MANAGERIAL ECONOMICS

CASE ANALYSIS

Submitted to: Romelda T. Salvacion

Presented by GROUP 5
Leader: Ma. Regina Baylon
Members: Dela Cruz, Raven
Delmonte, Mariella
Dubria, Dhea Dem
Pacampara, Reniel
Pesarillo, Johnpaulo
Valenzuela, Jannah Kristine
Tampilic, Amiel
Case Analysis:

1. If there was only one pizza restaurant in Malabon for many

years and then a new pizza place opened, analyze the
demand and supply. Apply theories to explain your point of
views.

Originally, with only one pizza restaurant in Malabon, there was

a monopoly in the market. The existing restaurant has the power
to control both supply and price. In a monopoly, the supplier (the
pizza restaurant) can set a higher price because consumers have
no alternative choices. However, the demand is limited by this
high price, as some consumers might find the pizza too expensive
and might not be able to afford it. Certainly! Let's analyze the
situation of the pizza market in Malabon using the principles of
supply and demand.

(“The principle of any commodity rises or falls by the proportion of

the number of buyers and sellers.” John Locke)

Certainly! Let’s analyze the situation of the pizza market in

Malabon using the principles of supply and demand.

When a new pizza restaurant opens in Malabon, the overall

supply of pizza in the area increases. This change can be
explained using the law of supply, which states that as the price of
a good (in this case, pizza) rises, the quantity supplied by
producers (number of pizza restaurants) also rises.

With the new pizza place, consumers now have a choice. The
increased competition generally leads to more competitive pricing.
The initial monopoly might be forced to lower its prices to remain
competitive. According to the law of demand, as the price of a
good decreases, the quantity demanded by consumers increases.
In this case, more people might be able to afford pizza due to
lower prices, leading to an increase in demand.

“When supply levels were higher that demand, prices significantly

decreased, lowering the profits realized by merchant”-Principle of
Political Economy James Steuart

In economic theory (Principle of Economics by Alfred

Marshall), the market equilibrium is the price at which the quantity
supplied equals the quantity demanded. With the introduction of
the new pizza restaurant, the market will eventually reach a new
equilibrium where the price and quantity of pizza sold stabilize.
This equilibrium will depend on various factors such as the pricing
strategies of the two restaurants, consumer preferences, and
production costs.

In the long run, healthy competition between the two pizza

restaurants can lead to innovations, improved service quality, and
diversified menu offerings. This competition benefits consumers
as they have more choices at potentially lower prices.
(Adam Smith’s Marginal Utility,Comparative Advantage,Time-
Preference theory of interest & Monetary Theory.)

In summary, the opening of a new pizza restaurant in Malabon

increases the overall supply of pizza, leading to a potential
decrease in prices and an increase in demand as more people
can afford the product. This scenario illustrates the basic
economic principles of supply and demand and how they interact
in a market with changing conditions.
 2. After three years of operations, the net income of your
company is at break-even as a managerial economist, what
are your suggestions that you can give to the management?

If your company has been operating for three years and has
reached a break-even point, it means that your total revenues
equal your total costs. In this situation, there are several
strategies and suggestions that a managerial economist might
offer to the management to improve the company's financial
performance and ensure long-term sustainability:

1. Cost Analysis:
identify Cost Drivers: Analyze the components of your costs.
Identify which costs are variable (change with production levels)
and which are fixed (remain constant). Understanding cost
behaviour can help in strategic decision-making.
-Cost Reduction: Explore opportunities to reduce operational
costs without compromising the quality of products or services.
This could involve renegotiating contracts with suppliers,
optimizing production processes, or implementing cost-saving
technologies.

2. Revenue Enhancement:
- Market Analysis: Conduct a thorough market analysis to
identify customer needs, preferences, and trends. Understand
your target audience better to tailor your products or services to
meet their demands effectively.
-Pricing Strategies: Evaluate your pricing strategies. Consider
adjusting prices based on market demand elasticity. Conduct
competitor analysis to ensure your prices are competitive yet
profitable.
-Diversification: Explore the possibility of diversifying your
product or service offerings. Introducing new products or services
that complement your existing offerings can attract new
customers and increase revenue streams.
3. Operational Efficiency:
- Process Optimization: Streamline internal processes to
improve efficiency. Implement lean management techniques to
reduce waste, improve productivity, and enhance overall
operational efficiency.
-Employee Training: Invest in employee training and
development. Well-trained employees are more efficient and can
contribute significantly to the company's success.

4. Financial Management:
-Cash Flow Management: Monitor cash flow closely. Ensure
that the company has enough liquidity to cover its short-term
obligations. Delay unnecessary expenditures if there are
fluctuations in cash flow.
- Financial Planning: Develop a robust financial plan and budget
for the coming years. A well-planned budget can guide the
company's financial decisions and ensure that resources are
allocated efficiently.

5. Customer Focus:
- Customer Feedback: Gather feedback from customers to
understand their satisfaction levels and areas for improvement.
Satisfied customers are more likely to become repeat buyers and
recommend your products or services to others.

6. Strategic Planning:
- Long-Term Strategy: Develop a long-term business strategy
that outlines clear goals and objectives. Consider factors such as
market trends, competitive landscape, and technological
advancements in your strategic planning.
- Risk Management: Identify potential risks and develop
strategies to mitigate them. This includes market risks,
operational risks, and financial risks.
7. Innovation and Technology:
- Innovation: Encourage innovation within the organization.
Invest in research and development to create unique products or
services that can give your company a competitive edge.
-Technology Adoption: Embrace relevant technologies to
improve efficiency. This could involve upgrading software
systems, implementing automation, or adopting data analytics for
informed decision-making.

8. Marketing and Branding:

- Marketing Strategies: Develop effective marketing campaigns
to increase brand visibility and attract more customers. Utilize
online marketing, social media, and other digital platforms to
reach a wider audience.
-Brand Building: Focus on building a strong brand reputation. A
positive brand image can lead to customer loyalty and increased
sales.

By carefully analyzing costs, optimizing operations, focusing

on customer satisfaction, and planning for the future, your
company can move beyond the break-even point and achieve
sustainable profitability. Regular monitoring and adaptation of
strategies based on changing market dynamics are also crucial
for long-term success.

3. Present examples of Financial Statements( at least 2) and

be able to explain.

Certainly! Financial statements are crucial documents that

provide an overview of a company's financial performance
and position. Here are two common types of financial
statements along with explanations:
1. Income Statement:

An income statement, also known as a profit and loss

statement, provides a summary of a company's revenues,
costs of goods sold (COGS), gross profit, operating
expenses, net income, and earnings per share over a
specific period, usually a fiscal quarter or year.

Example:

Income Statement
Revenue P1,000,000
Cost of Goods Sold P600,000
Gross Profit P400,000
Operation Expenses P250,000
Net Icome P150,000

Explanation:
- Revenue: Represents the total income generated from
sales.
- COGS: Stands for Cost of Goods Sold and includes all
costs directly associated with the production of goods or
services sold during the period.
- Gross Profit: Calculated by subtracting COGS from
Revenue and represents the profit before deducting
operating expenses.
- Operating Expenses: Include expenses such as salaries,
rent, utilities, and marketing costs.
- Net Income: Also known as the bottom line or profit, it is the
amount of money the company has earned after all
expenses have been deducted from revenues.
2. Balance Sheet:

A balance sheet provides a snapshot of a company's

financial condition at a specific point in time. It shows a
company's assets, liabilities, and shareholders' equity.

Example:

Balance Sheet
Assets
Current Assets P800,000
Property, Plant & P1,200,000
Equipment
Total Assets P2,000,000
Liabilities
Current Liabilities P500,000
Long-Term Debt P700,000
Total Liabilities P1,200,000
Shareholders’ Equity P800,000
Total Liabilities & Equity P2,000,0000

Explanation:
- Assets: Represent what the company owns. Current assets
include cash, accounts receivable, and inventory. Property,
plant, and equipment (PPE) represent long-term assets like
buildings and machinery.
- Liabilities: Represent what the company owes. Current
liabilities include short-term debts and payables. Long-term
debt includes loans and obligations that are due beyond one
year.
 - Shareholders' Equity: Represents the residual interest in
the assets of the entity after deducting liabilities. It includes
common stock, retained earnings, and additional paid-in
capital.

Both these financial statements provide valuable insights

into a company's financial health and are used by investors,
creditors, and analysts to evaluate its performance and
make informed decisions.

Referrences:

https://www.investopedia.com/ask/answers/030415/who-discovered-law-supply-and-
demand.asp#:~:text=John%20Locke%2C%20Sir%20James%20Steuart,how%20price
%20changes%20affect%20demand.

https://thedecisionlab.com/thinkers/economics/adam-smith

https://www.britannica.com/biography/Sir-James-Steuart-Denham-4th-Baronet

https://plato.stanford.edu/entries/locke/