The case study for the research is where an entrepreneur is interested in starting a gas supply business unit while will run at the same time with a convenience store adjacent to the premises. The business person is motivated by the fact that China and India have a current high demand for gas and gas products hence the assurance that their business venture will make returns within a short time.
Posted: September 26th, 2022
Situation C Cousin Edgar is always thinking of the next business idea. This time, he plans to invest in buying two gas stations. He reckons American consumers have come to accept the high gasoline prices, and estimates world prices for gasoline will increase even further due to increasing high demand from India and China. Besides, Cousin Edgar thinks he will make a good profit on the sale of convenience items at each station. But before buying the gas stations, he decides to ask for your advice since you are taking this course in Business Economics. You recall reading about making pricing decisions for gasoline on pages 173-174 of the textbook. You also recall reading about perfectly competitive markets in Chapter 12, and the need for differentiation in Chapter 13. Being skeptical of Cousin Edgar’s optimism on the profitability of selling gasoline and convenience items, you decide to research the market in terms of supply and demand, elasticity, costs of production, pricing, and normal profit. You want to provide Cousin Edgar with the most informed advice possible. Microeconomic Paper as a Professional Report Your paper should be organized into five parts as listed below. 1. Title Page—Name, course, and date 2. Introduction to situation, but do NOT copy the scenario. Briefly summarize the situation and identify the microeconomic issue(s) to be decided from the perspective of the organization. 3. Relevant Economic Principles: Determinants of Demand, Supply, etc. and Relevant Data Identify the variables that are critical in addressing the issue(s). Gather and present the relevant data on the variables by searching the DeVry Online Library. Ask a librarian for help if needed. Use in-text citation to report the source(s) of the data. Graphs may be included here. 4. Recommendations and Economic Justification Formulate and present your recommendations for addressing the issue(s) based on the relevant data and economic principles identified above. Justify your recommendations in terms of the economic impact on those affected. 5. References List the full references for at least five sources alphabetically in APA format.
The case study for the research is where an entrepreneur is interested in starting a gas supply business unit while will run at the same time with a convenience store adjacent to the premises. The business person is motivated by the fact that China and India have a current high demand for gas and gas products hence the assurance that their business venture will make returns within a short time. He is not starting from scratch, and he might be buying already existing gas stations then make a few renovations to the store to fit what they want to achieve (Balk, 2013). He is optimistic that the business venture will be the right move in a direction that generates profits not only from the primary activity of gas but also from the convenience store opened next to the organization.
Some of the microeconomic decisions that the entrepreneur has to consider are what the competition is currently doing and the range of returns that the industry has which will be a guide on the amount of money that he should invest as well as that he should expect. The production increases prices when the competition is low while the prices reduce when the competition is stiff as there are many suppliers. The more the vendors in the organization, it is more likely to have a reduced price. The state of the economy regarding performance is also another determining factor that will guide the business oriented person before they can venture into business. When the economy is doing weak, business ventures have attractive returns while they get low returns when the economy is not performing well which affects businesses all over the region and not only in one particular industry.
There is also the need to factor in the economic performance indicators that will be the guideline on the best possible decision that the business person will make in the beginning. It will also guide him on the products that go very fast from the market as well as those that have delays due to the preferences of the customers and the changes that happen due to uncontrollable factors like the weather which affects the buying patterns of certain goods and services (Salvatore, 2008). The market trend in the movement of gas and the perceived performance about the new demand of the two countries that is India and China should be another decision factor that will guide the entrepreneur as they will get information from the other investors on the expected trend in gas supply and demand.
Other microeconomic decisions that the investor needs to consider is the research and promotion that he must invest so that he can collect the relevant data related to the business venture that he intends to start. The industry prepares for the changes expected in the trends that will happen and they, therefore, must have all the information related to the promotion so that they can attract the potential customers. It is worth noting that every new demand in the market is met with new challenges that the business owners should be prepared to come together and will have an effect on the promotion methods that they may decide to do. It becomes the guideline within which to invest in a particular line of business or opt out due to the expected losses within the line of business.
Every business has what determines the number of suppliers in the market, the government policies in regards to the firm or only the demand for the products in the market as well as how fast the consumers use the product depending on the durability and perishability of the same items. Identification of the right business principles assists an organization in making the right decision as well as investing in the right platforms that will direct the organization in the right direction of making profits which are the goal of every business. It justifies the reason as to why the management of every business unit should collect all information that will be useful in the decision making whether at the start up or during the operations of the firm.
Collecting the right information relevant to the line of business that one intends to invest becomes more helpful; as opposed to receiving general information related to the market. Breaking it down to manageable data relevant and realistic will be a step further to assist the organization in the success of the business before the actual operations of the company intended. Economic principles are a guide to what the organization should undertake thereby being a point of reference in the decision-making model due to the market conditions in the industry and the private judgments in the firm related to the management (Nicholson & Snyder, 2014). It means setting the right price in the market and understanding how the demand and supply model works to influence the decisions of the firm. Important information relevant to the business is the variables in the market and the industry that the investor should be aware of before starting the operations of the firm.
Determinants of demand and supply
The determinants of demand and supply are varied and valuable in an organization to analyze which will help in arriving at the right decision in regards to the ruling of the business venture. In this case, the business idea is engaging in a gas supply business due to the expected changes in the world which may make the industry have attractive returns on the investment at the beginning or whether the profit margins that the business will enjoy at the beginning of operations will be consistent all throughout the fast life. Demand is the amount that the market needs while supply is the number of goods or services in circulation that will satisfy the request of products by the consumers. The following are the determinants of supply and demand that are relevant to the gas supply business that the entrepreneur will start:
The target market for the gas product and the convenience goods are people who drive vehicles and therefore they have an amount dedicated to their maintenance and movement of the automotive (Simon, 2009). They are earning a considerable amount of income that they can support the movement of their cars meaning that they will be in a position to purchase the other convenient goods that the organization stocks like personal effects materials and foods. They will not be buying their gas in debts which can affect the profitability of the organization as they go about their daily activities.
a shift in the supply of gas showing the drop in prices due to many entrants in the market which the entrepreneur should consider
The market and potential customers have what they would prefer over the other from the presentation of the business unit to the delivery of the services which determines the number of times they frequent an enterprise. For instance, a firm that is appealing to the eyes and has an excellent customer service will be an added advantage to the organization that the clients will always come back and check out the products on offer. It means that they can also influence the customers to purchase things that they do not need all in the name of the excellent customer service. The market may prefer a particular type of gas, and if the organization does not stock such, they might have problems with their goods moving and reaching the final consumer.
China and India are new markets that will have a new demand for the gas and consulting a study that will help collect the information on the amount of money that they are ready and willing to spend on the gas to drive their vehicles will also be a determining factor. When customers expect that the prices may increase they may purchase the gas in large quantities and they store it to avoid incurring high prices while expectations that the prices might reduce may have them buy the gas in low quantities that may affect the business operations of the firm due to the lack of customers frequenting the area. The organization should, however, avoid hoarding as a business practice which is withholding the goods until the prices increase to their favor.
Demand and supply curve showing the expected prices determined by a balance in both
Relevant Data Variables important in addressing issues
Apart from the balance between the demand and supply of the products that the organization has, it is important to have the technical know-how that will be important in managing the business unit. It includes the management skills and knowledge which will help the new business. The management and the business owner should be on the same page that will assist in pushing the organization in the right path that will make profits. It means that the management should always have the information related to the industry and make the changes in the organization that will make the firm strategize and make profits at all times. There should be a marketing team working together with the strategic manager who helps in collecting and analyzing the information into the right data relevant to the decision-making the model. On the other hand, if a sole proprietor who will be the one managing the business unit on their own, they should have the skills that will assist the organization in every aspect since they become the overall manager who is in charge of every department (Baumol & Blinder, 2015). It means they lead the marketing team, the accounting department and all other relevant dockets in the organization that helps in making the right decision related to the organization.
The employees working at such a startup should have the relevant knowledge and experience in their line of duty in that will assist the organization at its early stages. Their experience in handling the customers as well as the information on the convenience goods that move fast from the shelves when one is operating a gas business will also be relevant in the organization. They will advise the management directly on the right steps that the administration should undertake that will propel the operations of the firm.
Recommendations and Economic Justification
It is important to make a major decision before starting any business venture, and every entrepreneur should have all the necessary information that will assist them in arriving at the best decision that will lead them to profits. The economic performance before the start of the business is also an important consideration as well as the future directions related to the product that one wishes to invest and conduct business (Balk, 2013). It then justifies the need to ask around for those who have been in business long enough to give their insights concerning the lessons, the advantages, and disadvantages that they have learned throughout their business life. It will help the potential business owner in avoiding pitfalls that may make them lose money or carry out the wrong decisions that will affect their business either in the long run or over the short term. About the current problem where an entrepreneur is interested in starting a gas supply business, the study recommends the following:
In conclusion, Edgar should go ahead and invest in the supply of gas business as it will have returns for him both in the short run and in the long run. It will succeed after following up the suggestions and making the right decisions at the correct time frame.
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