3. FINANCIAL RATIO ANALYSIS 3.1. PROFITABILITY (Ho, 2013) mentioned that the gross profit ratio assesses the gross profit generated per dollar sales. A drop in this ratio can signify more competition in the market, lowering selling prices or a higher cost of purchases. A rise in this ratio can signify that the firm has a competitive edge in the market and so it is able to charge higher prices for its products, or the firm is able to obtain its supplies at a lower cost.
Price equals marginal cost and firms earn an economic profit of zero in perfect competition. In a monopoly, the price is set above marginal cost and the firm earns a supernormal profit. Economic efficient happen when firms produce an equilibrium in which the price and quantity of a good in perfect competition whereas monopolist produces an equilibrium at which the price of a good is higher and the lower quantity. Therefore, governments always seek to regulate monopolies by legislation. 2.0 Characteristic of Perfect Competition and Monopoly Sloman and Hinde (2007) point out perfect competition is a market in the condition broad range of firms selling the identical product without any restriction on entry and exit and price taker at the same time.
According to (Chen et al, 2003) PPP based foreign exchange rate forecasts also belongs to the fundamental stream of the model-based approach. The foundation of PPP is on Law of One Price (LOOP), which states that undistinguishable or identical goods in diverse countries should have alike prices. Based on this fundamental principle, the PPP approach predicts that the exchange rate will vary to offset price changes due to inflation. Simply stated, when the country’s domestic price level appreciates, in order to return to PPP, that country’s exchange rate must
As per the situation described above, this paper attempts to answer the following questions: Does a free market economy preserve consumer sovereignty? If not, how do the inefficiencies of a free market impede the process of realisation of consumer sovereignty in the economy? The author hypothesises that free markets have imperfections which can result in the loss of sovereignty enjoyed by consumers. Market imperfections cause market failure. In this paper, a market fails when the allocation of resources in not efficient.
Economics is the social science that study about human business activity such as consumption, production, saving, exchanging and distribution of commodities. Consumption and production are the two main factors of economics. Scarcity is the central economic problem. Human scarcity born between the existence of unlimited human wants and limited factors of production (eg,.Land, Labour, Capatical, Technology and etc.,). Economics can be satisfied the human wants with limited resources.
An individual participate in market either as seller or buyer. According to economic rationality homo economicus use market rationality i.e. the seller has the desire to sell the product at highest prize and buyer has the desire to purchase it at lowest prize, this is the economic rationality and then how seller and buyer will behave in the market for their individual interest in the market rationality. There is an invisible hand i.e. Market, which brings the harmony in the
(Koutsoyiannis, 1979). Whereas elasticity of supply refers to percentage change in the quantity supply to the percentage in price. In business it takes decision regarding price or not the firm should have the idea about price elasticity demand of the product and its substitute and complements and increasing of price will be beneficial only if the demand of its product is inelastic. As the increase in price will lead to increase in total revenue in which raising price will be beneficial if the elasticity of demand for its substitute is low but if it is large, consumer will shift to other substitute as the firm raises the price for that product in which importance of elasticity of demand will help in making business decision. Price elasticity of supply of the product and its substitute and complements and decreasing of price will be beneficial if the demand of its product is elastic.
And for a firm, it will adjust its output until marginal revenue is equals to marginal cost. In short run, there is this economic profit which is also known as supernormal profit. Economic profit occurs when the marginal cost curve intersects the demand curve which is also known as marginal revenue curve. Therefore, a competitive firm maximizes its profit when MC=MR. The price is greater than ATC curve, the firm is earning economic profit.