Economics Theory Applications Research Paper Example | Topics and Well Written Essays - 2000 words

Economics Theory Applications - Research Paper Example According to Mandal (2007, 97) this problem can only be determined based on price mechanisms that has been known to use forces of supply and demand that characterize different products. This is because price mechanism is used to refer to the mechanism that uses prices of products as a signal to both the buyers as well as sellers in any market as to what the market has in store for them, and what trend to follow. This is what forms the core of microeconomic theory where demand, supply and quality prices have a significant role to play. This paper explores the Malaysian market by focusing on Astro satellite TV monopoly to determine the problems that Malaysian satellite television’s market is facing and attempt to solve the problem using microeconomics theory. Microeconomics theory This theory stipulates that demand is the willingness and the ability for a consumer to buy a particular product within a specified period of time. Therefore, if all other factors are held constant, it follows that as prices of goods increases the demand decreases proportionately (Tsoulfidis, 2009, 30). This means that demand and price are inversely proportional. A lower demand of goods means a reduced amount of quantity purchased by consumers. The amount of goods consumers buy at higher prices decrease because as the prices go up, so is the opportunity cost of buying that good or service. People will therefore tend to buy inexpensive goods or services, and avoid buying that product that will force them to forego certain goods or services that are of more value to the consumer. This theory is applied mainly in a monopolistic market where it is only one supplier of goods and services with many consumers that exist, eliminating the case of competition (Ghai and Gupta, 2002, 2). What is Monopoly? Monopoly is a situation characterized by the existence of a single producer in a market who is in control and not with any close competition whatsoever of supplying a particular product. Th is means that the elasticity of demand tends to reduce to almost zero. A company enjoying monopoly has some benefits such as the ability to be innovative with the development of its product and the domination of the demands of the customers (Kirzner, 1997, 65). This is, in addition to, setting its own price standards, orderliness and predictability. The constraints that happen to be either legal or natural protecting the monopoly of the firm from its competitor often generate the blockade to entry to the monopoly market. To make the best use of the profit, monopolist should generate at an output that the marginal cost is equal to marginal revenue. However, the biggest problem of monopoly market is that monopolist is a price maker rather than those price takers in a competitive market (Dwivedi, 2002, 38). This is because the monopoly firm will only continue enjoying maximum profits so long as entry of other firms into the market is blocked. This may either be naturally or artificiall y. Therefore, the firm will continue to produce, and even function at a loss on condition that the losses the firm makes do not in any way exceed its fixed costs (Ghai and Gupta, 2002, 3). This means that the firm will only close when the losses are in excess of the fixed costs of the company. With this advantage, monopoly will charge at the price which is in excess of the marginal price and marginal income, for whatever