Production possibility curves, scarcity, and opportunity costs in economics

Production Possibilities

Production possibility curves are representation of the amount of two different goods that can be obtained by shifting resources from the production of one, to the production of the other. In addition, the graph represents maximum specified production level of one commodity that results given the production level of the other (Samuelson, 1962). The curve is used to describe consumers' choice between two different goods.

The curves represent a wide range of economic factors; scarcity, opportunity costs, and choice. According to the curve, scarcity is the fundamental economic problems all societies face; opportunity cost being the cost of anything used in the production in terms of what has to be given; these costs could be financial, but they could include individuals' time and other intangibles. Besides, the possibility curve shows two products and the consumer has the choice to choose the best one between them.

An individual earning $30,000 with the option to either buy an apartment or buy a car is likely to buy the apartment. This choice is made to satisfy the higher social and achievement needs within the society. Besides, there are few apartments and everybody cannot purchase them. Thus, investing in an apartment is seen as a higher preference and most likely to be chosen by the individual as opposed to the car. The apartment's value increases with time while the car depreciates making investing in the apartment worth being the first choice.

By returning to school and earning a degree, an individual has several opportunities. Courses in computer programming could mean much more to their paycheck than a bachelor's degree in liberal arts. The time taken by going back to school as well as the effort, and money is likely boost self-confidence. This opportunity presented makes going back to school a better choice for most individuals.

Graphing Changes to Demand

There are several factors that cause changes in demand as well as shift of a demand curve. These factors include changes in disposable income, shifts in consumers' tastes and preferences and changes in expectations as well (O'Sullivan & Sheffrin, 2003). In addition, changes in the prices of substitutes and complements goods are likely to bring changes in demand. Population size and composition is the other factor that influences the demand of any product.

The negative slope of the curve means people are willing to buy more of a service, product, or resource as its price falls. Whenever the prices of apartments fall due to recession and other economic difficulties, more owners will be disposing off their products thus increasing the market demand and vice versa. The price buyers are willing to pay depends on the utility. However, the demand directly depends on the income of an individual while the utility does not. Thus it may change indirectly due to change in demand for other commodities.

Oil and Gas Industry in Alberta

Alberta provides a lot of Canada's oil and gas. The region offers tremendous opportunities for companies involved in the extraction and processing of energy resources as well as other companies such as engineering, and manufacturing among others.

Alberta's technologies and services are in demand all over the world and generate billions of dollars in revenues each subsequent year (Government of Alberta, 2012). Although fossil fuels still dominate the world energy mix, higher environmental and regulatory standards are challenging the industry to find new and improved ways to enhance productivity related to upstream exploration and development.

With conventional oil production peaking in 2006, Alberta's oil industry is under significant pressure to increase production output. The production and export of natural gas is also critical to the province's economy. Like conventional oil, conventional gas has also peaked and is now on the decline. This places significant pressure Alberta's unconventional gas industry to meet current and future demands.

Economies of Scale and Scope

I would create a retail business store retailing men and women clothing. Retailing in clothing and footwear is a lucrative investment with high returns making investing in this field easier and rewarding. The retail should have four off-store shops selling branded apparel housed in 1,000 square feet buildings. This business targets both men and women between 35 to 64 years old, with incomes of less than $50,000 per year.

The company will be headquartered in Upper Saddle River, New Jersey requiring initial capital of approximately $12 billion employing about 100 people within the stores. The firm will market its products under its own brands; Vitro, Parky, Cooley as well as Supra Golf.

The firm's first store, Point-of-View will sell cheap apparel some retailing as low as $100. The clothes available in this store are mainly made of wool. In the second store, Focus Point, customers are treated to a wide range of leather and woolen clothing. In addition, the store's pricing ranges from between $400 to approximately $250. The third store; Studio 121 sells clothes made of fur as well a leather jackets. These clothes are mostly high end retailing at prices higher than $500. The final store, Rooster, will be selling clads of approximately $1,000 which are executive suits for both men and women. In addition, shoes sold at these stores will range from sport shoes, office shoes, ladies stilettos among others.

The company's fixed Costs would include salaries, rent, insurance, accountancy costs among others. The long-run costs would be labor and capital while the short-run costs are average fixed costs, average variable costs, and average total costs as well.

Nordstrom is a shoe retailer and also sells clothing, accessories, handbags, jewelry, cosmetics, fragrances and home furnishings (Miller, 2012). The firm's strengths include; offering customers with product quality and services, inculcating strong employee ethics to drive the brand name higher, appreciating and respecting customers and vendors as well as loyal return policies for their employees. The weaknesses are; difficulty forecasting future fashion trends, high social contribution is costly for the firm. The company's rapid expansion makes it difficult to efficiently manage employees.

Competing as Starbucks

Starbucks is part of a perfect competition market since the coffee they sell has few buyers and sellers who are price takers. Starbucks tries to maintain a competitive edge by giving customer a refreshing experience in the market where consumers will easily switch to other sellers if a change in price or supply occurs. The market easily allows for the entry and exit of both buyers and sellers.

The firm may decide to realign business practices back to when it was small and made coffee with the freshest ingredients available. To keep up with high demand Starbucks has had to cut corners by shortening the experience in several ways to keep up with the high demand for their product.

Managing several stores is difficult thus closing a number of stores helps in reducing operating costs and generate higher profits. This results in fewer which are close together which may lead to higher demands resulting in increasing profit margins.

Closing one store increases demand and profits for another store. This may cost the business in the short-run but will benefit in the long-run. The costs of shutting the store down like severance pay, or costs incurred for breaking a lease are short-run, and the result of another store getting busier because of the closure will make those costs back.

Starbucks sells coffee very expensive; the price of a cup of coffee at the stores in $6 while other retailers sell coffee for $2. Currently Starbucks does not provide good customer experience due to the higher demand for coffee. Thus, in order to keep up with the demand, the firm has changed many procedures.

Starbucks are managing the coffee cost as the level that they can achieve maximum profits. In the case that total cost is lower than the revenue, they can reach the maximum profits. Thus if the firm lower the price, then the revenue will decrease and the benefits also reduce.

Defining Monopolistic Competition

Monopolistic competitive markets are characterized with several firms selling similar products competing against each other. In addition, these firms use various strategies besides pricing to remain competitive in the market. In this market, competing firms use some of these strategies:

Differentiated products-logos, brand names, packaging

Good location and excellent service

Product redevelopment and improvement

Advertising

Nike is in a monopolistic competitive market and uses the brand name to sell products. Since there are several competitors selling sportswear, Nike uses huge advertising budget to promote product sales. This gives consumers feeling that Nike products are superior due to the promotion via advertising.

Dollar Stores have control over market prices making the competitive in the market. Most retailers unable to sell off their products will sell to Dollars Stores at low discounted prices. The Dollar Stores are able to reduce their selling price to the consumers, and still make a profit.

Small company

Medium company

Large company

Differentiated products

Exceptional services

Brand names, advertising, locations (i.e. malls verses a store off on its own), logos

Advertising, product, brand names, developing a reputation for lower prices, location

Control over price

Some, in parts, no-name verses brand names, ie: generic filter verses Honda filter

Can buy bulk supplies for franchise stores, (owner brand), so can sell at less, but still need to be competitive

Some, mostly buying bulk from suppliers, they can sell at lower cost, but the price of lumber is still the price of lumber, so they still have to cover their costs

Mass advertising

Word of mouth

Flyers or newspaper, signs in mall,

TV, flyers, newspapers, billboards

Brand name goods few

Many, even if it is Work Warehouse they would have many brand names including their own brand name

Many, (sinks, faucets, flooring)

Game Theory

This is the analysis of strategic decision making and mathematical models of conflict between rational decision makers. This game consists of a set of players, a set of moves; strategies available to the players, and a specification of pay-offs for each combination of strategies. Most cooperative games are presented in the characteristic function form, while the extensive and the normal forms are used to define non-cooperative games.

Game theory was initially developed as tool for analyzing optimal strategies for groups of individuals, by assuming they could enforce agreements about proper strategies (Camerer, 2003). Currently game theory is used in economics, political science, and psychology, among other fields.

Payoff matrix is used in game theory and represents the game by the way of a matrix. This matrix is helpful in identifying strictly dominated strategies as well as Nash equilibrium. In addition, this matrix of game theory includes all perceptible and conceivable strategies, and their corresponding payoffs, of each player.

Cartel is a union among competing firms with small number of sellers stocking homogeneous products. The members agree on pricing, industry output, market shares among other issues. This collusion aims at increasing individual members' profits by reducing competition.