Academic Assessment

Module
Year Type
2022/23 Managerial Economics Individual Report

Student Id : 2054158
Student Name : Saim Khan
Section : L5BG2
Lecturer : Hem Krishna Shrestha
Submitted on : 2022/09/22
1. As part of your project's introduction, outline the sales trends in UK
Supermarkets for at least, the past 3 years.

The grocery market of UK has grown steadily in the last three years. The
supermarket, for the most aspect, is a type of market store that is selling a
broad varities of food, beverages, cleaning supplies, as well as other
household products. Supermarkets sell an ever-expanding range of nonfood
items, making them in competing with much broad range of retail chains than
conventional grocery stores or specialty retailers. Its valuation was
approximated to exceed over 200 billion pounds by 2022. Inflation in the
United Kingdom is relatively low. This, combined with rising real GDP and a
growing population, has resulted in significant increases in retail sales due to
increased and broader purchasing power.
Reasons for growth in sales have been due to :

 Growing customer self - assurance and reduced rate of inflation:

Despite a rise in consumers ’ spending confidence, customers feel
price-conscious and preferring bargains Purchasers are sensitive to
prices, causing the UK grocery industry a fiercely competitive market.

 The covid-19 global epidemic appeared to have an effect on sales

quantity as well. Total sales are up since the start of the covid-19
global pandemic. This is because people buy in bulk because they go
to the store infrequently.

 Increasing food necessitate as the UK inhabitants grows.

2. A) Some of the leading companies involved in the supermarket industry
and their market shares.

 Tesco:
Tesco is the fastest growing super business retail store in the UK, with
25% share of the market. The firm's abilities in its domestic sector are
said to stem from powerful capabilities in marketing as well as shop
site selection, logistic support, and inventory management.

 The Co-operative Group:

The co.'s is the biggest consensual company in the United Kingdom,
with 4.6 million productive employees. It is an important food retail
store (with an 8 percent industry share) as well as has the most
simplicity stores.

 Sainsbury:
Sainsbury's is the third fastest growing convenience store in the UK,
accounting for 15.9% of the industry. Sainsburys has indeed been
defined as a "widespread retail chain with a niche marketing approach
trapped between Tesco but also Asda's lower prices.

 Morrison’s:
Morrison's began as a stop in Bolton sector more than a century ago.
For its that many part, it has remained a family owned business. 'From
street market to megastore,' the business grew progressively.
 B) Explain what kind of market structure UK Supermarkets operates
in.
The business framework in which UK Supermarkets function would be
oligopoly. In an oligopoly business structure,, just a few inter -
dependent businesses make the majority of the outcome, which is
precisely what occurs in UK supermarkets. Oligopoly markets are
found across almost every sector and different countries. In the United
Kingdom, Tesco is the renowned grocery store with the largest sales
equity, accompanied by ASDA, Sainsbury's, as well as Morrison's, that
comprise the big four
In the UK, there are just a couple companies that own grocery stores,
so prices are likely to be fixed.

C) Compare and contrast the market structure with the three other market
structures you have studied based on price, output and profit.

Price Output Profit:

Perfect Completion determined by market forces Market Forces Normal profits
Monopoly Lowest Output Monopoly profits
Oligopoly Rigid High profits
Monopolistic up to some level can affect price
and output

D) Discuss major barriers to entry in UK supermarkets.

Few of the major barriers are;
 Restrictions on acquiring permissions to open up a new supermarket in
UK.
 Economies of scale.
 High research and development costs.
 Ownership of key resources or raw material.
 Completion commissions.
3. Evaluate the impact of COVID-19 pandemic on the performance of UK
grocery retailing. Performance could include the effects on price,
demand, profits, etc.
The Covid-19 global epidemic does have an total effect on all industries.
Covid 19 had a detrimental effect on each and every workforce, whether it
was a regular store chain or a large corporate corporation. At the moment of
Covid-19's entry, the United Kingdom is by far the most vulnerable country.
Retail stores were readying for a surge in sales, as well as 10% of buyers had
stocked up even before the community isolation steps were taken. Stores are
being required to conform to the different phases of solitary that the city is
steadily enduring. With the disease having a greater influence on the over-70s
as well as the recommendation to remain at home,, there has been a
necessity devoted purchasing hours as well as prioritized distribution slots for
this community, while youthful buyers have now been informed, in which
feasible, to shop in-store rather than online. While this is a small percentage
of customers, it is sufficient to put huge stress on retailers' stock as well as
supply - chain networks, resulting in inaccessibility. However, the nation was
eventually able to successfully protect itself against the virus.

The coronavirus epidemic, on the other hand, had also increased private
consumption in super market stores all over the country.. Just about all retail
players have boosted their revenues in the double digits, with Aldi, Ireland,
Octavo, as well as Lidl increasing their revenues by 17.6%. This is attributable
to a high level of consumer sales. However, earnings growth in UK chain
stores and Lidl has slowed due to rising manufacturing and shipping costs.

4. As part of your conclusion, assess the future for the UK Supermarkets or

grocery retailing market. Do you foresee future growth, stagnation, or decline?

Based on the nourishment and retail food study group IGD, the UK
supermarket industry is expected to expand by 13.8% through 2023, reaching
a valuation of £218.5 billion. Tesco has a sales volume of 26.4 percent in the
United Kingdom, followed by Sainsbury, 14.4 percent, ASDA,14.3 percent, &
Morrison's, 10.3 percent. They account for nearly 70% of the food business
and therefore are known as the "Big Four" in the Uk. Vendors throughout
every market are being required to adjust in attempt to sustain as well as
prosper in the face of a customer lifestyle and demographic shift. The manner
in which individuals shop in the UK is evolving, as to if that's for automobiles,
garments, technology, real estate, or meals; as we can see, the next gen of
buyers spend their cash in very diverse ways.
Task Two- Coursework
1. Outline the concept of price elasticity of demand using real-world examples
and discuss factors that affect price elasticity of demand. What is the
implication of the concept of price elasticity of demand in managerial decision
marking?
Price elasticity of demand is the percentage shift in quantity requested of a
good caused by a 1% rise in price. For example, if a 10% rise in the value of
Pepsi results in a 20% reduction in the proportion requested of Cola, the price
elasticity of demand for Cola is equal to -20/10 = -2.

There are several factors that affect the price elasticity of demand like:
 Nature of Goods:
The economics goods are classified into three categories, i.e. luxuries,
comforts and necessities. Elasticity of demand is highly elastic for
luxury goods; is inelastic demand for necessities; and is more elastic
for comforts.

 Availability of Substitutes:
Whenever in the market a good has more close substitutes the
elasticity for that good will be high; and vice-a-versa -- Number of Uses
of a Good: The single-use goods is less elastic as compared to multi-
use goods.

 Distribution of Income:
The consumers in the bracket of lower or middle income would be
highly sensitive to change in the price compared to high income people
whose demand would be inelastic -- Complementary goods: Elasticity
of demand is relatively inelastic for the complementary goods.

 Price of the good: Whenever there the price of good is very small, a
slight price change would have no considerable impact on demand.

It is critical for management making decision because price elasticity of

demand can influence pricing decisions. If market is elastic, the
company can increase profits by lowering prices. If demand is inelastic,
the company can increase profits by jacking up prices. If demand is
unit elastic, the firm maximizes income.
2. Solution

Formula

Profit = Total revenue - Total cost

Marginal revenue = Change in total revenue when output level rises by 1

Marginal cost = Change in total cost when output level rises by 1

Marginal profit = Change in total profit when output level rises by 1

In the table below, Profit is maximum when marginal revenue = marginal cost
or change in profit

= 0. Thus, the firm should produce 5 units. Raising output level more than it
would reduce
overall profit because of negative marginal profit
Mar Cha
Tota To Mar
Pr gina nge
Out l tal gina
ofi l in
put reve co l
t reve prof
nue st cost
nue it

0 0 3 -3 - - -

1 6 5 1 6 2 4

2 12 8 4 6 3 3

3 18 12 6 6 4 2

4 24 17 7 6 5 1

5 30 23 7 6 6 0

6 36 30 6 6 7 -1

7 42 38 4 6 8 -2

8 48 47 1 6 9 -3
3.

Solution

 If both firms pollute, each makes profit £50,000.

 If both firms decide not to pollute, each makes profit of £70,000.

 If firm 1 decide to pollute and firm 2 not to pollute then firm 1 makes profit of
£90,000 and firm 2 £5000 and vice versa.

Part (a)

Firm 2
Pollute Not Pollute
Pollute £50,000, £50,000 £90,000, £50,000

Not pollute
£50,000, £90,000 £70,000, £70,000

Firm 1

Part (b)

Both firms have dominant strategies to pollute and pollute, irrespective of what other
firm does.

The given firm’s strategy is to pollute.

Nash Equilibrium :

(Pollute, Pollute) ------:-(£50,000, £50,000)

Part (c)

(£70,000, £70,000) i-e Not to pollute and not to pollute is cooperative outcome. If
they could

search or agree then they can achieve higher pay off.

(Not Pollute, Not Pollute) :- Cooperative Outcome

Part (d)
Game theory analysis describes the different strategies and different pay off related
to outcome. This is very helpful to management in decision making to analyse each
outcome.

4.

Part (1)

Solution

Firm “1” has to invest £10,000.

Firm “2” offers firm “1” the following proposal:

Invest £10,000 now and get £11,000 back in 12 months.

Given

Now Investment = £10,000

We can get, at the end of one year = £11,000

Rate of Return = £11,000- £10,000

£10,000

= 10%

If there is firm “1” required rate of return is less than 10%, then it should accept firm
2’s

proposal.

Part (2)

Firm “1’ is considering investing their profit into any of the following two projects.

Given
Project A Project B

Internal Rate of Return 6% 8%

Net present value

88000 61000

Here we find Internal Rate of Return (IRR) and Net present value (NPV) techniques
giving
conflicting decisions. If project B has higher IRR but project A has higher NPV.

However, firm 1 would invest into any of two projects mutually exclusive. Therefore,
firm should select project “A” as it has higher NPV as compared to NPV of project B.

Result

Firm 1 should select project “A”.