ECO 201 8-1 Project Submission

Step-By-Step Guide on ECO 201 8-1 Project Submission

Introduction to ECO 201 8-1 Project Submission

This Owlisdom How-To Guide is designed to help you understand and apply critical microeconomic principles through simulation games. The eco 201 module 8 project involves engaging with several simulations that demonstrate real-world applications of these principles to enhance decision-making in business scenarios. By the end of this ECO 201 8-1 Project Submission guide, you will be able to draft a memorandum that effectively communicates the educational value and practical implications of microeconomic concepts.

You will receive a Project Template to solve the eco 201 module 8 project. I am using the SNHU template as an example.

You will need several simulation report images for your memorandum. All the necessary data visualizations will be generated after you have completed each simulation game. You must save image files of your simulation reports for your simulation discussions. These should also be used to create your memorandum report for the course project.

Simulation

To start the ECO 201 8-1 Project Submission,  we will first play the simulations mentioned in previous modules and gather the result reports. We will solve the 8-1 Project according to our simulation findings.

• Simulation Report Images: After playing each simulation game, capture and save images of all the simulation reports. These images will be critical for your memorandum to support your discussions visually.

Comparative Advantage: Discuss the Comparative Advantage (With Trade) simulation you played in Module Two. You should add the Production Decisions graph and the Production Trade graph (i.e., the graph showing how many hamburgers per fries) from your simulation report into the project template as Figures 1.1 and 1.2. Then, answer the following questions in the paragraphs below the figures: How does this simulation demonstrate how individuals evaluate opportunity costs to make business decisions? Use the Production Decisions graph from the simulation as a reference to explain the role of the production-possibility frontier (PPF) in the decision-making process. Explain how comparative advantage impacts a firm’s decision to engage in trade. Would a business’s decision to trade cause a change to its PPF? Provide specific reasoning to support your claims.

Understanding Comparative Advantage

For the second section of ECO 201 8-1 Project Submission, we will discuss the comparative advantage.

• Play the Comparative Advantage Simulation: Focus on how different production choices affect opportunity costs and the production possibility frontier (PPF).
• Include Graphs in the Memorandum: Insert the Production Decisions and Production Trade graphs into your report as figures. These will visually support your analysis.
• Discuss Key Concepts: Explain how the simulation evaluates opportunity costs in business decisions and how comparative advantage influences trade decisions.

Example

Opportunity costs are the potential gains that a person, investor, or corporation forego while selecting one choice over another. Opportunity costs are invisible, making them easy to miss. Knowing the possibilities that may be lost when one investment choice is chosen over another is helpful to make more informed decisions. (Fernando, 2022). The opportunity cost is the gain that would have been obtained if a different alternative had been taken. To correctly assess opportunity costs, the costs and advantages of each possible choice must be analyzed and compared against one another. When making decisions for myself and my company, considering the worth of opportunity costs will help me make more beneficial decisions. Opportunity cost is an internal expense used for strategic planning; it is not included in accounting profit and is not reported externally. Opportunity cost may be seen in decisions like building a new factory in New York rather than Ohio, delaying an update to firm equipment, or selecting the most costly product packaging choice.

The principle of comparative advantage suggests that efforts should be concentrated where they will have the most impact. (Learn Economics, 2022). It refers to our capacity to generate something faster than others. It refers to the ability to create something with fewer resources. Let us imagine we are attempting to determine what to prepare for supper. Assume you are a good chef, and I am not. You are capable of making a more excellent steak than I am. This is referred to as your comparative advantage.

The production possibility frontier (PPF) is a graph curve that depicts the potential amounts of two goods if they rely on the same limited resources for manufacturing. (Bloomenthal, 2022). Moreover, PPF is quite essential in the realm of economics. For instance, it might show that a country’s economy has attained maximum achievable efficiency. Businesses and economists use the PPF to consider potential production scenarios by adjusting various resource factors. Companies might use the PPF to discover how factors affect production or to pick which items to develop. Economists may use it to determine how much of one product can be produced in a nation while not making another, allowing them to examine economic efficiency and growth.

Competitive Markets and Externalities: Discuss the Competitive Markets and Externalities simulations (both with and without policy interventions) that you played in Modules Three and Four. Add the Supply and Demand chart and the Outcomes by Market table from your simulation reports into the project template as Figures 2.1 and 2.2. Then, answer the following questions in the paragraphs below the figures: How do policy interventions affect a product’s supply and demand equilibrium? Provide specific examples from the simulation to illustrate. What are the determinants of price elasticity of demand? Identify at least three examples. Based on the outcome of the simulation, explain how price elasticity can impact pricing decisions and the firm’s total revenue. Based on the simulation results, can policy market interventions cause consumer or producer surplus? Explain why using specific reasoning.

Analyzing Competitive Markets and Externalities

Next, in ECO 201 8-1 Project Submission. We will analyze the market competitiveness and externalities.

• Engage with the Simulations on Competitive Markets and Externalities: Play both simulations to understand the effect of government policies on market equilibriums.
• Visual Aids: Include the Supply and Demand chart and the Outcomes by Market table in your report.
• Address Specific Questions: Explore the impact of policy interventions on supply and demand, discuss the price elasticity of demand, and consider how market interventions might affect consumer and producer surplus.

Example

When an externality causes a market failure and inefficient resource allocation, the government can take Command and Control (CAC)  or market-based policies. (Mankiw, 2021). By contrast, market-based policies incentivize private decision-makers to address the issue independently, whereas CAC policies regulate conduct directly. Depending on the nature of the externality, CAC strategies may seek to incentivize or discourage particular actions. The government may implement a CAC approach in which the Environmental Protection Agency limits pollutants that businesses may release into the atmosphere. Because of this rule, companies must conduct themselves according to specific criteria. Examples of market-based policies include remedial taxes and subsidies and the ability to exchange pollution permits. (Bowles & Carlin, 2020). The usage of corrective taxes is one method that may be utilized to ensure that private decision-makers are aware of the societal costs that they need to consider in conjunction with the unfavorable externality. One illustration of this would be the Environmental Protection Agency’s ability to charge businesses a fee for each quantity of pollution such companies produce. Pollution licenses that may be bought and sold between businesses provide polluters a negotiating chip in the global war against pollution. If the Environmental Protection Agency determines that a firm can release a maximum of 500 tons of pollution per year but only emits 300, it can negotiate with another company to buy back the remaining 200 tons of dispersible pollution. The agreement benefits both businesses while maintaining compliance with the predetermined level of emissions that the Environmental Protection Agency had mandated.

Any time the government intervenes in the market using any of its powers, there are repercussions for the demand and supply equilibrium due to the resulting price shifts. When the government provides financial assistance to businesses, those businesses are more likely to reduce the prices at which they sell their products, which drives up consumer demand for those commodities. (Stansak, 2020). However, if the government levies taxes on manufactured products, it reduces consumers’ purchasing power, causing an imbalance corrected by the market’s supply and demand forces. Prices tend to rise if there is an imbalance between supply and demand and vice versa.

The simulation game illustrates how government intervention affects the market’s demand and supply equilibrium. Because of its interference, the costs of each unit in the game are reduced; as a result, it produces a situation in which the worth of the units either remains the same or increases. Consequently, it reduces the number of nuisances per individual at a lower cost. So, we can say that the units’ supply curve moves to the right, which means it goes up; since equilibrium prices stay the same or go down, equilibrium demand also goes up when the government intervenes to lower the cost of an item, customers’ purchasing power increases, which in turn shifts the supply and demand balance.

Government action, in the form of taxes, can lead to a surplus for consumers and producers. The extent to which consumer and producer surplus is reduced due to taxes is more important than the amount of tax paid directly or indirectly—for example, imposing a milk tax of $1000 per gallon results in no new tax income since legal milk production is halted. However, the imposition of this tax results in significant economic damage in the form of a loss of surplus for both consumers and producers (Mankiw, 2021). Further, taxes lessen the overall volume of commerce, which cuts into earnings. When consumer prices are raised, there is a corresponding decline in consumer surplus. When prices are lowered for suppliers, there is a corresponding decline in producer surplus or profit. Additional government involvement that leads to surpluses for consumers and producers are price controls, price ceilings, and import tariffs.

Production, Entry, and Exit: Discuss the Production, Entry, and Exit simulation that you played in Module Five. Add the Aggregate Outcomes chart from your simulation report into the project template as Figure 3.1. Then, answer the following questions in the paragraphs below the figure: Analyze a business owner’s decision-making regarding whether to enter a market. For example, what factors determined the driver’s market entry and exit in the simulation? Use economic models to support your analysis. How does a business owner apply the concept of marginal costs to decide how much to produce? For example, how did the driver determine how many hours to drive each day? Use economic models to explain. How does the impact of fixed costs change production decisions in the short and long run? Use the average-total-cost (ATC) model included in the module reading chapters to demonstrate this impact.

Examining Production, Entry, and Exit

We will discuss the production, entry, and exit for the next part of the ECO 201 8-1 Project Submission.

• Simulation on Production Decisions: Understand factors influencing a business’s decision to enter or exit a market.
• Incorporate Aggregate Outcomes Chart: This will help explain economic models and their application to real-world scenarios.
• Analyze Key Decisions: Discuss how marginal and fixed costs influence production decisions.

Example

It was fun going through the simulation and seeing whether I could accurately forecast events and increase my earnings as a driver. My choice to drive was mainly influenced by the daily set charge, as well as the number of other people who were driving on that particular day. It would not be worth it to drive on a day when the hourly salary is predicted to be low since there would be too many drivers on the road. In other words, if there were more than five drivers, the set price would cause a loss in revenue.

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 cannot make money if you do not 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.

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 would 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 will 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.

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 favor 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.

Market Structures: Discuss the market structures simulations (Price Discrimination and Cournot) you played in Modules Six and Seven. Then, do the following in the project template: Complete Table 4.1 as a reference guide for your business partner. The table should compare the attributes of each of the four listed market structures. Answer the following questions in the paragraphs below the table: Explain what market inefficiencies derive from monopolies and monopolistic competition. Use examples from the textbook to support your claims. How do firms in an oligopolistic market set their prices? Use specific examples from the simulations or the textbook to support your claims. Explain how firms that compete in the four different market structures determine profitability. Use specific examples from the simulations or the textbook to support your claims.

Exploring Different Market Structures

For this section of ECO 201 8-1 Project Submission, we will discuss the different types of market structures. 

• Study Different Market Simulations: Focus on the characteristics of perfect competition, monopolistic competition, monopoly, and oligopoly.
• Complete and Discuss Table 4.1: This table should outline the attributes of each market structure. Analyze how these structures affect pricing strategies and profitability.

Example

In monopolistic markets, when there are many sellers but few substitutes due to price, quality, and availability, we have imperfect or monopoly competition. In the monopoly game, one corporation takes the prices paid by its rivals as a given and ignores how its pricing decisions affect its competitors. (Mankiw, 2021). Monopolies retain their replacement capacity, unlike perfectly competitive markets. Industry models often make use of monopoly competition models. Restaurants, breakfast cereals, clothing, footwear, and urban service sectors are examples of monopoly-like market systems. Since monopolies do not have to compete with other producers on the market, they can always be efficient. Consider Facebook as an example. It is a monopoly as the dominant social media platform since no other services can compete on a level playing field. Due to the inevitable deadweight loss, it might also become ineffective. Because of the high pricing and little production, this has occurred. “Because a monopoly charges a price above marginal expense, not everyone who appreciates the commodity more than its cost buys it.”

There are two ways in which monopolistic competition might be ineffectual:

• If a company fails to create units that customers value more than the cost of production, it will charge a price that is more than its marginal cost.
• Many businesses are not using all of their manufacturing capacity since they have some spare capacity. As a result, output falls short of maximum power in monopolistic competition.

To a large extent, oligopolistic markets are characterized by the same essential characteristics. For starters, a few firms exert disproportionate market dominance. Only a few stores make up most of the industry’s retail establishments. The second distinguishing aspect of an oligopolistic market is the higher barriers to entry. (Mankiw, 2021). It is challenging to enter a well-established market due to the high startup costs and reduced competitive advantage you will have compared to well-established businesses. A distinguishing aspect of oligopolistic marketplaces is their interconnectedness. When one firm is affected by the price or promotional strategies of another, it is an example of interdependence. In oligopolistic markets, companies often do not decrease costs to gain a competitive edge.

When setting prices, oligopolists have to weigh the influence on production against the impact on pricing. When the price is greater than the marginal cost, the production effect of selling only one more gallon will enhance earnings. Water companies are raising output to boost total sales without sacrificing profit margins in response to the price changes. If the influence on output exceeds the effect on the price, the owner will increase production. If the impact on output is less than the price, the owner will not expand production.

Companies that operate in an oligopolistic fashion may be distinguished from monopolies by several key characteristics. Low levels of competition and considerable entrance obstacles characterize oligopolies. In contrast, monopolistic competition has many small enterprises offering similar or identical goods and services and unlimited entry and exit from the market. One definition of an oligopolistic market is one in which a small number of firms have a dominant influence. Few firms exert undue influence in their industry and those that do frequently work together for their benefit at the expense of consumers. The hotel business is an excellent example of monopolistic competition. There is much rivalry amongst these businesses, but they each have something unique to offer that makes them stand out.

The following five conditions define a market as perfect competition. To begin, the market is saturated with companies offering essentially the same service or product. Second, the companies are helpless as price takers because they cannot set prices. Third, since there are so many companies, no one has a dominant position in the market. As a fourth point, shoppers have full access to data on the market of products and their pricing. Getting into and out of the market is easy, which brings us to our fifth point. All companies eventually reach average earnings, and as a result, economic profits eventually fall to zero. The fast food sector is a good model of a market with perfect competition.

When companies offer comparable but not identical products or services, the market is said to have a monopolistic structure. All enterprises in this sector have relatively weak market power, and all market players share this weakness. There are few restrictions on who may enter or leave the market, and the actions of individual businesses have little impact on the actions of their competitors. Economic profit is zero in the long term. The hotel business is a typical monopolistic competition market.

Three key factors characterize an oligopoly market. In the first market, only a few companies had a decisive influence. As a second point, companies’ goods or services are similar but are significantly distinguished thanks to branding and marketing. Third, there are exit and entrance restrictions in the market. The actions of industry leaders profoundly influence competitors’ choices. When enterprises work together to establish prices at which MR>MC, they may realize economic gains, but in the event of a price war, they may see no gain. The telecommunications business is an excellent example of an oligopoly market.

There is just one company operating in a monopoly market. Company X is the only provider of Product Y. It is difficult for new companies to enter the market, giving the dominant one significant competition. By pricing its offerings at a level where MC>MR, the company ensures that it will have long-term financial success. When the government licenses a monopoly to produce and sell a product, it locks out all other competitors for 17 years under patent protection. Therefore, the company may increase its prices and reap substantial economic benefits. Governments provide market protection to incentivize innovation and introduce new items to consumers.

Conclusions: Draw your overall conclusions about the relevance and significance of microeconomics. How will microeconomics principles impact your business decisions moving forward? Provide recommendations to your business partner for your future business venture.

Drawing Conclusions and Applying Principles

For the last part of the ECO 201 8-1 Project Submission, we will summarize the findings and provide conclusions by applying the learned principles.

• Synthesize Learning: Reflect on how the simulations illustrate microeconomic principles and their relevance to business decisions.
• Provide Practical Recommendations: Offer actionable advice based on your findings to assist your business partner in making informed decisions.

Example

Microeconomics applies basic concepts to foretell how individuals will act in certain situations, especially those involving economic or monetary transactions. These norms consider utility amplification, opportunity costs, and the rule of market interest. Moreover, corporations and other organizations may benefit from microeconomics.

We would form a fantastic team, and I am optimistic about our company’s prospects if you would take the time to study all this microeconomics material and better grasp its importance.

Closing

By following this How-To Guide, you will be equipped to create a comprehensive memorandum that effectively communicates the relevance of microeconomics to real-world business applications. This guide will equip you with the necessary guidelines in preparing them for thoughtful and strategic entrepreneurial activities to solve the ECO 201 8-1 Project Submission. You can also read our ECO 201 next module, 8-2 Discussions on  Frontiers of Microeconomics.

References

Bloomenthal, A. (2022, August 17). Production Possibility Frontier (PPF): Purpose and Use in Economics. Investopedia. https://www.investopedia.com/terms/p/productionpossibilityfrontier.asp 

Bowles, S., & Carlin, W. (2020). What Students Learn in Economics 101: Time for a Change. Journal of Economic Literature, 58(1), 176–214. https://doi.org/10.1257/jel.20191585

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 

Fernando, J. (2022, June 27). Opportunity Cost Formula, Calculation, and What It Can Tell You. Investopedia. https://www.investopedia.com/terms/o/opportunitycost.asp 

Learn Economics: The Law of Comparative Advantage – 2022. (2022, October 13). MasterClass. https://www.masterclass.com/articles/learn-economics-the-law-of-comparative-advantage 

Mankiw, N. G. (2021). Principles of Economics (9th edition). Cengage Learning, Inc.

Stansak, J. (2020, November 15). The Effects of Government Intervention in Markets | Fiveable. https://library.fiveable.me