“MANAGERIAL ECONOMICS PROJECT”

A PROJECT REPORT

Submitted by

GROUP 1

Submitted to

Dr. Ritika Gugnani

JAIPURIA INSTITUTE OF MANAGEMENT

NOIDA

AUGUST 2019
 A STUDY ON MARKET STRUCTURE
The name of the business which we choose is Mithaas. It is a bakery/sweets shop
that sells various food products ( bakery and sweets ). They carry retail business. It
has 10 outlets in Noida. Some of the products that they produce and supply are
Bikaneri Burfi, Pista Burfi, Doda Burfi, Moong Dal Burfi, Coconut Barfi, Aloo
Bhujia, Kashmiri Mixture, Aloo Lalcha, Plain Namakpara, Gol Matthi etc.

The business is owned by Mr. Saurabh Mullick. It was started in the year 2012. He
works as the Managing Directors of the business who take all important decisions
in the business.
The various inputs that the firm uses to provide its products are :-

 Space
 Labor
 Capital
 Electricity
 Finished Goods ( Sweets and bakeries )
 Furniture
 Stock room
 Stationary for generating bills and maintaining records
 Packaging material
 Electronic goods (Computer, Printer, Air conditioner)
 Kitchen Appliances
 Raw Material

The above inputs mentioned can be categorized into two types i.e. variable inputs
and fixed inputs. The inputs that differs with the level of usage, that is increase or
decreases with a change in output are called variable inputs. For this business the
variable inputs are:-

 Labor
 Transportation
 Stationary
 Finished goods (bakery goods)
 Electricity (depends on the units consumed)
 Packaging material

While the inputs that do not differ with the level of usage, that is are not changed
with a change in output are called fixed inputs.For this business the various Fixed
inputs are: -

 Space
 Stock room
 Computer and printer
 Furniture
 Capital
For running the business the firm has to incur expenses which helps in generating
revenue. The firm has to incur various expenses like

 Rent
 Transportation and Distribution
 Electricity bills
 Telephone bills
 Staff salary
 Stationary expenses
 Packaging material expenses

On an average the firm incurs an expense of around Rs. 1,30,000 per month,
excluding the cost of buying products from the manufacturers which varies
depending upon the demand of the product, in which maximum expenditure is
incurred on are the occupancy cost, which includes rent, taxes and employee
salaries.

Since it is a big business, operating in a Oligopolistic market, it has around 500

employees/staffs in 10 outlets of its own, who helps in carrying out business in
areas like sales and finance and operations.

Characteristics of an Oligopoly market

(i) The number of firms in an oligopoly are few.

(ii) All the firms tend to produce each others close substitute.
(iii) The firms are unable to change their price quickly.
(iv) The quality usually remains same.

The demand curve in a oligopoly market is therefore kinked. Every firm in an

oligopoly assumes that if it reduces the price of its products, the rivals will quickly
do the same. However, if it increases the price ,the rivals will not follow it.
Therefore, it is seen that each firm will face a kink in its demand curve.

In this firm’s case if suppose the price of the sweets is increased by 10% the
demand will fall by less than 10% because in oligopolistic market the businesses
focus on product differentiation. However, if the firm reduces the price by 10% the
demand would remain unchanged, since its competitors will also reduce the price
by the same, thus making a no win situation for all.

We can thus observe that the kinked demand curve is made of two segments,
which are separated at the price that has been established in the industry. The
demand segment where there are lower prices is less elastic than the demand
segment where there are higher prices.

The reason being that the competitors will match price reductions quickly and
fully, since they want to maintain their market share. But they are expected to
follow price rises only slowly and partially since they are eager to increase their
market share. Thus one of main factor in an oligopoly is maintaining the market
share.
Now, lets understand what would happen to the total revenue if the firm increases
its price, through an example :

Price Quantity Demanded Total Revenue (Price X

Quantity demanded)

100 50 5000

120 10 1200

If the firm increases its price this means there will be drastic fall in the quantity
demanded because it works in an environment with huge competitors. The firm
under consideration is presently charging rs. 100 as its price. Now it expects that if
it raises the price to Rs. 120, its sales will fall drastically from 50 units to 10 units.
Consequently, its total revenue will fall from Rs. 5,000 to Rs. 1200. Thus, price
increase is not at all desirable in such a situation.

Now if the firm plans to charge a low price that is from Rs.100 to Rs.80 , its
market share will increase only marginally – from 50 units to 60 units. And in spite
of the fact that it can sell 10 more units, its total revenue will fall from Rs. 5000 to
Rs 4800.

Price Quantity Demanded Total Revenue (Price X

Quantity demanded)

100 50 5000

80 60 4800

This is because all the rival firms will reduce there price accordingly. The kinked
demand curve model predicts that the firms operating in such situations will have a
tendency not to change the price at all.

As mentioned before the business runs in a Oligopolistic market and there are
about 20-25 competitors in that area so the business has to compete with its
competitors. Therefore, the firm would face an elastic demand curve when it tries
to charge a price higher than the market price. However, if a firm charges a lower
price its demand curve could become less elastic. Therefore, all firms operating in
the oligopolist market will face a kink in their demand curve To be specific there
are a few competitors in the area namely, Hira Sweets, Gopala Sweets, Aggarwal
Sweet Shop, Evergreen Sweets and many more.

There are not much differences between the products of this business and the
others. The main differentiation of the products is the quality, price, and variations
of sweets produced by different firms and different packaging styles.

The firm is more than 7 years old and is able to maintain a good contact with its
customers. They produce sweets, chats, snacks, bakery of all kind of and are also
pocket friendly which is good for their customers and they also provide various
bonuses and incentives to its employees which keeps them motivated and goal
oriented and ultimately result in achieving the organizational goals set by the
firm’s owner.

Even though the firm is well set in the market yet there are few things in which the
firm can still do a lot better. For example the firm can expand its business to other
cities and states and start exporting its products which are at great demand in
foreign countries. Also the firm is facing some problems in domestic business as
well. It is not able to increase its customers as there are a lot of other competitors
present in the market. It can use the strategy of franchise model so that the reach of
the firm can be increased.

From this project we have learnt how different businesses run their operations in
different kinds of market structure, how demand, price impacts the revenue for the
firm. We also learnt about the various inputs used by the business to run its
operations and costs incurred for the same.

Submitted By:

Monal Dey
Surbhi Sabharwal
Ankush Birla
Gaurav Khatri
Aakriti Mishra