MKF1120 Week Two Lecture Notes

In order to understand ‘that question’: “What is Marketing?” we need to know what marketers do!

Some Key Concepts discussed this week:

• Understanding the needs of customers.
• Marketing programs are strategies which adjust the 4 P’s
• Customers have needs, wants and demands.
• Exchanges and Transactions.
• Consumers are individuals.
• Student’s are ‘Products’ lol!

Examples of Marketing Jobs:

• Brand Manager.
• Category Management Executive
• Management Executive

Anatomy of Marketing:
Value, Needs, Wants, Demand, Exchange, Transaction, Market, Customer, Competitor, Offer / Product

Value: For money? You believe you paid a good price for the item you have purchased. If you (the customer) receive the benefit for a lower cost, that’s value! When ‘Value’ of a product is increased by adding ‘service value’, chilling a drink add’s $value to the purchase price.

Needs: Marketers create solutions to needs. Or… Maybe, they create great desires that get to the point of a need.

Wants: The way needs are met. However, if we can afford something (time, money etc.)it has become a demand.

Demand: Very different to a want, you can actually follow through with a demand. Not a want.

Market: Groups of people, anybody who ‘needs’ a product. All potential customers!

Customers have needs, wants and demands. What is the difference between these three things. A need is a necessity, everything you need to survive. Abraham Maslo’s hierarchy of needs. All customers have these needs, wants and demands. The question is, what can be marketed to meet these needs? Refer Textbook p.8 Figure: 1.2

Good marketing is about developing long term relationships with customers. ‘You get everyone once’ If you rip someone of once, they don’t return. Remember, a customers needs go on and on.

MGF1010 – Week 2

Management Lecture week two.

Notes taken from Rolf Bergman’s Lecture, Tuesday 12:30pm.

Organisations are deliberately structured in a specific way to ensure that all people have unique tasks and goals they need to achieve. Rolf used the example of a University, like Monash, which has a large staff body all teaching and ‘managing’ unique areas to further grow the Monash brand and quality of education.

Successful organisations need to be able to rely on the people who work for it to be passionate about education. They follow a distinct purpose or goal and all work towards acheiving it. This may require the development of a specific structure that all staff can follow, for example: Monash Uni split up their staff body in to Business Faculty, Arts Faculty. Within the business faculty, they further divide the organisational heirarchy into Departments, ie: Dept of Marketing, Dept. of Management etc.

Managers

A person who oversees the actions and has a responsibility to the other staff to ensure they are achieving organisational goals. Refer to slide 6 for an overview of the different roles within management. Used the example of Gail Kelly, CEO of Westpac Banking Group, she is an example of a Top Manager. Management is all about efficiency and effectiveness & vica versa. If both of these factors are accounted for the organisation is improving it’s competitive edge.

Learn the Managers: Functions, Roles & Skills.

Mintzberg suggests: Managers roles include: Interpersonal, Informational and Decisional. Suggesting they actually do a little less decision making or ‘bossing people around’ than people would think.

Read: Katz, 1974 for more information about management skills.

Organisations:

Society, environment, education and technology awareness is changing the organisational structure. Especially for online companies, they can make just as much money, if not more through online sales when Australia goes to sleep (the rest of the world comes online). There has been a big change in temporary jobs, contractors etc. Charlie Bell (Former CEO Of McDonalds) ‘Alot of organisations get lazy and loose touch of reality, they get to big and can’t personalise’.

Market Failure 1: Externalities & Common Resources

3rd Party effects: ‘Externality’

The effects of a consumers actions on another party or aspect of society which isn’t directly involved in the activity. A common resource is something that everyone has access to such as air (O2). These resources have two issues, they are non-excludable & secondly, a rivalry is created: ‘The more you pollute, the less I can pollute’. Examples: over fishing, global warming, smokers (adverse health effects of second hand smoke).

Market failure is when we are not being provided with information from society that helps us determine how much should be sold and produced. This is the market failing for society, NOT the individual. However, public goods are non excludable and non rival.

Externalities

Positive externality graph on slife 8 deals with ‘Private marginal benefit’ & ‘Private Marginal Cost’. In both cases (slide 11) we are not solving the problems of what to produce or how much to produce. If private companies get involved, it often results in an increase in negotiation costs. However, the government can have an impact by passing: ‘Non market based instruments’ to introduce regulations.

For example: Emission trading schemes are going to have an impact on jobs and taxes within an industry. The carbon trading scheme will still require industry to pay tax.

Monopoly

Understand monopoly oligopoly and monopolistic competition. (refer to slide 3, NB: there is no such thing as perfectly competitive. Example of a perfect competition, ‘The market for financial securities is probably ‘the perfectly competitive market”.

‘Video disk’ was used as an example for barriers into markets, the creators of DVD’s made a deal with Hollywood and killed it’s competitors. There is also legal entry into the market. Anti competitive practices can also scare companies away from specific markets. This is illegal. Predatory pricing is illegal, if you can prove it.

Market power is a firms ability to raise price without loosing much of it’s sales. Captive customers or ‘idiot customers’.Price insensitive (inelastic demand).

De Beers
The control of diamonds is still in the hands of the large holders, the sale of diamonds can easily be controlled. The DTC (Diamond Trading Company) ensures quality is protected.

If industry can capture the government, they often end up influencing policy decsions and govt. regulations. Autacy value is something that adds value to another persons product. Ie: the inernet adds value to a laptop.

If one firm can produce an amount cheaper than two firms producing a smaller amount, then we have an economy of scale. A typical natural monopoly is a rail company or a telecom company. It is so expensive that you can’t have two companies producing the same thing. The lowest point on the avergage cost per production is called minimum efficent scale. It is the lowest you can go for an individual technology. Each good will have a different minimum efficient scale. Refer to figure 10.2 in your textbook.

[P = AR]  does not always equal [MR=MC]

This is the point where companies can control the market, people don’t have a choice!

Dead weight loss – gains from trade realised.

NB: Rate of return regulation- you are allowed to make a certain return on capital [US]. You are allowed to set the price at whatever you want as long as you dont make over x% on capital.

Versioning
Goldilocks approach – 3 versions: one cheap, one medium, one high. All the consumers are drawn to the middle product & price.

Tips for Group Assignment

Tips for Assignment Two. Question outlines can be found on Blackboard or Monash Websites.

• Groups of 3 – 5 people.
• You need to do in text referencing. Use APA style. “No author, use article or book title”.
• Due: Thursday May 21st (4pm).

Question one:

• Fully labelled diagrams & tables
• Part c & d, answer in sentences (brief answer) including explanations

Question two:

• Essay format – short introduction + conclusion should be included.
• Make sure you address all parts of the question when answering in essay style.
• Check final paragraph of question sheet as it provides guidance on how your answer will be assessed.

GOOD LUCK!

Lecture 9: The Quest for Profit and the Invisible Hand

Content not posted on Blackboard prior to lecture
“This lecture is all about making money – [everyone] that’s what I want to do, make money!” – G. Rivers

Entry rate will be the smalest where you have a capital intensive industry, such as mining, aviation, telecommunications. Real estate services are very lucrative industries. Implicit costs are those that resources which are provided by the firms owner. When we talk about owners time being invested into the business we are not reffering to an accountable cost. Thus, the business needs to reward them for this time, otherwise this person will move into a different area and forget about the business, these costs are called implicit costs. Accounting provides economic information, but not the implicit costs of a business.
*Refer to slide 6 for a graphical demonstration*

Economic profit is a completely different thing to accounting profit. A normal profit is the accounting profit – the economic profit. In regards to slide 8, he should take the alternative job.

Shares reflect the accounting profit, they represent a share of the good times (profit) and the bad times (deficit). The shares value is based on potential profit earnings, the number of shares available. Furthermore, an understanding of the competetive market is crucial as it helps gain an insight into the potential profitability of a product in a market. Items which are functionally the same are considered to be usable in the same circumstances. IE: A clothes peg and competetors all have the same functional usages. Understanding what determines the price of a product is crucial. Also, there are barriers to exit as well as entry, example of a hispital was used. The government will be very unlikely to allow someone to close their hospital if they are loosing money.

Marginal Revenue V’s Marginal Cost
The situation you want to be in: Super Normal Profit
A competitive market in the long run: The worst case scenario is Zero Profit! That is, revenue matching total costs (Variable costs + Fixed costs). If there is a personal benefit to owning a specific business that should be included as a marginal cost. However, one needs to determine to what extent the business is off value: $5000? $10, 000?

As supply increases, price falls. As price falls the margin between Profit – ATC decreases. So in the long run, all new / existing firms will make zero economic profit. Refer slide 17, 18, 19 for an ‘awesome’ example.

*Economic profit of zero, means all resources are being paid. Not just the explicit costs, but also the implicit costs. The owners time is also being accounted for. This means that price = Marginal costs. ‘There is no margin in a competetive market’.

Competition gives you an incentive to be better than the rest, be ahead of the others in your market. Some books call this ‘productive efficiency’ or ‘Technical efficiency’. Bill Gates: we give you dynamic efficiency [to judge], the power to push society forward with a large economical power. This idea goes back to the economist: Schumpeter, he dates back many centuries. He argued that one needs to be big to be beautiful. To push yourself to the next level, you need to be big! Alternatively, Marshall (another economist) said, you have no reason to be big, no reason to be beautiful.

Microsoft Office: Dynamic efficiency? Find out more info on this…

Making profit in a competetive market:
Cost-Cutting Strategies:

• Produce a lower ATC to lower than others in the industry
• Product differentiation, successfully done, this can provide a source of market power.
• Monopolistically competitive, customer loyalty. Creating a switching cost.
• Horizontal differentiation V’s Vertical differentiation

Lecture 8: International Trade and Trade Policy

Australia’s top 4 exports:

1. Coal
2. Iron Ore
3. Education
4. Tourism

Australia’s top 4 imports:

1. Cars
2. Crude Oil
3. Tourism
4. Freight Transportation

If the world price of something is lower fo your own price then you should import. This will maximise consumer surplus. Your domestic producers will be annoyed but you will make money. Hence, if the world price is less than your price, it pays for you to import. Refer figure 8.5 in text book. We don’t export products that we don’t have a comparitive advantage in.

Gains from trade come from creating a comparitive advantage through specialization.

Import: Winners and Losers

• Textile industry and Austomobile industry>> 100, 000 small businesses attached to the car industry.
• Make sure you understand the difference between consumer and producer surplus.

Export: Winners and Losers

• The Australian Wine market and the Robert Parker Effect.
• Consumer surplus generally decreases as Pworld is higher.

Trade Protection Policies:
Politically, are we trying to win votes or genuinely trying to protect domestic industries. Countries like Australia introduce ‘tariffs’ on foreign imports. An import ‘quota’ outlines the amount an item can be imported. For example: The US quota on automobiles imported from Japan. 1981-1983. Sometimes we have an infant industry, or sunrise industry, that requires protection. You build protections around an industry. The Australian car industry is a prime example of this. Australia had over 67 years of protectionist policy.

BANANA WAR! 1998 – 2001 (EU v’s US)
The US got angry as companies like Dole and Chiquita lost 50% of their market in the EU. The US retaliated by placing a 100% import tariff on all EU imports. War ended in April 2001, the EU ceases the preferece towards African grown bananas and the US suspended the the import tariff on the EU.

Refer slide 18: Important! Import Quota & Tariff.
Import is: q4 – q1
Consumer Surplus is: ABDFGE
Producer Surplus is: C

With a tariff:
Q1 will move to q2
consumers will reduce their consumption from q4 to q3
Tariff Revenue will be F
Consumer surplus will be A,E.
Dead weight loss of Tariff will be D & G.

What we looked at today:

• Who should import and who should export?
• Trade Protection, Tariff and Quota. Both of these reduce import.
• Question: Are they intended to protect domestic industry, winning votes or about retaliation?

Exam Hints

Exam Hints for those who left early…

Test is only 20 multiple choice questions. There are six versions, so there will probably be no way for us to cheat.

Distribution of 20 questions…
Really easy questions, according to George…

3 x thinking like an economist

2 x comparitive advantage (minimum understanding required)

3 x Supply and demand (1 easy, 1 moderate, 1 hard)

4 x elasticity (1 easy, 2 moderate, 1 difficult)

4 x demand (1 easy, 2 moderate, 1 difficult)

4 x supply (1 easy, 2 moderate, 1 difficult)

Difficult questions are ones where you would have to do a difficult calculation. There will be no calculator usage in the test.

Lecture 6: Efficiency and Exchange (Gov. Policies)

Refer slide 3:

What are the objectives of free trade agreements?

• Who decides whether something is necessary or not?
• Pareto efficient  is another term for eloquently efficient. It means you cannot make anyone better off without making someone else worse off. This is where society and policy should focus on. IE = MB is equal to MC.
• Policy will always have a deadweight loss. These are the gains from trade that are no longer realised.
• Government policy will always cut into the market, but it is intended to make the market move faster.

Refer slide 8:

If we don’t allocate enough resources to their best uses, we are selling society short. We are stopping to early. Gains are not being realised. For exam: State that the gains are trade are not realised when answering question on gov. policy influence on markets.

Price Wars:

If you have a supply of labour that is bigger than the demand for labour you will have unemployment. Australian ‘wool reserve price scheme’ suspended in 1991. Where the government was buying wool from producers at $7.00 and placing it in storage. This scheme was stopped after the government ran out of space to store the wool!

K Rudd’s Brain Drain…

Tax rate of nearly 49% one you start earning serious $$$. Robin hood mentality, this reduces people’s incentive to work hard. GST in Aus. VAT in Europe.

Refer slide 20: Analyise  the graph

1. We are adding a tax on supply
2. Usually it is the producer who collects the tax. We add the tax onto the price of the good.
3. The consumer still operates on their demand curve and the producer still operates on the supply curve.
4. Why do we draw the tax in? Collect on behalf of government and pay a slice of our pie to them.
5. Petrol is a prime example for tax dollars, price of fuel is inelastic. There is now alternative product!
6. which ever side of the market is inelastic often endures they greatest burden.

Trading below or above the most efficient level – IE Not solving the economic problem of what to produce or how much to produce efficiently.

NOTE: Implications of poor allocation of resources, high taxes.

• Producing / consuming to little
• Not solving the economic problem of what quantity to produce and how much.
• Result is scarcity.

The incidence of tax will fall on the party that is price inelastic (less price sensitive).

Lecture 5: Supply in the Perfectly Competitive Industry

Value added Comments

In economics, whether an expense has a receipt or not it is still consumtion of resources. Evrything has to be paid back to the resources, even the profit. I.E. profit being paid as dividends to share holders. Costs = Explicit & production expenses.

Capacity is the ‘scale of your operations’ (refer slide 5). I’m keeping my scale of operations constant, that is the point of understanding supply V’s demand. In order to increase output to the scale that was required he would need a major investment, U.S. investors and bank lend capital and 50 years later Sony is a major company.

According to George “Projectors Project” & “Computers Compute”, demonstrates with light show that specialisation has improved productivity! By increasing specialisation we improve output and reduce inputs.

Goal: (slide 9) You are in your short run as long as one production goal is fixed.

(Slide 12) Note, correct Fixed cost to Total Fixed cost & Variable cost to Total Variable Cost.

Refer to slide 13 for ‘Various Measures of Cost’. Do not use the MC or ATC to write the formula for either of these sums, what you need to do is write it across the table. It needs to spread across the two boxes, visually written in between. Your marginal cost will cut your average variable cost and your average total cost at minimum points. As you increase output your average cost begins to fall and then starts to increase (refer slide 15, graph).

ATC falls for two reasons, labour is specialising and there is a reduction in the Average Variable Cost. When you increase labour and don’t invest in manufacturing facilities then you reduce productivity. “Too many cooks spoil the broth”!

Moving on…

∏ = Profit.

Refer to slide 17 for information on Profit Maximisation. Understand, Maximum profit is where the slope off the MR is equalto MC (MR=MC) This will give you maximum profit! Golden Rule!

Competitive Market:
Marginal revenue is equal to average revenue or price. When Price is kept constant your Marginal revenue will always remain the same. Hence, when making supply decisions, it is important to understand your price elasticity and when

P (price) = AR (average revenue) = MR (Marginal Revenue) = MC (Marginal Cost)  ***

***However this is not always the case, this is only for a perfectly competitive firm.

MC = TR- TC
Slide 24: Q1 = 200 quantity, Q2 = -$44 “What should i do?” >> At the quantity, ask yourself this question: ‘Is my price greater than average variable cost?’  24/200 = AVC = 0.12, where AR=P= 0.1  SHUT DOWN! My revenue is not covering any of my fixed costs!

NB: NOT on your test *wink wink*

Refer figure 6.9 in your textbook. How does the government impact on the gains of trade? The government can absolutely destroy a market and the gains from trade in a market. We ask ourselves: ‘are we allocating resources to their best uses?’ & ‘what to produce or how much?’. We are solving the economic problem of what and how much to produce = called allocative efficiency.