Simulation Discussion – Production, Entry, and Exit

Simulation Discussion – Production, Entry, and Exit

Factors to Consider Before Market Entry and Exit

The simulation this week was exciting. I loved predicting whether I would make money or not based on the number of drivers. Based on the lessons learned from the simulation, I would consider the following factors before entering and exiting a market. First, the sales and revenues of what I will be selling; second, the sellers who are gaining and those who are losing and the reasons behind their losses or profits. Further factors I would consider are the market ranking of my goods, the existing competitors and the emerging ones, and strategy regarding the target customers and industries.

Applying the Concept of Marginal Costs

Considering the firm’s marginal costs, deciding how much to produce would be challenging for a business owner. To make the best decisions for my business, I must consider the production and cost variables and any extra costs incurred, such as shipping costs. Through the use of marginal costs, one gets insights into the range of prospective goods to produce, assists management in making correct prices, helps compare any other possible production methods that could be more efficient, and helps establish production levels (Aaker & Moorman, 2017). To make the best decision for any company, one must compare the benefits to the cost of pursuing an additional unit of an activity. When the marginal cost of a business elevates, the price of every unit costs more to produce than before. All the variables and factors mentioned above help businesses decide on how much to produce.

Impact of Fixed Costs

There is no change in fixed costs despite the output. Therefore, even though a business fails with no workers, the fixed costs must be settled. An increase in fixed costs causes a shift in the average fixed and total costs (Mankiw, 2020). However, an increase in fixed costs does not affect the marginal or average variable costs. In conclusion, little change has been made to the fixed costs in the short run. Short-run production can only be affected by revenues and variable costs. In the long run, fixed costs could grow more or less expensive, depending on whether there is a change in rent, one relocates, and the rent is higher, or establishing new premises for the business (Mankiw, 2020). In the short run, fixed costs can alter production choices by recruiting more or fewer employees and using the facility’s time as much as possible.

References

Aaker, D. A., & Moorman, C. (2017). Strategic market management. John Wiley & Sons.

Mankiw, N. G. (2020). Principles of economics. Cengage Learning.

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In a competitive market, there are many buyers and sellers. The goods offered are largely the same, and firms can freely enter or exit the market. Buyers and sellers are both price takers. The amount of output produced determines the revenue of a firm.

Simulation Discussion – Production, Entry, and Exit

First, play the simulation game Production, Entry, and Exit in the MindTap environment. In this discussion, you will share your experiences playing that game. Your work in this discussion will directly support your success on the course project.

In your initial post, include the image of your simulation report in your response. See the How to Submit a Simulation Report Image PDF document for more information. Then, address the following questions:

• Imagine you own your own business. Based on what you learned from the simulation, what factors would determine your entry and exit into a market?
• Applying the concept of marginal costs, how would you, as a business owner, decide how much to produce?
• How does the impact of fixed costs change production decisions in the short run and in the long run? Refer to the average total cost (ATC) model included in the textbook to demonstrate.