Economics Choice Task

Agalia (1)
Li Fang (2)
Rui Xin (13)
Rachel (16)
Sean (17)
Zhi Ying (22)

ABSTRACT
Process leading up to the Economics Choice Task
INTRODUCTION
As part of our flipped learning module in JC2, we took the chance to apply what we learnt about
market structure to real life scenarios. Noodle House then became our case study, given its
overwhelming popularity amongst students which gave rise to certain obstacles that we felt
prevented them from achieving the profit maximisation output (MC=MR), the primary goal of
producers.
 PROBLEMS WE IDENTIFIED

In our analysis, we have decided to focus primarily on the producer side.

1. Long waiting lines/Misleading queues: The problem of imperfect information due to

misleading queues is an issue difficult to tackle. Noodle House operates on a system of two
queues - the first for ordering, the second for collecting of food. This mode of operation is based
on the assumption that student consumers will purchase their own food at the ordering queue
before waiting for their bowls of noodles at the collection queue personally. Student consumers
regularly cheat this system by either a) mass purchase, with one student queuing and ordering
for his/her big group of friends or b) students leaving the collection queue, only entering the
queue when he/she knows his/her bowl of noodles is ready or is ready soon. This type of
behaviour is, however, not within the stallholders control, and thus the problem of imperfect
information continues to exist.

their actual private marginal benefit (PMB) of consuming a bowl of noodles from Noodle
House is lower than their perceived private marginal benefit as they overestimate the costs
(mainly private marginal cost, including time and effort queuing etc.), resulting in deadweight
 welfare loss. Thus, the profit of Noodle House is not maximised, as the long waiting lines may
put off potential customers, hence resulting in less total revenue collected and therefore lower
profit.

2. Profit not maximised:

Revenue not maximised

Due to long waiting lines and misleading queues (ie. the number of student consumers waiting in
line may not reflect the actual number of consumers, since some may leave before returning to
collect their food later), Noodle House loses potential customers as the opportunity cost of
queueing for a bowl of noodles may be too high (eg. eating their lunch more efficiently and using
the rest of their lunch break for more revision). It is also possible that customers may be unsure
of the actual waiting time due to imperfect information (see above). Hence, Noodle House
loses potential customers and thus loses potential revenue.

Costs not minimised

Limited ability to reap internal economies of scale
with the large number of menu items and the different tastes and preferences of consumers (as to
what they wish to eat that day), the solution of mass cooking (to reduce the time needed for
preparation) is not possible and cannot be implemented, as this may lead to wastage of resources
and greater costs incurred.
However, this also means that the stallholders (producer) must prepare the dishes upon the
student consumers order, which means preparation is time-consuming and this may
consequently put off potential student consumers, particularly when there are other stallholders
who prepare the food through mass cooking (more efficient food preparation, which translates to
student consumers receiving their food more quickly).
Due to the wide array of dishes offered, the producer of Noodle House will have to purchase a
wide variety of ingredients to maximise consumer choice, thereby limiting their ability to reap
internal economies of scale (marketing economies, through bulk purchase, if they were to
purchase greater quantities of fewer ingredients).
From this perspective, Noodle House has the potential to lower unit costs
of production further. However, given the wide range of options on the menu
to provide greater consumer choice, they have limited ability to lower unit
costs even if they are able to expand their scale of production.

From the perspective of firms objectives, it is noteworthy that the Noodle House producer does
not have the goal of profit maximisation or even revenue maximisation in production. That said,
we will discuss this case study using economic analysis with the assumption of profit
maximisation as the main objective of the producer, before providing our recommendations by
the end of the case study.
 Recommendations
1. Hire more manpower and purchase more stoves to increase efficiency of production
2. Use technology such as those in KOI (number tags) to allow students to better gauge the waiting
time for their noodles
3. Raise prices so as to eliminate those who are unwilling and unable to pay (price mechanism)

Limitations
Inability to expand scale of production

The intuitive response to Noodle houses booming business would be to expand its scale of
production. Unfortunately, Noodle house is allocated a fixed space by the school, Hwa Chong
Institution; it may be then said to be operating in the short run period where there is always one
fixed factor -- their working space. As such, it would also be physically impossible to
accommodate more stoves and hire more people, both of which are variable factors of production
that would lead to the expansion of production and allow Noodle house to reap internal
economies of scale, lowering its unit costs.

Contractual agreements (fixed pricing)

Due to the existence of contractual agreements between Noodle House and the school, Hwa
Chong Institution, Noodle house has no power to raise the price of its bowl of noodles. This is
because school food prices are heavily regulated and not left to be naturally dictated by the laws
of demand and supply.

CONCLUSION
Given that Noodle House has signed a contract with the school that prevents it from changing
their prices as they wish in response to the market forces, they may not be profit maximising. By
economic analysis, the profit maximisation output can be achieved if MC=MR and it is quite
likely that MR exceeds MC in this situation.

We have recommended for Noodle House to increase their efficiency through using technology
as well as to expand their scale of production so as to better reap internal economies of scale. By
doing so, MC is reduced and profits increase. However, as seen from the limitations above, it is
not feasible for Noodle House to do so. Not only is it so, more interestingly, the store owner of
Noodle house is more interested in providing good quality bowls of noodles for the students in
school, so profit maximisation is not her objective. Hence, the recommendations provided
through economic analysis might not appeal to her.
 Our choice task has not only given us the opportunity to apply the concepts we have learnt, but
has also allowed us to understand how economics is merely a tool for analysis and in actual fact,
recommendations pushed forward by economic analysis may not be feasible in the real world
and neither may it be favoured by the producers themselves.

Reflections
The Economics choice task provided me with a good opportunity to really put economics
concepts to use in real life situations. I was also able to gain a better grasp of certain economic
concepts under the topic of market structure (e.g. internal EOS, profit maximisation) through this
process. More importantly, this experience also clearly showed how Economics can be used to
make sense of many happenings/situations in our daily lives. At the same time, we must not
forget that while economics can be used to explain certain behaviours/the interaction between
different individuals, there are many underlying assumptions that more often than not, may not
hold true in the real world, and this is very clearly illustrated by the alternative objectives of
Noodle House (assumption that the rational producer would want to maximise his/her profits is
not applicable in the real context).
- Chia Li Fang

I feel that it could be beneficial for students studying the topic of Market Structure if this choice
task was included at the beginning of learning of this chapter. This will aid the understanding of
the different topics under Market Structure and will facilitate better application of concepts to
daily life. I feel that the choice task will help students weave the different concepts under Market
Structure together, compared to when we learnt Market Structure as a topic sub-divided into
different topics and it was more challenging to connect the concepts together. That said, going
through this choice task helped me better grasp the concepts such as consumer choice and
sovereignty, fixed costs vs. variable costs and alternative objectives of firms, since not all
producers may view profit maximisation as the most important consideration. I have also had the
chance to experience the differences in economic analysis as well as real-life application.
Following the difference in firms objectives, unfortunately, there are times where there are little
changes that can be made to a producers situation. That said, economic theory is still crucial for
initial analysis to gain a better understanding of economic trends and what to expect from the
different types of market structure.
- Rachel Kok

The main objective of studying Economics is to have the skill to analyse the world around us
economically. Our proficiency at applying economic analysis to real-life situations is tested in
various exams every now and then. Even though I do practice my application ability by doing
papers, I think the economic concepts learned in class are better reinforced when I apply them to
 a situation that is close to my heart (e.g. a popular Noodle store in my school). I do hope that
applied learning plays a bigger role in future Economics learning journeys.

- Rui Xin