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Instructions of ECO 201 5-2 Simulation Discussion
Discussion
In a competitive market, there are many buyers and sellers. The goods offered are largely the same, and firms can freely enter or exit the market. Buyers and sellers are both price takers. The amount of output produced determines the revenue of a firm.
First, play the simulation game Production, Entry, and Exit in the MindTap environment. In this discussion, you will share your experiences playing that game. Your work in this discussion will directly support your success on the course project.
In your initial post, include the image of your simulation report in your response. See the How to Submit a Simulation Report Image PDF document for more information. Then, address the following questions:
Imagine you own your own business. Based on what you learned from the simulation, what factors would determine your entry and exit into a market?
Applying the concept of marginal costs, how would you, as a business owner, decide how much to produce?
How does the impact of fixed costs change production decisions in the short run and in the long run? Refer to the average total cost (ATC) model included in the textbook to demonstrate.
In your responses, comment on at least two posts from your peers. Research and provide examples from the news of firms in perfectly competitive markets. Discuss with your peers how costs impact these firms’ profitability.
To access your simulations, click the simulation link found in the module.
To complete this assignment, review the Module Five Simulation Discussion Rubric.
Step-By-Step Guide on ECO 201 5-2 Simulation Discussion: Production, Entry, and Exit
Introduction to ECO 201 Simulation Discussion
This eco 201 module 5 discussion, How-To Guide, is designed to help you navigate the complex decisions involved in managing a business as simulated in a microeconomic environment. By understanding factors that influence market entry and exit, calculating production based on marginal costs, and analysing the role of fixed costs, you can solve the ECO 201 5-2 Simulation Discussion: Production, Entry, and Exit. This Owlisdom How-To Guide will encourage active engagement with peers by discussing real-world applications of these concepts.Imagine you own your own business. Based on what you learned from the simulation, what factors would determine your entry and exit into a market?
Assessing Market Entry and Exit Factors
For the first section of the ECO 201 5-2 Simulation Discussion: Production, Entry, and Exit, we will assess market entry and exit concerning our business.- Reflect on your simulation experience to evaluate your business’s competitive landscape and potential customer base.
- Analyse how the number of competitors and the market size affect potential profits.
- Decide on market entry or exit by comparing the marginal cost of production with the market price and average total cost.
Example
As a company owner, one of the most important things to consider is the level of competition in the industry I am considering entering or leaving. The simulation demonstrates how the number of competitors that provide the same service or product as you may significantly impact your earnings—the greater the number of sellers, the lower the possible profit. In addition to this, the quantity of potential customers is also essential. You can’t make money if you don’t have anyone to sell to. Because of this, the proportion of buyers to sellers in any market is a significant factor since it establishes the overall landscape of demand and supply in that particular market (Fernando, 2021). It is profitable to join a market if the marginal cost matches the product’s value and is lower than the average cost at that quantity. On the other hand, if my company thinks that making a product will make less money than it costs to make, we will leave the market. In other words, the company is not profitable if the price of its product is lower than the average total cost of production.
Applying the concept of marginal costs, how would you, as a business owner, decide how much to produce?
Determining Production Quantity via Marginal Costs
Next, in ECO 201 5-2 Simulation Discussion: Production, Entry, and Exit. We will determine the production quantity using marginal cost concepts.- Use the marginal cost concept to determine the optimal production level that maximises profits.
- Assess how many units need to be produced to cover overhead costs by analysing sales trends and production capacity.
Example
The optimal output level for maximum profit is determined by marginal cost. (Mankiw, 2021). At this price, the marginal cost of producing the product is zero. If I were in charge of a company, I’d research sales trends to determine how many units would need to be manufactured to cover overhead. To do so, I must assess my workforce requirements, calculate the square footage and equipment I’ll need to simulate a specific output and think about several ways to streamline production. I need these systems to function fully so my company can earn money.
How does the impact of fixed costs change production decisions in the short and long run? Refer to the average total cost (ATC) model included in the textbook to demonstrate.
Impact of Fixed Costs on Production Decisions
For this section of ECO 201 5-2 Simulation Discussion: Production, Entry, and Exit, we will discuss the impact of fixed costs on production decision-making.- Refer to the ATC model from your textbook to understand how fixed costs impact production in the short and long run.
- Consider the initial investments in production capacity and how these costs are amortised over time.
Example
Due to the need to sell more units of goods to break even, fixed expenses negatively influence short-term earnings. Each additional unit sold generates a more prominent profit once fixed expenses have been covered. Since fixed costs often have a lower margin of income with more significant production volumes, they favour production choices in the long term. In the early stages of a company’s development, for instance, it may invest in low-priced manufacturing equipment to generate enough revenue (profits) to cover expenses until the company can find its footing. When they have saved up enough money, they will invest in newer, more costly machinery, which will cost more initially but will save them money in the long run due to its reliability and productivity. Although this method may reduce earnings in the near term, it will boost profits in the long run as the enhanced production efficiency more than makes up for the higher initial investment in the more costly equipment.
In your responses, comment on at least two posts from your peers. Research and provide examples from the news of firms in perfectly competitive markets. Discuss with your peers how costs impact these firms’ profitability.
Peer Responses
Responding to peers is one of the vital parts of the ECO 201 5-2 Simulation Discussion: Production, Entry, and Exit posts. We need to provide at least two peer responses. I will provide one example post. You can write your peer responses by keeping the below points in mind.- Comment on at least two peer posts to discuss their experiences and analyses.
- Research and provide examples of firms in perfectly competitive markets and how costs affect profitability.
Response 01
I believe that once we begin playing, we will all conclude that it is far easier to comprehend the inner workings of these simulations. This simulation, in my opinion, was an effective way to demonstrate how significant an influence both fixed expenses and market competition had on sales and ultimate profitability. This is reflected in the agricultural market in the United States because it is almost as competitive as it is possible to get without really being fully competitive (Mankiw, 2021). This is because there are a significant number of vendors, and not a single seller can unilaterally affect the price of a product. Because the market is entirely unregulated, the customers are unrestricted in their ability to choose whatever vendor best suits their needs (Westfall, 2022). As a result, the profitability of sellers in this market is significantly influenced by fixed costs, such as the cost of manufacturing.
Closing
By carefully applying the principles discussed in this guide, students can effectively simulate and analyse the dynamics of entering and exiting markets, making production decisions, and understanding the impacts of costs. The ECO 201 5-2 Simulation Discussion: Production, Entry, and Exit enhances learning and prepares students for real-world business strategy and economic analysis. You can also read our ECO 201 next module 6-2 Simulation Discussion: Monopolies and Monopolistic.References
Fernando, J. (2021, November 7). Law of Supply and Demand in Economics: How It Works. Investopedia. https://www.investopedia.com/terms/l/law-of-supply-demand.asp Mankiw, N. G. (2021). Principles of Economics (9th edition). Cengage Learning, Inc.Westfall, P. (2022, May 1). Microeconomics Definition, Uses, and Concepts. Investopedia. https://www.investopedia.com/terms/m/microeconomics.asp
