Wal Mart Application Question Consider Wal Mart as a competitive firm operating

Question

Wal Mart Application Question

Consider Wal Mart as a competitive firm operating in the US economic system. Utilize your knowledge of microeconomics, to answer the following questions:

1. How would you describe Wal Mart in terms of the market structure in which it operates?
2. Given this market structure, how does it profit maximize? In other words, what strategies does it employ?
3. What control does it have over prices? Explain.
4. What are its fixed and variable costs? What strategies can they employ to reduce costs?
5. What role does marketing play in the Wal Mart competitive strategy?
6. Can Wal Mart maintain long-run profitability? Why/how?

Explanation / Answer

1. How would you describe Wal Mart in terms of the market structure in which it operates? Wal-mart is a big department store. There are a few in the US- to the best of my knowledge, they are Whole Foods and........some others whose names I do not know. They all have quite large market shares. Thus, the market structure is oligopoly. Cannot be monopolistic competition because there, each firm offers different products. Here, a can of coke is same regardless of who sells it. 2. Given this market structure, how does it profit maximize? In other words, what strategies does it employ? Wal Mart's strategy as we know is to provide the lowest prices anywhere and hence, appeal to the customer who wants more bang per buck. Thus, they maximize profits by increasing quantity sold and keeping prices low and affordable. in eco terms, they sell where margina revenue is equal to marginal costs. 3. What control does it have over prices? Explain. They are price setters which means they have some influence over the price because they are a major player. But, if other firms undercut them, they must do so too because the products they offer is similar so if i can get the same can of coke elsewhere for cheaper price, I will do so. 4. What are its fixed and variable costs? What strategies can they employ to reduce costs? FC= rent for warehouses, electricity costs. salaries of employees who work permanently and hence, get a paycheque each month regardless of how much they sell. VC: this is the cost of goods that they buy before selling. for example, if they buy 2 coke cans for 50cents each and sell for 1 dollar, their variable costs is 2 x 50cents = 1 dollar. how much stuff they buy depends on how much they are able to sell. hence, it is avriable cost. 5. What role does marketing play in the Wal Mart competitive strategy? important. since they sell at cheapest price anywhere, they must advertise and make sure customers know their unique selling point. also, since there are few big players, advertising helps them bend customers to their side. 6. Can Wal Mart maintain long-run profitability? Why/how? yes because there are not that many big chains of famous department stores. thus, they will always have customers. however, they must make sure that their prices are equal or less than customers so that customers will continue to buy from them. this is because all products are identical. hence, if they charge way too much, i'll just get my groceries elsewhere.

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