aspect that is considered by customers at the time of making purchase. In this way, income elasticity helps company in assessing the purchasing pattern or trend.

    The given case situation presents that income elasticity is .75 which is lesser than 1. Hence, it can be said that there is no high level of increase that takes place in the quantity demanded irrespective of the aspect that income level of people increases. There are mainly two reasons behind such aspect (Bell, 2015). Moreover, customers spend money in the pharmacy product according to their level of requirement. They do not start to consume more caplets on the rise in income level. This is one of the main reasons due to which income level does not affect the quantity demanded by customers. Along with this, customers demand shifted from inferior to high quality caplets when income level rises. Thus, such information is highly valuable for management which in turn helps them in developing suitable policies for enticing both sales and profit aspect.

    d. Calculating cost and profit level according to the concepts of economics

    Cited case presents that:

    • TR: $800 Q - $0.2Q2
    • TC: : $3800 + $2500 + $0.2Q2

    Computation of cost and profit level

    The above presented table shows that revenue level of TSG increased significantly in accordance with the rise that took place in quantity demanded. Along with this, during such period, cost level of the firm decreases which is a good indicator (Callan and Thomas, 2013). Hence, above presented table clearly presents the relationship between price and quantity demanded. In this regard, demand of price sensitive customers will be increased in accordance with the decline in charges of caplets. Hence, TSG pharmacy needs to make focus on reducing the price level which in turn helps in enhancing the sales revenue and profit margin.

    e. Assessing price / output combination

    From the graphical presentation, it has been assessed that high level of changes take place in the current position and performance of business (Hoppe, 2015). Thus, by taking into account all such aspects, it can be said that high level of control is required on the cost level for achieving the growth and success. Marginal cost and revenue as well as average cost clearly presents that company needs to reduce the level of expenses. Along with this, the above presented elements show that on the production of one additional unit, TSG will incur loss.

    Profit maximization may be defined as a long and short run process which helps in determining the suitable price and output level that offers more profit. From such graph, it can be said that TSG can maximize the profit by producing 600caplets.Along with this, cost minimization techniques are employed by companies which operate in the pharmaceutical sector. Such theory places high level of emphasis on reducing the burden of cost to a high extent. Thus, from the derived output, it has been assessed that business unit can reduce its obligations by declining the price level from 680 to 600.

    f. Determining profit-maximizing and average cost-minimizing combinations

    On the basis of economic theories and concepts, business entity needs to make focus on reducing the cost level (Cleland and Revenue, 2013). This in turn helps business organization in making control on both; sales revenue and profit margin. Hence, according to such theory, both marginal cost and revenue are equal. The above mentioned graph clearly presents that profit can be raised by firm through the means of equalization of cost and revenue level. Thus, by achieving such level, business unit can fulfill its goals and objectives. Thus, by using the amount of surplus in latest technologies, business unit can reduce the cost level to a large extent. In this way, by using the profit amount in right direction business, organization can make contribution in the attainment of organizational goals and objectives.

    The above mentioned aspect shows that by assessing the marginal cost and revenue, TSG can attain the goal of profit maximization and cost minimization.

    TASK B

    Company's background

    Sainsbury is one of the largest supermarkets in United Kingdom and operating as a public limited company. It accepts challenges to sustain firm’s position in highly competitive market. At present, its head office is in Holborn Circus, London which is employing millions of workers to make the business entity effective. Moreover, Sainsbury provides grocery items and fresh food products to a large number of customers at international level as per the market demand (Zhao and et.al., 2013). Therefore, organization aims to produce and supply adequate services through offline and online means to increase profit earning capacity.

    Sainsbury’s objective is to be a highly trusted retailer To achieve customer satisfaction and profit at maximum level.Hence, firm utilizes systematic steps to offer as well promote its groceries. It leads to effective qualitative position in global market. Including this, it concentrates to present products attractively regarding marketing elements like product quality and quantity as well additional factors which affect efficiency of organization (Dhangwatnotai, Roughgarden and Yan, 2015). The entity researches to facilitate services to fulfill consumer needs. Furthermore, Sainsbury sets goal to provide different quality and types of products on the basis of economic condition of buyers. Thus, industry seeks to offer products at affordable price and discounts.

    Effective business environment is able to face competition with other retail insdutries like Tesco, ASDA. Implementation of business activities includes market research and focusing on fulfilling needs and demand of consumersto gain profit with rendering high customer satisfaction (Meara and et.al., 2015). However, Sainsbury produces secured and healthy fresh food items including groceries worldwide. It meets almost all targets to improve productivity and profitability to sustain its position in the competitive market. Thus, satisfied services of the company attract societies and communities to gain consumer satisfactions through physical and online mediums. Company tries to reach out the products through easy and convenient manner during electronic transactions of groceries and food items.

    Market structure of Sainsbury

    Market structure involves company's goodwill and its product value (Askari and et.al., 2015). It affects the satisfaction level of target customers related to demand and seeks to fulfill expectations of buyers. There are different kinds of market structures to analyse sustainability of Sainsbury's products. As per the demand and targets, market is recognized where price determination is obtained. However, some markets decide to fix the costs of product through market research while other markets fix their price according to production and raw material qualities.

    At present, market structure of Sainsbury is monopolistic in which many sellers and large number of buyers are there. It comes under pull strategies to attract customers effectively (Naoum and Egbu, 2015). Therefore, price determination of grocery items and food are identified by analyzing the quality demand. Further, costs for items are determined by company regarding government intervention in production and distribution services. It is because; Sainsbury is a public limited entity where government interference is there in quality and quantity of products and services provided. Including this, at initial stage, company conducts market research about the user’s needs and demand and further makes plans for optimum utilization of raw material including goods involved during production.

    Thus, market structure is related to determination of price regarding buyer behavior and affordability to purchase items. However, firm focuses to provide secured and healthy products to gain trust and loyalty of societies and communities they are serving. In addition to this, public entity focuses on long term stability of organization and product value through providing comfort services to users. Under this market structure, best qualities of facilities are concentrated to gain effective demand for further transaction of resources in an optimum manner (Ashraf and Galor 2013). Therefore, Sainsbury fixes price for products by focusing on the demand and produces effective qualitative services to grab a strong position in the market for long term stability and maintaining good relationship with other business organizations of other countries. Furthermore,

    Large number of purchasers and sellers: - Different entities are in competition of grocery items and food products like Tesco Thus, monopolistic market structure involves large number of buyers ansellers where compaetition between two entities can determined effectively. (Melitz and Redding, 2015) .

    Government intervention: - As Sainsbury is a public limited retail industry, government interference in production and distribution of groceries as well fresh food items is there. Government makes policies and imposes certain rules and regulations which serve as the limitation on quantity of production and supplement of resources (Coale and Hoover, 2015). Thus, it is an essential characteristic of retail industry to activate business organization to gain awareness of public towards goods and services.

    Effects of laws of costs: - Under monopolistic market structure, price determination for products is done through laws of costs (Zhao and et.al., 2014). Therefore, as per the customer’s needs and demand, Cost of the product effects As per the market position of food items company changes its price of products and services to increase the productivity and demand for same. Hence, increase in cost decreases the demand and vice-versa. Further, on the behalf of government instructions to set price, retail industry can fluctuate costs which effects the economic stability of nation.

    Social welfare: - It emerges social welfare by producing goods and services on the behalf of government interventions (Ghamkhari and Mohsenian, 2013). In addition to this, in the present scenario, Sainsbury as a public limited organization Increases productivity and profitability through social welfare and society's awareness towards company's products and services.
    Past market structure of Sainsbury

    Earlier, Sainsbury was having a different market structure as compared to present. It was operating in oligopoly market structure where absence of government intervention was there (Sorescu and Sorescu, 2016). It is because, in the past years, it was a private limited company where production and distribution of goods and services remained handled by individual or owner of the organization. Under this structure, it has been considered that several barriers were there during production and supplement of resources. The industry had to face high level of challenges to offer and advertise products in the market. It was difficult to accomplish tasks related to market research and to gain sustainable position. However, it has some favorable and unfavorbale aspects to face compettition and sustain product's value in market, but Sainsbury get succeed to maintain its position.

    Oligopoly are of different kinds such as pure or perfect and imperfect or differentiated (Cina, 2013). Here, perfect market structure includes production of homogeneous products for instance, Pepsi and Coca-Cola as soft drinks provided by company that are of same product line. On the other hand, differentiated oligopoly includes products that are of different flavors or in distinct varieties. Further, non-collusive oligopoly is a market structure where companies compete with each other. In addition to this, collusive market structure determines the cost or conclusion or both. Therefore, Sainsbury had oligopoly market structure in the past years where no government interference was there in production and distribution regulations of grocery items and food products.

    Features of oligopoly market: - During sustaining position in oligopoly market structure, Sainsbury is well known company to sustain its value in market.

    Interdependence: -

    Control over production and supplement of grocery items were in Sainsbury’s owner's hand. Therefore, planning and evaluation related to management process were free as there were no rules and regulations to be followed (Bell, 2015). Further, price determination of products were obtained by company's top level manager according to features involved in goods. For instance, different features to be added and doing planning in such a way that business will have product differentiated and run in a successful manner.

    Non-price competition: -

    Regarding oligopoly market structure, Sainsbury used to follow price rigidity method for price determination. It considers a trend to fix price during fluctuations in demand and supply situations. Thus, the firm used techniques such as advertising of goods and services and addition of better qualitative services to satisfy customers.

    Role of selling goods: -

    Selling prices are essential is oligopoly market structure than in other structural framework (Hoppe, 2015). According to product qualities, managers of organization fix the price. Therefore, changes in costs can be arranged due to technological changes and market situations like inflation and deflation. Further, firm makes strategic plans to reduce the problem.

    Nature of products: -

    Sainsbury used to advertise groceries and features of food items in an attractive manner to expand productivity. It led to high quantity of demand for offline and online transaction of goods and services. Furthermore, entity used to present both kinds of products like homogeneous and differentiated in oligopoly market structure to pull customers at a large scale and faced intense competition.

    Few firms: -

    In the form of private limited company, there were few entities in competition. Therefore, market research and product value determination including pricing remains easy for maintenance of services in market. Under this market structure, Thus, under this market structure, Sainbury few firms are presence to face competition therefore, it considers as an advantage for Sainsbury to make place in market easily.

    Consideration of the nature of Sainsbury in retail sector

    Sainsbury is the second largest supermarket chain of United Kingdom that facilitates fresh food items and groceries in large quantity to several customers (Sainsbury, 2016). It provides qualitative, safe and healthy products in domestic and global market. Including this, it also activates export and import business activities from nation to nation to make the products and services available worldwide. The report is helpful to acquire knowledge related to company's worth. Hence, it is concluded that Sainsbury provides fresh food items as per customer demand and increases profit earning capacity effectively.(Dhangwatnotai, Roughgarden and Yan, 2015). The firm focuses on maintaining its position in market for longer duration and therefore, various kinds of tools and techniques are applied. For instance, analyzing proper market research which generates idea to produce supplying goods and services to achieve optimum utilization of resources.

    Sainsbury focuses on the welfare of public by providing affordable and effective services and products. It leads to increase the in demand and maximum effectiveness of entity. It remains a helpful tool to gain customer trust and loyalty towards goods and services for expansion and support other entities of different nations (Ghamkhari and Mohsenian, 2013).. (Martinaityte, Sacramento and Aryee, 2015). It influences monetary surplus and creates balance between production and distribution of goods. Moreover, positive attitude and perception emerges from society and communities to enlarge reputation in market that supports company to create healthy and effective environment to grab a strong position in the competitive market

    Thus, effectual performance of workers play a great role in increasing the efficiency of organization. It leads to enhance the goodwill in market through proper market research and systematic marketing strategic plans to face competition and sustain position internationally (Greenwood, Sanchez and Wang, 2013). It has been observed that Sainsbury is having a strong reputation in facilitating grocery and fresh items for public. Customers involved in this business activities are users, agents, wholesalers and other business organizations. With the help of all these kinds of consumers, retail industry expands its entity and gains maximum level of financial growth. It is beneficial to develop comapny's products to achieve targets.

    At present, Sainsbury has a clear vision to expand its business in international market by operating new branches in other areas. Including this, company is liable to support other country's firms and their development. Therefore, optimum utilization of goods andservices are determined(Hoppe, 2015). According to present report, market structure of retail industry has analyzed that in the past years, entity performed business activities under oligopoly market framework in which production and distribution of resources were handled by the individual. Further, expansion of business leads to public limited approach in which organization has to follow rules and regulations of government policy under monopolistic market structure.

    Government intervention: - Production and distribution of grocery items of Sainsbury are handled according to management planning process under government rules and regulations (Zhao and et.al., 2013). Thus, social welfare and systematic implementation of goods and services is determined by entity's position in the global market. Further, performance of demand and supply of resources are recognized to create balance between production and distribution of Sainsbury's products. Including this, perfect pricing strategy is to be identified. In this regard, government interferes in production and distribution of resources also provides limitations and guidelines to optimum utilization of freash food items. However, government plays a great role to reduce the flexibility in production system. It can also take helps from other nations' organizations to implement strategic plans regarding transaction of resources from one country to another.

    In addition to this, it is analyzed that market research can be done effectively in public limited company. It depends on society's behavior regarding goods and services of Sainsbury. It is resulted that interference of government plays an effective role in economic stability of country (Greenwood, Sanchez and Wang, 2013). Similarly, it is beneficial for the expansion and addition of good qualities in goods and services to face competition and sustain product's value in the market.


    It can be concluded from the above report that profit maximization approach plays a vital role in management of economy. Marketing activities related to transaction of goods and services are determined to expand business and optimum utilization of resources. Therefore, perfect strategic plans are recognized to face competition and sustainability of product and its value in the market. Moreover, different market structures are presented which show buyer behavior and market position for transacting goods and services effectively. It also includes relationship of entity with other countries. In addition to this, government interference and its significance are also determined to acquire proper knowledge regarding production and distribution of resources effectively. Last but not the least; systematic idea to increase efficiency of firm is analyzed to gain high customer satisfaction.


    • Askari, I. B. and et.al., 2015. Energy management and economics of a trigeneration system Considering the effect of solar PV, solar collector and fuel price. Energy for Sustainable Development. 26(7). pp.43-55.
    • Naoum, S. and Egbu, C., 2015. Critical review of procurement method research in construction journals. Procedia Economics and Finance. 21(8). pp.6-13.
    • Coale, A. J. and Hoover, E. M., 2015. Population growth and economic development. Princeton University Press.
    • Meara, J. G. and et.al., 2015. Global Surgery 2030: evidence and solutions for achieving health, welfare, and economic development. The Lancet. 389(6). pp.569-624.

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