Microeconomics - Cellulosic Ethanol Biofuel - Essay Example

MICROECONOMICS BUSINESS PROPOSAL TO POTENTIAL INVESTOR Executive Summary: Cellulosic Ethanol Biofuel is the biofuel produced from wood, grasses, or the non-edible parts of plants. (wikipedia.org). It is a very powerful and vital source of energy producing and serves as a highly beneficial alternative of the fossil fuels. Our firm has been dealing in alternative energy fuel products and offering its services at a massive scale and helps in fulfilling the customers’ needs and demands in an effective way. It has been working in six metropolitan cities of the country with head office at the capital city. The company is working as a private firm and enters into research process in the commercial, corporate and business areas for various manufacturing organizations as their marketing partners and business promoters, and gives them suggestions after conducting a comprehensive research procedure according to the demand curve on the one hand, and the directions and requirements of the client companies on the other. The company has hired the services of three hundred and fifty personnel working at various positions and departments of the company. The companys board of directors consists of seven members working under the dynamic leadership of the chief executive of the company. The main departments include qualitative research, quantitative research, finance and accounts department, data encoding and analysis section, translation and customer care section, human resource management, technical and engineering section and marketing department; all of which are supervised by one director each. The company maintains organizations of national and international reputation as its wide range of clientele, which include Shell Petroleum, Petrochemicals and others. All these companies have sound faith in our company and the alternative fuel generation which have helped in the enhancement of their business and sales volume. Cellulosic feedstocks have many advantages over using corn to produce ethanol. Because cellulosic crops are not used for food, there is inherently less price volatility. And because a wide variety of crops can be used, they can be grown in a wide variety of geographic locations--even on marginal lands--and can, therefore, be more abundant. Plus, with certain crops, more ethanol can be produced per acre than can be made with corn. (Hodge, 2007) Since alternative energy resources generation is in its budding, but is becoming very popular in this country, there are working only few companies in such category. Hence, there is a state of monopolistic competition regarding the business of alternate bio-fuel generation. Before embarking upon the topic, it would be advisable to define the terms perfect competition, monopolistic competition and perfect monopoly. Perfect Competition: The term perfect competition refers to the state of market under which no firm is in a position to exert its influence on price of commodities or goods independently because of the availability of the same commodities and products in excess in the market as well as due to the complete freedom of entering in and exiting from the market. The new firms view no complexity in entering in the market and the already existing firms can quit the same market without any difficulty or hurdle. The mobility of products is also very smooth and easy one in a situation of perfect competition. The margin of profit is not very high in a state of perfect competition because the product is in easy reach of the buyers as well as the number of sellers is also in plenty in the market. The concept perfect competition is very old and was discussed in a casual way by Adam Smith in his Wealth of Nations. (Maddala & Miller, 1989) Food items, kitchen products and fruit, meat and vegetable venders, local beverages brands and others are the examples of perfect competition. Monopolistic Competition: Monopolistic competition is the economic situation where there is a large number of firms, each of which maintains little market power on the basis of distinction in the nature of their product. In addition, firms in monopolistic competition are in a better position to regulate the activities of the market and influence the liking and disliking of the consumers. Examples of monopolistic competition include mobile phone companies, tobacco brands, firms related to information technology and restaurant industries etc. Monopoly: The word monopoly comes from the Greek words monos polein, which means "alone to sell". This single seller is called a monopolist. (Maddala & Miller, 1989) The groups of sellers influencing the price and market situation are also called monopolists. In other words a market where a single firm or group of firms have complete control over the production and sale of a good, commodity or services, the situation is called monopoly. In monopolistic situation, the consumers are bound to surrender before the price and product offered by the monopolists. The business launched by us related to biofuel generation under the title Fraternity Institute of Market Research (FIMR) is similar to imperfect competition i.e. monopolistic competition. The company offers its services to the companies for the promotion of their product. In addition, FIMR conducts an in-depth research at both qualitative and quantitative levels and gives suggestions to these companies regarding the latest trends, changing customer demands and growing requirements of the end users. There are over forty rival companies working as the competitor of FIMR in the market. The price of the product i.e. services offered by the companies vary to an imperative extent on the basis of the requirements of the clients and the volume of research process as well as nature of the team. The price of products and services are regulated and determined on the basis of the demand. Here appears the question of demand and supply. Price consumption curve (PCC) shows how quantity demanded varies as a result of change in the price of a commodity at the demand curve. Hence, consumers demand curve represents how much of a commodity is purchased at different prices. Thus, demand and supply of the commodities determine and influence the change in the price of commodities and services. The term demand refers to the amount of a particular economic good or service that a consumer or group of consumers will want to purchase at a given price. The demand curve is usually downward sloping, since consumers will want to buy more as price decreases. (investorwords.com) Demand and supply have reverse relationship and increase in one of these two basic economic terms brings decrease to the other and causes the maintenance of equilibrium. It has aptly been stated that supply creates its own demand. In other words, where there exists a specific commodity or service, its users and consumers will automatically be created and the sale of that product or service would be possible under a business environment. There was a time when there was no use of cola drinks in any part of the world, but with the introduction of Coca-Cola in 1887, the product generated its demand and the beverage is demanded by the consumers belonging to each and every part of the globe. An important aspect of a products demand curve is how much the quantity demanded changes when the price changes. The economic measure of this response is the price elasticity of demand. (Retrieved from netmba.com) Elasticity of demand refers to the change in the demand of a specific product or service as a result of the change in the price of that product or service. There are some products increase in the price of which leave significant affects in its demand and subsequently sale of that product. On the contrary, some products are so popular among the masses that they are least careful regarding the increase of the price of their favorite commodity. In addition, other factors also play dominant role in the change of price of the goods. In case of some emotional feelings, the decrease in price does not affect the consumers demand curve. For example, the German troops declined to use any product that belonged to the allied countries, though they had quite an easy access to them. While making an analysis of the company FIMR, it becomes evident that there are some local organizations that look for an economical fuel generation methods company for their usage. If we offer our product to them against comparatively low price, the ratio of the local consumers is likely to observe a sudden increase. Similarly, increase in price against the services our company FIMR offers discourages most of the local brands to buy our services. On the contrary, the international brands including Shell petroleum, Procter & Gamble, Virgin Atlantic and others always lay stress upon quality and result oriented efforts rather than increase or decrease in price of our services. Nature of the FIMR Profit: Profit is the basic motive behind all economic activities and commercial services. All the firms keep the expected profit in their mind before devising and revising their strategic plans. The same is the case with FIMR. The firms witness different levels of profits including positive, negative and normal profit. Profit-the driving force and barometer of the business world-is the difference between the total revenue earned by a company and the total cost incurred in producing a product. (Quoted in canadianeconomy.gc.ca) Positive profit refers to the situation where the revenue of the firm exceeds from the total cost and expenditures the firm has to bear and pay. This is the ideal state of the firm and indicates that the firm is observing boom in the future years to come and its products and services are making sure headway on the way to progress. On the other hand, negative profit shows that a firm is unable to maintain equilibrium between its demand and supply, and the supply of its product is unable to generate the demand and thus satisfy the wide range of its consumers. It is therefore the costs of the firm exceeds from the revenues. While making the analysis of the FIMR, the total circulation of the annual revenue is approximately $ 289 million, while its costs and expenditures are $ 261 million. Hence, the profit of FIMR is somewhat between positive and normal profit. Comparative Advantage: Comparative advantage refers to the market situation under which total output will be increased if people and nations engage in those activities for which their advantages over others are the largest or their disadvantages are the smallest. By closely examining our firm it becomes evident that the most significant advantage of the firm includes its large territorial area, where it can exercise its skills regarding producing alternative fuel resources. In addition, its economical rate as well as being the national product of the company include in its comparative advantages. Being the local product, people feel great pleasure in using its products. In addition, its economical rates also capture the attention of the consumers and end users. Economic Recession of FIMR: The end of 2008 and beginning of 2009 brought worldwide recession in its wake. Economic instability and war against terrorist drastically affected the financial position of all big and small firms. Unemployment sought its ugliest appearance and the business activities observed sluggishness. It also left negative affects on this firm. Our firm underwent serious economic recession because of rise in oil price and subsequent high rates of energy generating technology. The consumers also found alternative energy generating services through solar, wind and other resources. The marketing and advertising sections of our firm also proved unable to bring new customers. The end of many projects could not be altered with the inclusion of new projects. Change in the price and cost of services also told upon the sales volume of our company products. The total cost of the firm started exceeding its total revenues. The firm established new offices in three more cities to attract the clients, but the speedy decline in the commercial activities related to travelling, oil production, energy generation, real estate and others could not be mitigated. Consequently, the company had to announce downsizing of the staff members and offered golden shake hand to one fourth of the employees. But it proved more jeopardizing and fatal as the most talented staff members also included among those who accepted the offer of voluntary retirement. Hence, the firm had to bear the brunt of circumstances and observed serious recession. REFERENCES: Hodge, Nick. Investing in Cellulosic Ethanol: Beyond Ethanol Production Companies. 2007 (http://www.greenchipstocks.com/articles/investing-cellulosic-ethanol/171) Maddala, G. S. & Miller, Ellen. Microeconomics: Theories and Applications. McGraw Hills Inc. 1989 283-284 Price Elasticity of Demand. (Retrieved from http://www.netmba.com/econ/micro/demand/elasticity/price/) Demand and Supply (http://www.investorwords.com/1396/demand.html) Profits: Definition. (Quoted in http://www.canadianeconomy.gc.ca/English/economy/profits.html) MICROECONOMICS BUSINESS PROPOSAL TO POTENTIAL INVESTOR Executive Summary: Fraternity Institute of Market Research (FIMR) is a marketing research company, which has been working in six metropolitan cities of the country with head office at the capital city. The company neither produces anything, not it sells any commodities of its own; rather, it enters into research process in the commercial, corporate and business areas for various manufacturing organizations as their marketing partners and business promoters, and gives them suggestions after conducting a comprehensive research procedure according to the research parameters on the one hand, and the directions and requirements of the client companies on the other. The company has hired the services of three hundred and fifty personnel working at various positions and departments of the company. The company’s board of directors consists of seven members working under the dynamic leadership of the chief executive of the company. The main departments include qualitative research, quantitative research, finance and accounts department, data encoding and analysis section, translation and customer care section, human resource management, technical and engineering section and marketing department; all of which are supervised by one director each. The company maintains organizations of national and international reputation as its wide range of clientele, which include Coca Cola Beverages, Shell Petroleum, Apple Inc, Red Hat, Marlboro Tobaccos and others. All these companies have sound faith in FIMR the recommendations of which have helped in the enhancement of their business and sales volume. Since marketing research is in its budding, but is becoming very popular in this country, there are working only forty research marketing consultancies in the country. Hence, there is a state of monopolistic competition regarding the business of research market. Before embarking upon the topic, it would be advisable to define the terms perfect competition, monopolistic competition and perfect monopoly. Perfect Competition: The term perfect competition refers to the state of market under which no firm is in a position to exert its influence on price of commodities or goods independently because of the availability of the same commodities and products in excess in the market as well as due to the complete freedom of entering in and exiting from the market. The new firms view no complexity in entering in the market and the already existing firms can quit the same market without any difficulty or hurdle. The mobility of products is also very smooth and easy one in a situation of perfect competition. The margin of profit is not very high in a state of perfect competition because the product is in easy reach of the buyers as well as the number of sellers is also in plenty in the market. The concept perfect competition is very old and was discussed in a casual way by Adam Smith in his Wealth of Nations. (Maddala & Miller, 1989) Food items, kitchen products and fruit, meat and vegetable venders, local beverages brands and others are the examples of perfect competition. Monopolistic Competition: Monopolistic competition is the economic situation where there is a large number of firms, each of which maintains little market power on the basis of distinction in the nature of their product. In addition, firms in monopolistic competition are in a better position to regulate the activities of the market and influence the liking and disliking of the consumers. Examples of monopolistic competition include mobile phone companies, tobacco brands, firms related to information technology and restaurant industries etc. Monopoly: The word monopoly comes from the Greek words monos polein, which means “alone to sell”. This single seller is called a monopolist. (Maddala & Miller, 1989) The groups of sellers influencing the price and market situation are also called monopolists. In other words a market where a single firm or group of firms have complete control over the production and sale of a good, commodity or services, the situation is called monopoly. In monopolistic situation, the consumers are bound to surrender before the price and product offered by the monopolists. The business launched by us related to research marketing under the title Fraternity Institute of Market Research (FIMR) is similar to imperfect competition i.e. monopolistic competition. The company offers its services to the companies for the promotion of their product. In addition, FIMR conducts an in-depth research at both qualitative and quantitative levels and gives suggestions to these companies regarding the latest trends, changing customer demands and growing requirements of the end users. There are over forty rival companies working as the competitor of FIMR in the market. The price of the product i.e. services offered by the companies vary to an imperative extent on the basis of the requirements of the clients and the volume of research process as well as nature of the team. The price of products and services are regulated and determined on the basis of the demand. Here appears the question of demand and supply. Price consumption curve (PCC) shows how quantity demanded varies as a result of change in the price of a commodity at the demand curve. Hence, consumer’s demand curve represents how much of a commodity is purchased at different prices. Thus, demand and supply of the commodities determine and influence the change in the price of commodities and services. The term demand refers to the amount of a particular economic good or service that a consumer or group of consumers will want to purchase at a given price. The demand curve is usually downward sloping, since consumers will want to buy more as price decreases. (investorwords.com) Demand and supply have reverse relationship and increase in one of these two basic economic terms brings decrease to the other and causes the maintenance of equilibrium. It has aptly been stated that supply creates its own demand. In other words, where there exists a specific commodity or service, its users and consumers will automatically be created and the sale of that product or service would be possible under a business environment. There was a time when there was no use of cola drinks in any part of the world, but with the introduction of Coca-Cola in 1887, the product generated its demand and the beverage is demanded by the consumers belonging to each and every part of the globe. An important aspect of a products demand curve is how much the quantity demanded changes when the price changes. The economic measure of this response is the price elasticity of demand. (Retrieved from netmba.com) Elasticity of demand refers to the change in the demand of a specific product or service as a result of the change in the price of that product or service. There are some products increase in the price of which leave significant affects in its demand and subsequently sale of that product. On the contrary, some products are so popular among the masses that they are least careful regarding the increase of the price of their favorite commodity. In addition, other factors also play dominant role in the change of price of the goods. In case of some emotional feelings, the decrease in price does not affect the consumer’s demand curve. For example, the German troops declined to use any product that belonged to the allied countries, though they had quite an easy access to them. While making an analysis of the company FIMR, it becomes evident that there are some local organizations that look for an economical research company for conducting the research on their behalf. If we offer our services to them against comparatively low price, the ratio of the local consumers is likely to observe a sudden increase. Similarly, increase in price against the services our company FIMR offers discourages most of the local brands to buy our services. On the contrary, the international brands including Shell petroleum, Procter & Gamble, Virgin Atlantic and others always lay stress upon quality and result oriented efforts rather than increase or decrease in price of our services. Nature of the FIMR Profit: Profit is the basic motive behind all economic activities and commercial services. All the firms keep the expected profit in their mind before devising and revising their strategic plans. The same is the case with FIMR. The firms witness different levels of profits including positive, negative and normal profit. Profit—the driving force and barometer of the business world—is the difference between the total revenue earned by a company and the total cost incurred in producing a product. (Quoted in canadianeconomy.gc.ca) Positive profit refers to the situation where the revenue of the firm exceeds from the total cost and expenditures the firm has to bear and pay. This is the ideal state of the firm and indicates that the firm is observing boom in the future years to come and its products and services are making sure headway on the way to progress. On the other hand, negative profit shows that a firm is unable to maintain equilibrium between its demand and supply, and the supply of its product is unable to generate the demand and thus satisfy the wide range of its consumers. It is therefore the costs of the firm exceeds from the revenues. While making the analysis of the FIMR, the total circulation of the annual revenue is approximately $ 289 million, while its costs and expenditures are $ 261 million. Hence, the profit of FIMR is somewhat between positive and normal profit. REFERENCES: Maddala, G. S. & Miller, Ellen. Microeconomics: Theories and Applications. McGraw Hills Inc. 1989 283-284 Price Elasticity of Demand. (Retrieved from http://www.netmba.com/econ/micro/demand/elasticity/price/) Demand and Supply (http://www.investorwords.com/1396/demand.html) Profits: Definition. (Quoted in http://www.canadianeconomy.gc.ca/English/economy/profits.html) Read More