Ib Microeconomics Ia

11 November 2016

There are also significant obstacles in the conditions of entry; a firm must create a phone and launch satellites into orbit in order to start a firm in the smartphone industry. As an oligopoly the introduction of the S4 affects all other competitors, including Apple and Android. The smartphone market is a differentiated oligopoly because all producers offer different products, and this indicates that the introduction of the S4 will affect sales of Iphone 5s, Google Nexus 4, and Blackberry Z10. We can find that the Herfindahl Index is 1832, from the graph, which indicates that there is not that much market power in the smartphone industry.

Since there is limited market power, Samsung cannot differentiate the supply of Galaxy S4 in order to maximize profit and sales. In this diagram we find the marginal utility by finding the derivative of this line. The derivative is very small so the marginal utility is very small. The Samsung Galaxy S4 is a luxury smartphone which costs upwards of $800. A smartphone is not essential and can be easily forgone, which conveys that the price elasticity of the Samsung Galaxy S4 is theoretically above 1. Since the price elasticity of smartphones is above zero the competition between firms is very high.

Ib Microeconomics Ia Essay Example

Besides the fact that it costs $800 to purchase a Samsung Galaxy S4, there is very little marginal utility for a S4. Although the utility of a S4 is very high because of the versatility and the many functions an S4 can conduct, the marginal utility is very low as there is almost no utility for further S4’s to be purchased. Because the marginal utility is low, and the price elasticity is above 1, there is no “need” for a S4, but rather a desire. The Samsung Galaxy S4 has some technological advances include gesture control which allows for control without touching the screen.

These advances are what differentiates the S4 from the Iphone 5s or other similar smartphones. Other comparisons between Iphone 5 and S4 is the size of the S4, and other technological improvements such as speed, weight, and versatility. It is through product innovation that these improvements to the S3 have arrived in the S4. In the future, the Samsung Galaxy S4 will be rivaled by the Iphone 5s, and other smartphones. This revelation of a new model allows for Samsung to increase its market share in handheld products.

If the Samsung Galaxy S4 does, in fact, become very popular and in high demand, it could allow for Samsung to become the new “Apple” of smartphones. When the Iphone was released, other firms could not emulate its design and popularity, however in the past few years, the Galaxy series has been compared to the Iphone. Samsung is gaining market shares of the smartphone market, and can be seen as a rival to Apple. Apple sued once it realized Samsung is becoming a rival. This lawsuit prevents further occurrences of the imitation problem as our legal system is able to stop such fraud.

In some ways, the S4 will have creative destruction occur if it becomes popular and outsells the Iphone 5. There are costs in making the $800 smartphone which Samsung has coined Galaxy S4. Explicit costs are found in the production of the phone. (glass, steel, microprocessors, plastic, camera, etc) There is explicit cost in transporting the phones to stores, maintaining and using satellites, labor, and costs for office space. All these explicit costs factor into the final per unit price of the S4. Some implicit costs found in making the S4 include the opportunity cost of making another model, or other device for Samsung.

The economies of scale found in the production of the S4 is that as output increases, labor can handle more products per individual, decreasing the cost per unit. When Samsung buys materials needed for production in bulk, there are certain volume discounts they receive for buying in bulk. There are also certain diseconomies of scale, including the fact that ordering too many of a certain low supply part, such as the microprocessor, can lead to higher prices which increases the price per unit. Both economies and diseconomies of scale impact the price of the Samsung Galaxy S4. Word: 750

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