Final Economic Internal Assessment

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Table of Contents

Page #

Acknowledgement

. 3

Aims and

Objectives

.. 4

Section One:

nt!od"ction

.

Section Two: $ite!at"!e

%eview.. &

Section T'!ee:

(et'odolog)

*

Section +o"!: S,eci-c Objective

One. /

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Section +ive: S,eci-c Objective Two

. 3

Section Si0: S,eci-c Objective T'!ee

.

Section Seven: %ecommendations 1

Concl"sion. 2

A,,endices

/

ibliog!a,')

. &

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Acknowledgement

Firstly, I would like to thank God for giving me the strength and fortitude it

took to complete this project.

Secondly, I wish to express the deepest appreciation to my lecturer, Mr.

Simmons, for the guidance and hard work in the preparation of this project.

e gave me moral support and guided me in di!erent matters regarding the

topic. e had "een very patient while suggesting me the outlines of this

project and I#m thankful for his overall supports.

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$astly, I wish to thank my parents and my friends for their help,

encouragement and "lessings and I also extend my heartfelt thanks to my

well wishers.

Aims and Objectives

%he &ari" 'a"le 'ompany (&elcom) was chosen for this internal assessment

"ecause of the great contri"ution towards the *incentian society and

economy. In researching the operations at the &ari" 'a"le 'ompany, these

economic concepts were explored in an e!ort to assess, analyse and

evaluate that +rm.

%he aimof this Internal ssessment is-

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n investigation of the e!ects on consumer surplus in a monopolistic

+rm.

%he objectivesof this Internal ssessment are-

%o evaluate consumer surplus in the +rm.

%o determine the market structure of the +rm.

%o analyse the similarities and di!erences of the factor market in the

+rm.

T'esis Statement

/y esta"lishing what consumer pays in a monopoly +rm, the consumer#s

surplus is measured in the factor market.0

Section One: nt!od"ction

In St. *incent 1 the Grenadines (S*G) there is only one (2) 'a"le 'ompany

that exists. %he name of this 'a"le 'ompany is &ari" 'a"le (&elcom) which

esta"lished in 2334, founded "y &elly Glass as &elcom International $imited

with ac5uisition of '%* license in St. *incent 1 the Grenadines (S*G),

trading as &ari" 'a"le. &ari" 'a"le (&elcom) is a monopoly6 this is "ecause it

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is the only provider of ca"le television in this economy. topic was carefully

generated for this project as it is re5uired "y the 'ari""ean dvance

7ro+ciency 8xamination ('78) for my Internal ssessment, n

investigation of the e!ects on consumer surplus in a monopolistic +rm.0 %his

topic deals mainly with the e!ects on consumer surplus in the +rm along

with the market structure identi+ed along with the factor market.

Section : $ite!at"!e %eview

Section 2.1 - Consumer Surplus

(Marshall, 293:) Marshall de+ned consumer surplus as the terms used in

economics to express the di!erence "etween how much a consumer paid for

a good or service and how much extra he would have "een willing to pay for

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that good or service.0 In other words, it is the di!erence of the willing;to;pay

price and the actual;paid price. %o calculate consumer surplus is the use of a

formula (nticipated price minus ctual price e5ual Surplus)(Marshall,

239:)meaning if one knows the price a consumer is willing to pay for a

product or service then she may su"tract the actual purchase price from that

amount to calculate consumer surplus.

Section 2.2 Market Structure

Firms have to decide how much of output to sell and what price to charge for

each unit of the commodity (8dwin, 233


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%here must "e no close su"stitutes for a product or service so that

there is no competition over market share.

Strong "arriers to the entry of new +rms into the industry.

Section 2.3 - Factor Markets

(Beardor!,


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Section T'!ee: (et'odolog) 5m,lo)ed

Information for this project was gathered "y the use of primary and

secondary sources.

s the primary data collection method6 an interview with the Manager, Mr.

&elly Glass, of &ari" 'a"le (&elcom) was "eing used.

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%he secondary source of research was the &ari" 'a"le#s we"site,

http-JJwww.kari"ca"le.com. %his we"site had some "asic information that

was collected such as-

Kear Founded

/usiness $ocation

7roducts 1 Services

'ore *alues 1 Goals

%easons fo! em,lo)ing t'ese met'ods:

n interview was used to gather information a"out the operations at

&ari" 'a"le (&elcom).

%he we"site was simpler to use and more accessi"le providing

additional information which was essential after the interview.

Section +o"!: S,eci-c Objective One

%he term surplus is used in 8conomics (which is the social science that

studies the production, distri"ution, and consumption of goods and services)

for several related 5uantities. %he consumer surplus (sometimes called

consumer>s surplus or consumers> surplus) which is the amount that

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consumers "ene+t "y "eing a"le to purchase a product for a price that is less

than they would "e willing to pay.

ccording to (George, 29L3;293) the individual consumer surplus is the

di!erence "etween the maximum total price a consumer would "e willing to

pay or reservation price (Deservation price is the maximum price a "uyer is

willing to pay for a good or service6 or, conversely, the minimum price at

which a seller is willing to sell a good or service...) for the amount he "uys

and the actual total price.

e said If someone is willing to pay more than the actual price, their "ene+t

in a transaction is how much they saved when they didn>t pay that price0.

For example, a person is willing to pay a tremendous amount for water since

he needs it to survive, however since there are competing suppliers of water

he is a"le to purchase it for less than he is willing to pay. %he di!erence

"etween the two prices is the consumer surplus.

ccording to my +ndings, &ari" 'a"le (&elcom) is the only ca"le provider in

St *incent 1 %he Grenadines. %he consumer surpluses are the areas "etween

the demand curve and the price for ca"le television. My main +nding is that

consumers do not gain much from paying for 7remium Service at a +xed

price rate of N.O per month. &ari" 'a"le su"scri"ers enjoy access to over

9: channels of 5uality picture and sound6 "ut "y applying for the ca"le

packages they o!er, %he /ox0 which provides multiple di!erent customer

con+gura"le packages including 8ntertainment, Sports, Movies and Family

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packages. In addition, &ari" 'a"le deploys %he /ox through a fool proof

technology provided "y a digital set top converter. %he "ox incorporates

2::P signal encryption technology designed to o!er the tiered packages

only to &ari" 'a"les 'a"le %* system customers in St *incent 1 %he

Grenadines.

owever, when supply of a good expands, the price falls (assuming the

demand curve is downward sloping) and consumer surplus increases

(Marshall, 239:). %his "ene+ts two groups of people. 'onsumers who were

already willing to "uy at the initial price "ene+t from a price reduction6 also

they may "uy more and receive even more consumer surplus, and additional

consumers who were unwilling to "uy at the initial price "ut will "uy at the

new price and also receive some consumer surplus.

For example, the linear supply and demand curves for ca"le television. For

an initial supply curve S:, consumer surplus is the triangle a"ove the line

formed "y price 7: to the demand line ("ounded on the left "y the price axis

and on the top "y the demand line). If supply expands from S: to S2, the

consumers> surplus expands to the triangle a"ove 72 and "elow the demand

line (still "ounded "y the price axis). %he change in consumer>s surplus is

di!erence in area "etween the two triangles, and that is the consumer

welfare associated with expansion of supply.

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complementary market are e5ual to the extra pro+ts it could earn anyway "y

charging more for the monopoly product itself. owever, the one monopoly

pro+t theorem does not hold true if customers in the monopoly good are

stranded or poorly informed, or if the tied good has high +xed costs.

In my +ndings, &ari" 'a"le (&elcom) is a monopoly and it#s the only ca"le

provider in St *incent 1 %he Grenadines. It does not have any competitors in

providing ca"le television to consumers and does have any price pressure in

pricing their products and &ari" 'a"le is restricted from engaging in price

discrimination (hich is called +rst degree price discrimination, where all

customers are charged the same amount).

In conclusion, according to the standard model, in which a monopolist sets a

single price for all consumers, the monopolist will sell a lower 5uantity of

goods at a higher price than would +rms under 7erfect 'ompetition(7erfect

'ompetition this is where the perfect "eing a market in which there are

many small +rms, all producing homogeneous goods)( 8dwin, 233


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surplus for the monopolist and consumers is necessarily less than the total

surplus o"tained "y consumers under perfect competition.

Section Si0: S,eci-c Objective T'!ee

Factor markets are markets used to exchange and allocate the services of

factor inputs and scarce resources among productive activities. %he

monopoly market structure ; a market dominated "y a seller "uyer. In which

case, &ari" 'a"le (&elcom) the only ca"le television provider in *incentian

economy.

ccording to (Beardor!,


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%he +rst one is $a"or6 this is where mental and physical e!orts of humans

(excluding entrepreneurial organi?ation) used for the production of goods

and services. $a"or includes "oth the physical e!ort of factory workers and

farmhands often associated with la"or, as well as the mental e!ort of

executives and supervisors.

%he second is 'apital6 this is the manufactured, arti+cial, or synthetic goods

used in the production of other goods, including machinery, e5uipment,

tools, "uildings, and vehicles. 'apital is the produced factor of production.

%his factor must "e produced using other factors of production, which means

that society is often faced with the choice "etween producing consumption

goods that satisfy wants and needs or capital goods that are used for future

production.

%he third is $and6 this is the naturally occurring materials of the planet that

are used for the production of goods and services, including the land itself6

the minerals and nutrients in the ground6 the water, wildlife, and vegetation

on the surface6 and the air a"ove. %he natural resources and materials of the

land "ecome the goods produced. ithout these materials of the land, there

is no production. 7roduction is, in fact, the "asic process of transforming

naturally occurring materials that provide little satisfaction in their natural

state, to goods and services that provide more satisfaction.

$astly is 8ntrepreneurship6 this is the special sort of human e!ort that takes

on the risk of "ringing la"or, capital, and land together to produce goods.

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8ntrepreneurship is the factor that organi?es the other three. ithout

someone to organi?e production, the other three factors do R% produce.

key component of entrepreneurship is risk. %his resource takes the risk of

organi?ing production /8FD8 anything is produced and with no guarantee

that production will "e successful.

n economist (George, 29L3;293) says when a +rm determines its pro+t;

maximi?ing demand for a factor6 it will always want to choose a 5uantity

such that the marginal revenue from hiring a little more of that factor just

e5uals the marginal cost of doing so. %his follows from the standard logic- if

the marginal revenue of some action didn>t e5ual the marginal cost of that

action, then it would pay for the +rm to change the action.

%his general rule takes various special depending on our assumptions a"out

the environment in which the +rm operates. For simplicity we will suppose

that there is only one factor of production and write the production function

as y E f (x). %he revenue that the +rm receives depends on its production of

output so we write D(y) E p(y) y, where p(y) is the inverse demand function.

My +ndings at &ari" 'a"le (&elcom) as a pro+t;maximi?ing +rm, it also hires

the 5uantity that e5uates marginal cost and marginal revenue in their supply

and marginal revenue (MD) curves.

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In conclusion, with &ari" 'a"le>s 7remium Service you get a wide selection of

popular network channels, plus a generous assortment of regional and

international programming and pro+t is maximi?ed in the +rm where

marginal revenue intersects the supply curve. lso, the demand curve that it

faces for selling la"or is the market demand curve.

Section Seven: %ecommendations

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*incent 1 %he Grenadines and "eing the only provider of ca"le television the

company high prices can "e charged to consumers. n the other hand, the

monopoly company can "e 5uite "ene+cial to the manager "ecause of the

pro+ts "eing made. lso, su"scri"ers of the *incentian economy can "ene+t

from &ari" 'a"le "ecause they o!er extra products when you apply for %he

/ox0 which includes 8ntertainment, Sports, Movies and Family packages that

can "e taken which consumers of St *incent 1 %he Grenadines can enjoy.

A,,endi0 6A7 8 nte!view 9"estions

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2) From your perspective, can you please give me a "rief overview on

your knowledge of 'onsumer SurplusT


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%he economic "ene+t to individuals, or consumer surplus, received from a

good will change if its price or 5uality changes. For example, if the price of a

good increases, "ut people#s willingness to pay remains the same, the

"ene+t received (maximum willingness to pay minus price) will "e less than

"efore. If the 5uality of a good increases, "ut price remains the same,

people#s willingness to pay may increase and thus the "ene+t received will

also increase.

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%he essence of so;called partial price discrimination is the strategy of

dividing the pool of potential customers into segments and then charging the

mem"ers of each su"group what they are a"le and willing to spend. For

example, on the simpli+ed assumptions em"odied in Figure


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price discrimination. (hether price discrimination also has unaccepta"le

adverse side;e!ects, we will also consider "elow.)

Module 2: Market Structure

Figure L- Monopoly 7ro+ts and 'onsumer Surplus

ey:

'E cual 'ost

M'E Marginal 'ost

MDE Marginal Devenue

DE ctual Devenue

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/ecause monopoly producers are often supplying goods and services on a

very large scale, they may "e "etter placed to take advantage of economies

of scale ; leading to a fall in the average total costs of production. %hese

reductions in costs will lead to an increase in monopoly pro+ts "ut some of

the gains in productive eQciency might "e passed onto consumers in the

form of lower prices. %he e!ect of economies of scale is shown in the

diagram a"ove.

Module 3: Factor Market

&ari" 'a"le#s power over a particular factor can "e expected to "ehave like

any other monopoly. It will choose its output where the marginal revenue and

marginal cost curves intersect and charge a price taken from its demand

curve.

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Figure - Monopoly Factor Supply

monopoly supplier of a factor of production acts just as any other

monopoly +rm. ere, the monopoly faces the demand curve D and the

marginal revenue curve MR. Given the marginal cost curve MC, it maximi?es

pro+t "y supplying Qmand charging a price Pm.

monopoly supplier of a factor faces a demand curve that represents the

MRP of the factor. %his situation is illustrated in Figure 2.22, Monopoly

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Final Economic Internal Assessment