Assignment 2
Micro Economics Model Analysis
Presented by:
Ghulam Hassan
L1F10BBAM0277 (18)
Jameel Ahmed
L1F10BBAM0286 (19)
Rana Muzzammil
L1F10BBAM2246 (35)
Presented to:
Prof. Fouzia Awan
Micro Economics Model
An Introduction:
A modern economy has many different types of industries.
However, an economic analysis of the different firms or industries
within an economy is simplified by first segregating them into different
models based on the amount of competition within the industry.
Economists group industries into four distinct market structures:
Pure Competition
Monopoly
Monopolistic
Oligopoly
These four market models are differ in several respects & identify
how a market is made up in terms of:
 The number of firms in the industry
 The nature of the product produced
 The degree of monopoly power each firm has
 The degree to which the firm can influence price
 Profit levels
 Firms’ behaviour (pricing strategies, non-price competition,
output levels)
 The extent of barriers to entry
 The impact on efficiency
Characteristics of each Model
Characteristics of each market model are in following table:
Characteristics
Pure Competition
Monopolistic
competition
Many Firms but less
than pure competition
Differentiated
Type of Product
Standardized Products
Products
Some but within
Control over Price
None
rather narrow limits
Conditions of entry
Very Easy
Relatively easy
Considerable as
Non-price competition
None
advertising, Brand
name etc…
Retail, Trade, dresses,
Examples
Agriculture
shoes etc…
Numbers of Firms
A very Large Number
Characteristics
Oligopoly
Few Firms but more
than Monopolistic
Standardized OR
Type of Product
Differentiated
Limited by mutual
Control over Price
interdependence
Conditions of entry
Significant obstacles
Typically, a great deal,
Non-price competition
particularly with
product differentiation
Heavy products
Examples
industries like steal…
Numbers of Firms
Pure Monopoly
Only One firm
Unique (No close
substitute)
Considerable
Block
Mostly public relation
advertising
Local utilities
Requirement for assignment
Choose an industry of goods and services sector of Pakistan. Critically
analyze the working structure of at least five firms of that industry (in
case of perfect competition or monopolistic competition; three in case
of oligopoly). Evaluate each firm with respect to the assumptions of
micro economics model. Prove the industry full fill the characteristics
of that model.
Industry that we have select
We have select Cement Industry to analyze this market model.
At the time of independence in 1947, only one or two units were
producing grey cement in the country. During the Ayub era (1958-68),
the economy started to grow and the number of cement units
increased to 9. During the following period of Zulfiqar Ali Bhutto all the
industrial units, including cement industry, were nationalized. During
the period of General Zia-ul- Haq, denationalization of industrial units
boosted the investments. Thus, the number of cement units increased
from 9 to 23 and finally 24. By now it has exceeded 10 million tons per
annum as a result of establishment of new manufacturing facilities and
expansion by existing units. There are total number of units are 23,
from which 4 units are in the public sector while the remaining 19 units
are owned by the private sector.
Industry in the view of Model
If we analyze the market model than we can easily say Cement
Industry is Stand under Oligopoly Model. Let’s see a view of Oligopoly
Model: to prove that the industry is stand on this model.
Oligopoly
Oligopoly means few sellers. In an oligopolistic market, each seller
supplies a large portion of all the products sold in the marketplace. In
addition, because the cost of starting a business in an oligopolistic
industry is usually high, the number of firms entering it is low. As large
firms supplying a sizable portion of a market, these companies have
some control over the prices they charge.
The main key to behaviour in an oligopoly is that companies must
take into account what other companies will do. In perfect competition,
firms are price-takers and can ignore other firms. In a monopoly, there
is only one firm, and it does not take into account what competitors will
do. Oligopolistic are torn between:
1. Cooperating to increase profits by obtaining the monopoly outcome,
2. Competing to try to gain an advantage over competitors
The requirement of our assignment is critically analyze the
working structure of that firm. And then evaluate each firm with
respect to the assumptions of micro economics model.
1. Lucky Cement.
Lucky Cement came into existence in 1996 with a daily production
capacity of 4,200 tons per day, currently is an omnipotent cement plant
of Pakistan, and rated amongst the few best plants in Asia.
With production facilities in Pezu (Production capacity: 13,000 Tons per
day) as well as in Karachi (Production capacity: 12,000 tons per day), it
has the tendency to become the hub of cement production in Asia.
Market share of Lucky cement is shown in this diagram:
Now we evaluate the assumptions of Micro economics Market model.
Numbers of Firms:
As we know, that there are few firms of cement producing in Pakistan.
Type of Product:
Lucky cement basically produces two types of product. (1. Ordinary
Portland cement 2. Sulphate Resistant Cement) and both are
standardized product that produce all types of cement producing firms.
Control over Price:
Because Lucky cement have a great market share in Pakistan (see
above chart) so it has control over price.
Conditions of entry:
For starting Cement producing business need a big investment. As lucky
cement had invested US$ 800 Million so entry of new enterer is
significant obstacles.
Non-price competition:
Non-price competition is particularly with product differentiation.
So, this had proved that Lucky cement is stand under Oligopoly model
because it had fulfilled all characteristics of this model. Like this firm is
one of the few cement industries. That makes standardized OR
differentiated products. This have a great share of market so have
limited control over price and entry in this industry is very so, this had
proven that LUCKY CEMENT is stand under Oligopoly Model.
2. D.G Khan Cement.
D.G. Khan Cement Company Limited, a unit of Nishat group, is the
cement manufacturing unit in Pakistan with a production capacity of
5,500 tons clinker per day. It has a countrywide distribution network
and its products are preferred on projects of national repute both
locally and internationally due to the unparalleled and consistent
quality. It is list on all the Stock Exchanges of Pakistan. Market Share of
D.G Khan can be seen at last page.
Now we evaluate the assumptions of Micro economics Market model.
Numbers of Firms:
As we know, that there are few firms of cement producing in Pakistan.
Type of Product:
D.G Khan Cement also basically produces two types of product. (1.
Ordinary Portland cement 2. Sulphate Resistant Cement) and both are
standardized product that produce all types of cement producing firms.
Control over Price:
Because D.G Khan have not a great market share in Pakistan but a
major player in cement industry (see above chart) so it has not control
over price. But in his specialized products, firm has control over price.
Conditions of entry:
For starting Cement producing business need a big investment. So entry
of new enterer is significant obstacles.
Non-price competition:
Non-price competition is particularly with product differentiation.
So, this had proved that D.G khan cement is also stand under Oligopoly
model because it had fulfilled all characteristics of this model. Like this
firm is one of the few cement industries. That makes standardized OR
differentiated products. This have a big share of market so have Limited
control over price and entry in this industry is very so, this had proven
that D,G KHAN CEMENT is stand under Oligopoly Model.
3. Fauji Cement.
Fauji Cement Company has a strong and longstanding tradition of
service, reliability, and quality that reaches back more than 13 years.
Sponsored by Fauji Foundation the Company was incorporated in
Rawalpindi in 1992. The cement plant operating in the Fauji Cement
has an annual production capacity of 1.165 million tons of cement. The
quality Portland cement produced at this plant is the best in the
Country and is preferred in the construction of highways, bridges,
commercial and industrial complexes. Market Share of Fauji Cement
Company can be seen at last page.
Now we evaluate the assumptions of Micro economics Market model.
Numbers of Firms:
As we know, that there are few firms of cement producing in Pakistan.
Type of Product:
Fauji Cement Company also basically produces only one product.
Ordinary Portland cement and this is standardized product that
produces all types of cement producing firms.
Control over Price:
Because Fauji Cement Company have not a great market share in
Pakistan (see above chart) so it has not control over price.
Conditions of entry:
For starting Cement producing business need a big investment. So entry
of new enterer is significant obstacles.
Non-price competition:
Non-price competition is particularly with product differentiation.
So, this had proved that Fauji Cement Company is also stand under
Oligopoly model because it had fulfilled all characteristics of this model.
Like this firm is one of the few cement industries. That makes
standardized OR differentiated products. This have a big share of
market so have Limited control over price and entry in this industry is
very so, this had proven that FAUJI CEMENT COMPANY is stand under
Oligopoly Model.
Last words
Oligopolistic industries are characterized by the presence of few firms,
each having a significant fraction of the market. Firms thus situated
in engage in strategic behaviour and are mutually interdependent. The
behaviour of any one firm directly affects, and is affected by, the
actions of rivals. Products may be either virtually uniform or
significantly differentiated. Various barriers to entry, including
economics of scale and maintain oligopoly. This model had proved by
Examples mentioned in this example include Lucky cement, D.G
Khan Cement, Fauji Cement etc…