MARKET-STRUCTURE CONDUCT

The entire market in the economy.

This is a firm that will easily make huge abnormal profit and as such
can grow very fast.

Conduct on the other hand is concerned with how the firm will behave
or conduct it’s self within the industry it belongs. A more competitive
industry will be characterized by product advertisement that is meant
to win for the firm more customers this will imply the firm trying to
gain more share of the market. However in a less competitive industry
firms may not be so aggressive towards rival firms in the same
industry. Advertisement may be used at minimal. Firms may be able to
make enough profit to help propel their growth. In the extreme case
where there exists a single firm in the industry the firm’s behavior
turns to be entirely different from other industries with rivals.
Monopoly has no intensions to advertise for its product. Monopoly does
not care about the quality of the product it’s offers to customers as
such a single firm that controls the entire industry generally turns to be
hostile to unfriendly to customers. Thus the behavior of firms is highly
dependent upon the industry they operate in it then as such
determines the progress of the firm.

ECONOMIC DECISIONS OF FIRMS

Within this contest firm is defined as a unit of an industry primarily

engaged in the production of goods and services with the main
objective of making profit. Industry shall be referred to as cluster of
firms engaged in similar economic activity. We assume that the
industry is characterized with struggle by firms that constitute it. This
implies that each firm in the industry designs policies that will enable it
capture a bigger share of the market. By this means the firm is able to
achieve it’s profit-maximizing objective.

Given that there exist numerous firms in the industry, each firm has to
adopt policy decisions that will enable achieve it’s intended objective.
Firms in the industry may distinguish themselves by differential pricing
policies, product mix, quality differences as well as the policy guarding
factor employment. These are decisions taken by the managers.
Decisions taken by the managers are intended to achieve three main
goals

1. To counter exogenous influences on firm,

2. To modify the internal operating system of the firm

3. To influence the firms external environment

COUNTER EXOGENOUS INFLUENCES ON FIRM

It is generally important for the decision makers of the firm to design

policies that will tend counter external undesirable influences.

External influences refer to all factors emerging from outside the firm’s
local environment that directly affect the performance of the firm.
Such influences may arise from decisions that other firms in the
economy take, government policies decision-making, the state of the
domestic economy as well as the state of the global economy. Positive
exogenous influences are desirable for the firm since they turn to
promote the growth of the firm. However negative influences are
undesirable since they can cause the eventual collapse of the firm. As
such it is recommended that firms need to put in place appropriate
policies to absorb such external shocks.

MODIFICATION ON THE INTERNAL OPERATING OF THE FIRM

The firm will take decision purposely to intervene in the internal

working system. The internal decision of the firm is generally meant to
enable the firm achieve it’s target. The firm may take decision that aim
at achieving maximum profit or minimum cost. Decision may also be
taken by managers to ensure that firm gains a greater share of the
market probably through improvement in the quality and or quantity of
the product. May also decide to reduce per unit price of the product
introduce new brand product and investment expansion.

Firms may also change or improve their internal structures by way of

technological change, human resource development and motivation of
employees. These internal over hauling will ensure the organization
maximizes its productivity level as well as the profit level. These to
make the firm more efficient and guarantee it’s rapid expansion.

TO INFLUENCE THE EXTERNAL ENVIRONMENT OF THE FIRM

(Indirect attack on government)

The firm may also take decision purposely to influence it’s external
environment. The external environment it surrounds the firms local
environment. The firms external decision can emit factors that can
either affect other firms outside positively or negatively. The firm
operate can operate smoothly and successfully within its environment
by taking essential decisions that factor in the opportunities created
and then threats host by the environment.

Outside the firms local environment consist of the rival firms, the
household and the government each of which can take decisions that
can influence the activity of the firm. The firm has to put policies in
place that will enable it to endure the laws of the land as well as
government policies for its smooth operations. At the same time the
firm takes decisions that can either have positive or negative
influences on rival firms households and the government. These are
indirect confrontation expected to impact on other firm household and
the government. Typical decision may include the implementation of
new improved marketing strategy that will enable the firm to gain
customers and at the same time be able to put other firms out of
business.

Multinational cooperation and monopoly firm can take decision that

can bring down the government.

Citizens or austerity of government decisions will interpret high tariffs

on utility bill by Electricity Company. This will make the government
unpopular.

CLASSIFICATION OF PRODUCTION

Activities of firms can be categorize in three main forms

• Primary production

• Secondary production

• Tertiary production

Primary Production

Involves the production and extraction of commodities of natural

forms. Firms that deduce and extract natural products include those
found in agricultural and mining industry. The agric industry
encapsulates all business in farming, animal housebaoundry and
fishing and forestry. Mining industry covers all firms that are engaged
in mineral extractions. Quarrying and petroleum/natural gas
production.
SECONDARY PRO

This is the production stage where products from the primary sector
(primary product) are made to under go processing or manufacturing.
It is at this stage of production that value is added to the primary
product.

Secondary production generally changes the primary product into a

more superior quality product. Secondary production involves the
production of intermediate product and final consumer able product.
All firms in the intermediate production industry including the sawmill
industry and the manufacturing industry come under this sector.

TERTIARY
Is concern with the production of services? This is the sector that
produces intangible commodity; it is the tertiary sector that is
responsible for the production of service product. The tertiary industry
and compasses offers in the financial industry, insurance industry, and
commerce and transportation industry. The hospitality industry is also
classified under tertiary production.

The grouping of production in to three categories is essential to the

economist in the determination of the sectorial performance of the
economy. In other words these division allow the economist to have a
clear understanding changes that take place with in an economy at a
point in time. Thus knowledge of these classifications can serve as
policy guide to policy makers to design appropriate economic policies
to counter undesirable changes that may take place with an economy.

DEMAND ANALYSIS

Demand schedule is built on the relation Qd=f(Po) ceteris Paribus

Normal Demand curve

Normal demand curve is a graphical representation of the relationship

between quantities demanded for a terms specified product at various
market price levels. The normal demand curve is based on the
functional relation Qd =f(Po)c.p therefore the normal demand curve is
derived from the demand schedule.

By plotting the price values against quantity values in a P$Q space we

arrive at the normal demand curve as being shown
The demand curve slopes downward showing negative or inverse
relationship between price and quantity demanded.

The law of demand:

It is based on the assumption that all other things hat influence

demands are held constant except the price of the commodity.
According to the law the higher the commodity price the smaller the
quantity that will be demanded and the lower the price the greater the
quantity that will be demanded, (Ceteris paribus)

STATIC ANALYSIS OF DEMAND

Change in quantity demanded

This implies movement along the same demand curve due to changes
in the price of the product.

Change in quantity demanded can either be increase in quantity

demanded or decrease in quantity demanded. This is a movement
down the normal demand curve from point A to B resulting from a fall
in the price of the commodity. From a fig. 1.1 the price of the product
falls from Po to pi quantity demanded to expand from Qo to Qi. The
consequences in the movement from point A to B are along the same
demand curve
Decrease in quantity demanded is a movement up the demand curve
from point M to N along the same demand curve. This is illustrated in
the fig.2.0.

From fig.2.0 the price of the product is increased from Po to P2 causing

quantity demanded with product to contract from Qo to Q2. This
phenomenon is reflected by the movement along the demand curve
upwards.

DYNAMIC ANALYSIS OF DEMAND

Change in demand is a shift of the demand curve either to the left or

the right. There are two scenarios under this analysis.

Increase in demand and decrease in demand.

Increase in demand implies a parallel shift of the demand curve from

left to right

The formula is Qd=f(Po,P1,Y, Tp, R, culture, E, W ---------------)

If we relax the assumption of holding other factor constant, for instant

we allow change in the consumers income or change in the taste and
preference of the consumer this will cause the demand to shift
parallel . if the change is favourable towards the commodity this will
lead to increase in demand. Under the dynamic analysis the shift in the
demand curve is never triggered by the price of the commodity. This
assumes that the price remains stable.

Decrease in demand
Decrease in demand on the other hand is described by parallel
movements of the demand curve from Right to Left as illustrated in
fig.2.2. the decrease in demand is a reflection of the movement of the
demand curve from Do Do ti D2 D2. Under this analysis the price of the
commodity remains constant at Po. The movement is due to any
unfavourable change in any one of the other factors that affect
demand apart from the price of the product.

SUPPLY ANALYSIS

Supply defines the amount or quantity of specific products that the

producer is willing and able to offer for sale at a given price level over
a given time period. Supply is always at most equal to total output of
the firm. If supply happens to be less than total output then there exist
a stock of goods for the firm.
THE SUPPLY FUNCTION

Qs=f(Po,Pi,C,Tech, W, Tp,T,sub

Where Po = own price

Pi = prices of other product

C = cost of production/ prices of inputs

Tech = level of Technology

W = Weathere

Tp = Taste and preference of producer

T= Taxation

Sub= Subsidy

FIRMS SUPPLY SCHEDULE

This is a tabular representation of the relationship between the various

quantity that a potential supplier or firm is able and willing to offer for
sale at a different market price level for a given period of time. This
supply schedule is built on the assumption that all other factor
influencing supply are held constant except the price of the product.
This relation is express in functional form as follows

Qs = f(Po) ceteris Paribus

The table below is a hypothetical normal supply schedule for a firms

product

Unit price GHcedi Quantity (Q)

2.50 1.00

2.00 80

1.50 60

1.00 40

.50 20

From the table it is observed higher quantities match with higher

qualities.
This relation between price and quantity supplied is described as
positive.

THE LAW OF SUPPPLY

A close study of supply schedule indicates that there exist a direct

relation between the product price and quantity supplied therefore the
law of supply states that the higher the price of a product the greater
the quantity that the supplier will offer for sale and the smaller the
price the smaller the quantity the supplier will offer for sale, ceteris
Paribus.

Normal supply curve by plotting values under quantity against those

values under price will arrive at the normal at the normal supply curve
in fig.3.0

Static analysis of supply

Change in quantity supplied indicates movement along the supply

curve either upwards or downwards, resulting from a change in the
products price certeris Paribus. There are two major scenarios under
the static analysis increase in quantity supply or decrease in quantity
supply.
Increase in quantity supply is a movement up the slope of a normal
supply curve due to an increase in the price of the product. The fig. 3.1
shows increase in quantity supply. From the fig the movement from
Point A to B along the supply curve S is what is referred to as increase
in quantity supply. The increase in quantity supplied is the result of the
increase in the price from Po to Pi.

Decrease in quantity supply on the other hand is a movement down

the slope of the normal supply curve this scenario is illustrated in the
fig.3.3

From the fig.3.3 the movement from point A to M along the supply
curve S is referred to as decrease in quantity supply. The decrease in
quantity supply is due to the fall in the price of the product from Po to
P2.
THE DYNAMICS OF SUPPLY

Change in supply

Qs=f(Po,Pi,Tech,W,C,Pd,Tax,Sub,---------------)

Given that the price of the product is kept constant, any change in any
of the other factors that influence supply will cause the whole supply
curve to shift parallel to the left or right

Ex. Change in technology, change in government tax policy as well as

change in government subsidy policy will shift the supply curve from
it’s original position.

Change in supply can either be increased in supply or decrease in

supply.

Increase in supply indicates parallel shift of the supply curve to the

right as illustrated in the fig.3.4

In the fig the movement from So to S1 describes increase in supply.

Increase in supply may be due to the introduction of improved
technology into the production technology, government’s reduction in
firms’ taxes or government’s introduction of subsidy.

Decrease in supply on the other hand is a parallel shift of the supply

curve from right to left as illustrated in fig.3.5

From the fig.3.5 the movement from So to S2 is referred to as

decrease in supply. The decrease in supply is due to an unfavourable
change in the any one of the other factors that influences supply with
the exception of the price of the product. For instance bad weather can
cause the supply of agric product to decrease, likewise an increase in
the tax burden on producers by the government will also cause supply
curve to shift to the left. The redraw of government subsidy will also
cause the supply to shift to the left of supply to decrease.