Under which market condition do firms have excess capacity ? ?->(Show Answer!)

1. Under which market condition do firms have excess capacity ?

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MCQ-> Read the passage given below and answer the following questionsFirms are said to be in perfect competition when the following conditions occur: (1) many firms produce identical products; (2) many buyers are available to buy the product, and many sellers are available to sell the product; (3) sellers and buyers have all relevant information to make rational decisions about the product being bought and sold; and (4) firms can enter and leave the market without any restrictions—in other words, there is free entry and exit into and out of the market.A perfectly competitive firm is known as a price taker, because the pressure of competing firms forces them to accept the prevailing equilibrium price in the market. If a firm in a perfectly competitive market raises the price of its product by so much as a penny, it will lose all of its sales to competitors. When a wheat grower, wants to know what the going price of wheat is, he or she has to go to the computer or listen to the radio to check. The market price is determined solely by supply and demand in the entire market and not the individual farmer. Also, a perfectly competitive firm must be a very small player in the overall market, so that it can increase or decrease output without noticeably affecting the overall quantity supplied and price in the market.A perfectly competitive market is a hypothetical extreme; however, producers in a number of industries do face many competitor firms selling highly similar goods, in which case they must often act as price takers. Agricultural markets are often used as an example. The same crops grown by different farmers are largely interchangeable. According to the United States Department of Agriculture monthly reports, in 2015, U.S. corn farmers received an average price of $6.00 per bushel and wheat farmers received an average price of $6.00 per bushel. A corn farmer who attempted to sell at $7.00 per bushel, or a wheat grower who attempted to sell for $8.00 per bushel, would not have found any buyers. A perfectly competitive firm will not sell below the equilibrium price either. Why should they when they can sell all they want at the higher price?Source: Principles of Economics, Download for free at http://cnx.org/content/col11613/latest.According to the passage, why is a perfectly competitive firm a price taker?
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MCQ-> Read the following passage carefully and answer the questions given below it. Certain words/phrases have been printed in bold to help you locate them while answering some of the questions. The past quarter of a century has seen several bursts of selling by the world’s governments, mostly but not always in benign market conditions. Those in the OECD, a rich-country club, divested plenty of stuff in the 20 years before the global financial crisis. The first privatisation wave, which built up from the mid-1980s and peaked in 2000, was largely European. The drive to cut state intervention under Margaret Thatcher in Britain soon spread to the continent. The movement gathered pace after 1991, when eastern Europe put thousands of rusting state-owned enterprises (SOEs) on the block. A second wave came in the mid-2000s, as European economies sought to cash in on buoyant markets. But activity in OECD countries slowed sharply as the financial crisis began. In fact, it reversed. Bailouts of failing banks and companies have contributed to a dramatic increase in government purchases of corporate equity during the past five years. A more lasting fea ture is the expansion of the state capitalism practised by China and other emerging economic powers. Governments have actually bought more equity than they have sold in most years since 2007, though sales far exceeded purchases in 2013. Today privatisation is once again “alive and well”, says William Megginson of the Michael Price College of Business at the University of Oklahoma. According to a global tally he recently completed, 2012 was the third-best year ever, and preliminary evidence suggests that 2013 may have been better. However, the geography of sell-offs has changed, with emerging markets now to the fore. China, for instance, has been selling minority stakes in banking, energy, engineering and broadcasting; Brazil is selling airports to help finance a $20 billion investment programme. Eleven of the 20 largest IPOs between 2005 and 2013 were sales of minority stakes by SOEs, mostly in developing countries. By contrast, state-owned assets are now “the forgotten side of the balance-sheet” in many advanced economies, says Dag Detter, managing partner of Whetstone Solutions, an adviser to governments on asset restructuring. They shouldn’t be. Governments of OECD countries still oversee vast piles of assets, from banks and utilities to buildings, land and the riches beneath (see table). Selling some of these holdings could work wonders: reduce debt, finance infrastructure, boost economic efficiency. But governments often barely grasp the value locked up in them. The picture is clearest for companies or company-like entities held by central governments. According to data compiled by the OECD and published on its website, its 34 member countries had 2,111 fully or majority-owned SOEs, with 5.9m employees, at the end of 2012. Their combined value (allowing for some but not all pension-fund liabilities) is estimated at $2.2 trillion, roughly the same size as the global hedge-fund industry. Most are in network industries such as telecoms, electricity and transport. In addition, many countries have large minority stakes in listed firms. Those in which they hold a stake of between 10% and 50% have a combined market value of $890 billion and employ 2.9m people. The data are far from perfect. The quality of reporting varies widely, as do definitions of what counts as a state-owned company: most include only centralgovernment holdings. If all assets held at sub-national level, such as local water companies, were included, the total value could be more than $4 trillion. Reckons Hans Christiansen, an OECD economist. Moreover, his team has had to extrapolate because some QECD members, including America and Japan, provide patchy data. America is apparently so queasy about discussions of public ownership of -commercial assets that the Treasury takes no part in the OECD’s working group on the issue, even though it has vast holdings, from Amtrak and the 520,000-employee Postal Service to power generators and airports. The club’s efforts to calculate the value that SOEs add to, or subtract from, economies were abandoned after several countries, including America, refused to co-operate. Privatisation has begun picking up again recently in the OECD for a variety of reasons. Britain’s Conservative-led coalition is fbcused on (some would say obsessed with) reducing the public debt-to-GDP ratio. Having recently sold the Royal Mail through a public offering, it is hoping to offload other assets, including its stake in URENCO, a uranium enricher, and its student-loan portfolio. From January 8th, under a new Treasury scheme, members of the public and businesses will be allowed to buy government land and buildings on the open market. A website will shortly be set up to help potential buyers see which bits of the government’s /..337 billion-worth of holdings ($527 billion at today’s rate, accounting for 40% of developable sites round Britain) might be surplus. The government, said the chief treasury secretary, Danny Alexander, “should not act as some kind of compulsive hoarder”. Japan has different reasons to revive sell-offs, such as to finance reconstruction after its devastating earthquake and tsunami in 2011. Eyes are once again turning to Japan Post, a giant postal-to-financial-services conglomerate whose oftpostponed partial sale could at last happen in 2015 and raise (Yen) 4 trillion ($40 billion) or more. Australia wants to sell financial, postal and aviation assets to offset the fall in revenues caused by the commodities slowdown. In almost all the countries of Europe, privatisation is likely “to surprise on the upside” as long as markets continue to mend, reckons Mr Megginson. Mr Christiansen expects to see three main areas of activity in coming years. First will be the resumption of partial sell-offs in industries such as telecoms, transport and utilities. Many residual stakes in partly privatised firms could be sold down further. France, for instance, still has hefty stakes in GDF SUEZ, Renault, Thales and Orange. The government of Francois Hollande may be ideologically opposed to privatisation, but it is hoping to reduce industrial stakes to raise funds for livelier sectors, such as broadband and health. The second area of growth should be in eastern Europe, where hundreds of large firms, including manufacturers, remain in state hands. Poland will sell down its stakes in listed firms to make up for an expected reduction in EU structural funds. And the third area is the reprivatisation of financial institutions rescued during the crisis. This process is under way: the largest privatisation in 2012 was the $18 billion offering of America’s residual stake in AIG, an insurance company.Which of the following statements is not true in the context of the given passage ?
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MCQ-> Please read the three reports (newspaper articles) on ranking of different players and products in smart phones industry and answer the questions that follow. Report 1: (Feb, 2013) Apple nabs crown as current top US mobile phone vendor Apple’s reign may not be long, as Samsung is poised to overtake Apple in April, 2013. For the first time since Apple entered the mobile phone market in 2007, it has been ranked the top mobile phone vendor in the US. For the latter quarter of 2012, sales of its iPhone accounted for 34 percent of all mobile phone sales in the US - including feature phones - according to the latest data from Strategy Analytics. While the iPhone has consistently been ranked the top smartphone sold in the US, market research firm NPD noted that feature phone sales have fallen off a cliff recently, to the point where 8 out of every 10 mobile phones sold in the US are now smartphones. That ratio is up considerably from the end of 2011, when smartphones had just cracked the 50 percent mark. Given this fact it’s no surprise that Apple, which only sells smartphones, has been able to reach the top of the overall mobile phone market domestically. For the fourth quarter of 2012, Apple ranked number one with 34 percent of the US mobile market, up from 25.6 percent year over year. Samsung grew similarly, up to 32.3 percent from 26.9 percent - but not enough to keep from slipping to second place. LG dropped to 9 percent from 13.7 percent, holding its third place spot. It should be noted that Samsung and LG both sell a variety of feature phones in addition to smartphones. Looking only at smartphones, the ranking is a little different according to NPD. Apple holds the top spot with 39 percent of the US smartphone market, while Samsung again sits at number two with 30 percent. Motorola manages to rank third with 7 percent, while HTC dropped to fourth with 6 percent. In the US smartphone market, LG is fifth with 6 percent. Note how the percentages aren’t all that different from overall mobile phone market share - for all intents and purposes, the smartphone market is the mobile phone market in the US going forward. Still, Samsung was the top mobile phone vendor overall for 2012, and Strategy Analytics expects Samsung to be back on top soon. “Samsung had been the number one mobile phone vendor in the US since 2008, and it will surely be keen to recapture that title in 2013 by launching improved new models such as the rumored Galaxy S4”. And while Apple is the top vendor overall among smartphones, its iOS platform is still second to the Android platform overall. Samsung is the largest vendor selling Android-based smartphones, but Motorola, HTC, LG, and others also sell Android devices, giving the platform a clear advantage over iOS both domestically and globally. Report 2: Reader’s Response (2013, Feb) I don’t actually believe the numbers for Samsung. Ever since the debacle in early 2011, when Lenovo called into question the numbers Samsung was touting for tablet shipments, stating that Samsung had only sold 20,000 of the 1.5 million tablets they shipped into the US the last quarter of 2010, Samsung (who had no response to Lenovo) has refused to supply quarterly sales numbers for smartphones or tablets. That’s an indication that their sales aren’t what analysts are saying. We can look to several things to help understand why. In the lawsuit between Apple and Samsung here last year, both were required to supply real sales numbers for devices under contention. The phones listed turned out to have sales between one third and one half of what had been guessed by IDC and others. Tablet sales were even worse. Of the 1.5 million tablets supposedly shipped to the US during that time, only 38,000 were sold. Then we have the usage numbers. Samsung tablets have only a 1.5% usage rate, where the iPad has over 90%. Not as much a difference with the phones but it’s still overwhelmingly in favor of iPhone. The problem is that with Apple’s sales, we have actual numbers to go by. The companies who estimate can calibrate what they do after those numbers come out. But with Samsung and many others, they can’t ever calibrate their methods, as there are no confirming numbers released from the firms. A few quarters ago, as a result, we saw iSupply estimate Samsung’s smartphone sales for the quarter at 32 million, with estimates from others all over the place up to 50 million. Each time some other company reported a higher number for that same quarter, the press dutifully used that higher number as THE ONE. But none of them was the one. Without accurate self-reporting of actual sales to the end users, none of these market share charts are worth a damn! Report 3: Contradictory survey (Feb, 2013) iPhone5 Ranks Fifth In U.S. Customer Satisfaction Survey inShare. The iPhone5 ranks fifth in customer satisfaction according to the results of a recent survey from OnDevice Research, a mobile device research group. In the poll, they asked 320,000 smartphone and tablet users from six different countries, how satisfied they were with their devices. According to 93,825 people from the US, Motorola Atrix HD is the most satisfying and Motorola’s Droid Razr took second spot. HTC Corp (TPE : 2498)’s Rezound 4G and Samsung Galaxy Note 2 took third and fourth spots, while Apple’s iPhone5 landed in fifth spot. It appears that Apple may be lagging in consumer interest. OnDevice Research, Sarah Quinn explained, “Although Apple created one of the most revolutionary devices of the past decade, other manufactures have caught up, with some Android powered devices now commanding higher levels of user satisfaction.” Despite the lower rankings, things aren’t looking too bad for Apple Inc. (NASDAQ:AAPL) elsewhere. In the United Kingdom, they ranked second place, right after HTC One X. Interesting enough, Apple did take top spot for overall satisfaction of mobile device, whereas Google Inc. (NASDAQ:GOOG) ranked second. Motorola Mobility Holdings Inc. (NYSE:NOK) took third, fourth, and fifth places respectively, while Sony Ericsson trailed behind at sixth place. The survey sampled mobile device users in the following countries: United States, United Kingdom, France, Germany, Japan, and Indonesia. Although OnDevice didn’t share the full list of devices mentioned in the survey, it does show some insight to what customers want. Unfortunately, there were still many questions regarding the survey that were left unanswered. Everyone wants to know why Google Inc. (NASDAQ:GOOG) was on the list when they are not an actual smartphone maker and why was Samsung Electronics Co., Ltd. (LON:BC94) on the bottom of the satisfaction list when the brand is leading elsewhere.

Source: 92.825 US mobile users, July 2012 - January 2013 Fortunately, those questions were answered by OnDevice Research’s representative. He explained that the survey was conducted on mobile web where the survey software could detect the taker’s device and since user’s rate their satisfaction levels on a 1 to 10 scale, thanks to the Nexus device, Google was included.If you analyze the three reports above, which of the following statements would be the best inference?
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MCQ-> People are continually enticed by such "hot" performance, even if it lasts for brief periods. Because of this susceptibility, brokers or analysts who have had one or two stocks move up sharply, or technicians who call one turn correctly, are believed to have established a credible record and can readily find market followings. Likewise, an advisory service that is right for a brief time can beat its drums loudly. Elaine Garzarelli gained near immortality when she purportedly "called" the 1987 crash. Although, as the market strategist for Shearson Lehman, her forecast was never published in a research report, nor indeed communicated to its clients, she still received widespread recognition and publicity for this call, which was made in a short TV interview on CNBC. Still, her remark on CNBC that the Dow could drop sharply from its then 5300 level rocked an already nervous market on July 23, 1996. What had been a 40-point gain for the Dow turned into a 40-point loss, a good deal of which was attributed to her comments.The truth is, market-letter writers have been wrong in their judgments far more often than they would like to remember. However, advisors understand that the public considers short-term results meaningful when they are, more often than not, simply chance. Those in the public eye usually gain large numbers of new subscribers for being right by random luck. Which brings us to another important probability error that falls under the broad rubric of representativeness. Amos Tversky and Daniel Kahneman call this one the "law of small numbers.". The statistically valid "law of large numbers" states that large samples will usually be highly representative of the population from which they are drawn; for example, public opinion polls are fairly accurate because they draw on large and representative groups. The smaller the sample used, however (or the shorter the record), the more likely the findings are chance rather than meaningful. Yet the Tversky and Kahneman study showed that typical psychological or educational experimenters gamble their research theories on samples so small that the results have a very high probability of being chance. This is the same as gambling on the single good call of an advisor. The psychologists and educators are far too confident in the significance of results based on a few observations or a short period of time, even though they are trained in statistical techniques and are aware of the dangers.Note how readily people over generalize the meaning of a small number of supporting facts. Limited statistical evidence seems to satisfy our intuition no matter how inadequate the depiction of reality. Sometimes the evidence we accept runs to the absurd. A good example of the major overemphasis on small numbers is the almost blind faith investors place in governmental economic releases on employment, industrial production, the consumer price index, the money supply, the leading economic indicators, etc. These statistics frequently trigger major stock- and bond-market reactions, particularly if the news is bad. Flash statistics, more times than not, are near worthless. Initial economic and Fed figures are revised significantly for weeks or months after their release, as new and "better" information flows in. Thus, an increase in the money supply can turn into a decrease, or a large drop in the leading indicators can change to a moderate increase. These revisions occur with such regularity you would think that investors, particularly pros, would treat them with the skepticism they deserve. Alas, the real world refuses to follow the textbooks. Experience notwithstanding, investors treat as gospel all authoritative-sounding releases that they think pinpoint the development of important trends. An example of how instant news threw investors into a tailspin occurred in July of 1996. Preliminary statistics indicated the economy was beginning to gain steam. The flash figures showed that GDP (gross domestic product) would rise at a 3% rate in the next several quarters, a rate higher than expected. Many people, convinced by these statistics that rising interest rates were imminent, bailed out of the stock market that month. To the end of that year, the GDP growth figures had been revised down significantly (unofficially, a minimum of a dozen times, and officially at least twice). The market rocketed ahead to new highs to August l997, but a lot of investors had retreated to the sidelines on the preliminary bad news. The advice of a world champion chess player when asked how to avoid making a bad move. His answer: "Sit on your hands”. But professional investors don't sit on their hands; they dance on tiptoe, ready to flit after the least particle of information as if it were a strongly documented trend. The law of small numbers, in such cases, results in decisions sometimes bordering on the inane. Tversky and Kahneman‘s findings, which have been repeatedly confirmed, are particularly important to our understanding of some stock market errors and lead to another rule that investors should follow.Which statement does not reflect the true essence of the passage? I. Tversky and Kahneman understood that small representative groups bias the research theories to generalize results that can be categorized as meaningful result and people simplify the real impact of passable portray of reality by small number of supporting facts. II. Governmental economic releases on macroeconomic indicators fetch blind faith from investors who appropriately discount these announcements which are ideally reflected in the stock and bond market prices. III. Investors take into consideration myopic gain and make it meaningful investment choice and fail to see it as a chance of occurrence. IV. lrrational overreaction to key regulators expressions is same as intuitive statistician stumbling disastrously when unable to sustain spectacular performance.....

MCQ-> Read the passage carefully and answer the questions given at the end of each passage:Turning the business involved more than segmenting and pulling out of retail. It also meant maximizing every strength we had in order to boost our profit margins. In re-examining the direct model, we realized that inventory management was not just core strength; it could be an incredible opportunity for us, and one that had not yet been discovered by any of our competitors. In Version 1.0 the direct model, we eliminated the reseller, thereby eliminating the mark-up and the cost of maintaining a store. In Version 1.1, we went one step further to reduce inventory inefficiencies. Traditionally, a long chain of partners was involved in getting a product to the customer. Let’s say you have a factory building a PC we’ll call model #4000. The system is then sent to the distributor, which sends it to the warehouse, which sends it to the dealer, who eventually pushes it on to the consumer by advertising, “I’ve got model #4000. Come and buy it.” If the consumer says, “But I want model #8000,” the dealer replies, “Sorry, I only have model #4000.” Meanwhile, the factory keeps building model #4000s and pushing the inventory into the channel. The result is a glut of model #4000s that nobody wants. Inevitably, someone ends up with too much inventory, and you see big price corrections. The retailer can’t sell it at the suggested retail price, so the manufacturer loses money on price protection (a practice common in our industry of compensating dealers for reductions in suggested selling price). Companies with long, multi-step distribution systems will often fill their distribution channels with products in an attempt to clear out older targets. This dangerous and inefficient practice is called “channel stuffing”. Worst of all, the customer ends up paying for it by purchasing systems that are already out of date Because we were building directly to fill our customers’ orders, we didn’t have finished goods inventory devaluing on a daily basis. Because we aligned our suppliers to deliver components as we used them, we were able to minimize raw material inventory. Reductions in component costs could be passed on to our customers quickly, which made them happier and improved our competitive advantage. It also allowed us to deliver the latest technology to our customers faster than our competitors. The direct model turns conventional manufacturing inside out. Conventional manufacturing, because your plant can’t keep going. But if you don’t know what you need to build because of dramatic changes in demand, you run the risk of ending up with terrific amounts of excess and obsolete inventory. That is not the goal. The concept behind the direct model has nothing to do with stockpiling and everything to do with information. The quality of your information is inversely proportional to the amount of assets required, in this case excess inventory. With less information about customer needs, you need massive amounts of inventory. So, if you have great information – that is, you know exactly what people want and how much - you need that much less inventory. Less inventory, of course, corresponds to less inventory depreciation. In the computer industry, component prices are always falling as suppliers introduce faster chips, bigger disk drives and modems with ever-greater bandwidth. Let’s say that Dell has six days of inventory. Compare that to an indirect competitor who has twenty-five days of inventory with another thirty in their distribution channel. That’s a difference of forty-nine days, and in forty-nine days, the cost of materials will decline about 6 percent. Then there’s the threat of getting stuck with obsolete inventory if you’re caught in a transition to a next- generation product, as we were with those memory chip in 1989. As the product approaches the end of its life, the manufacturer has to worry about whether it has too much in the channel and whether a competitor will dump products, destroying profit margins for everyone. This is a perpetual problem in the computer industry, but with the direct model, we have virtually eliminated it. We know when our customers are ready to move on technologically, and we can get out of the market before its most precarious time. We don’t have to subsidize our losses by charging higher prices for other products. And ultimately, our customer wins. Optimal inventory management really starts with the design process. You want to design the product so that the entire product supply chain, as well as the manufacturing process, is oriented not just for speed but for what we call velocity. Speed means being fast in the first place. Velocity means squeezing time out of every step in the process. Inventory velocity has become a passion for us. To achieve maximum velocity, you have to design your products in a way that covers the largest part of the market with the fewest number of parts. For example, you don’t need nine different disk drives when you can serve 98 percent of the market with only four. We also learned to take into account the variability of the lost cost and high cost components. Systems were reconfigured to allow for a greater variety of low-cost parts and a limited variety of expensive parts. The goal was to decrease the number of components to manage, which increased the velocity, which decreased the risk of inventory depreciation, which increased the overall health of our business system. We were also able to reduce inventory well below the levels anyone thought possible by constantly challenging and surprising ourselves with the result. We had our internal skeptics when we first started pushing for ever-lower levels of inventory. I remember the head of our procurement group telling me that this was like “flying low to the ground 300 knots.” He was worried that we wouldn’t see the trees.In 1993, we had $2.9 billion in sales and $220 million in inventory. Four years later, we posted $12.3 billion in sales and had inventory of $33 million. We’re now down to six days of inventory and we’re starting to measure it in hours instead of days. Once you reduce your inventory while maintaining your growth rate, a significant amount of risk comes from the transition from one generation of product to the next. Without traditional stockpiles of inventory, it is critical to precisely time the discontinuance of the older product line with the ramp-up in customer demand for the newer one. Since we were introducing new products all the time, it became imperative to avoid the huge drag effect from mistakes made during transitions. E&O; – short for “excess and obsolete” - became taboo at Dell. We would debate about whether our E&O; was 30 or 50 cent per PC. Since anything less than $20 per PC is not bad, when you’re down in the cents range, you’re approaching stellar performance.Find out the TRUE statement:
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