Finals

:
1. From the industry you have chosen, pick a company. Show how
it can minimize its cost using graphs. Explain.

2.In what market structure do you think the company is in?
Explain.
The market structure of San Miguel Beer (SMB) can be described
as a monopolistic competition because although there are many
firms producing and distributing the same goods in the
Philippines, SMB enjoys a large loyal market. The said structure
has a low barrier in the entry and exit from the market; hence,
there are other beers available such as Beer-na-Beer, Red Horse
and even imported brands such as Heineken, Stella Artois,
Budwiser and Corona.
Considering the various available beers in the market, SMB seeks
to distinguish itself from other others in terms of taste, packaging,
advertisement and other marketing schemes to gain advantage
over others. In addition, a company in a monopolistic competition
market structure should also be a price setter for the product with
the price elasticity for such goods elastic. SMB is highly elastic
which means when its prices go up the demand significantly goes
down. This is shown by SMB’s annual report for 2008.
However, due to the fact that SMB is one of the top breweries in
the Philippines, it can increase its prices and can still retain their
market shares due to the strong brand loyalty of Filipinos to SMB
which is a value created over time. However, even with this brand
loyalty, SMB must still be careful in increasing its prices because
there are a lot of substitute available in the market.
3.How will it maximize its profits? Explain and use graphs.
SMB can increase its profits by overhauling its supply chain and
delivery. Currently, there are three (3) brewery plants in Luzon
namely in Pampanga, Laguna and Metro Manila, two (2) in Visayas
namely in Negros Occidental and in Cebu and only one (1) in
Mindanao located Davao. It is significant that Mindanao with its
large population has only one (1) brewery plant to supply SMB

products. SMB should increase its market share in this area
through massive advertisement and other marketing scheme and
also create new plants in the area to drive down the cost to
produce beer.
Putting up plants in areas nearer its target market significantly
lowers the delivery cost and gives its clients a steady supply of
the SMB in the market. The focus should be the highly urbanized
and liberal cities in Mindanao such as Davao, Zambuanga and
Cagayan De Oro.

4. Show the supply curve in the graph.
PRICE

P

Q

Q1

Quantity

Above is the graphical supply curve of SMB. It shows that the
price is still the same even with the increase in the quantity of
products it produced because it is able to reduce its cost while
increasing its production. This shows the proper cost minimization
programs or activities can increase productivity while maintaining
or even reducing cost.

In a typical manufacturing firm, inventories comprise a large part
of its assets. At the San Miguel Corporation (SMC), which produces
and distributes more than 300 products in the Philippines, raw
material accounts for about 10% of total assets. The significant
amount of money tied up in inventory encouraged the company’s
Operations Research Department to develop a series of costminimizing inventory models. One major SMC product, ice cream,
uses dairy and cheese curd imported from Australia, New
Zealand, and Europe. The normal mode of delivery is sea, and
delivery frequencies are limited by supplier schedules. Stockouts,
however, are avoidable through airfreight expediting. SMC’s
inventory model for ice cream balances ordering, carrying, and
stockout costs while considering delivery frequency constraints
and minimum order quantities. Results showed that current safety
stocks of 30–51 days could be cut in half for dairy and cheese
curd. Even with the increased use of expensive airfreight, SMC
saved $170,000 per year through the new policy. Another SMC
product, beer, consists of three major ingredients: malt, hops,
and chemicals. Because these ingredients are characterized by
low expediting costs and high unit costs, inventory modeling
pointed to optimal policies that reduced safety stock levels,
saving another $180,000 per year.
5. Go to a public market and observe. What are the government
failures that you can see?
Government failures I observed are the lack of proper zooming in
the markets where wet and dry goods are sold side by side, lack
of proper sanitation and waste disposal, there is also no obvious
regulatory or police presence readily visible and there is proper
information on the prices of goods as mandated by the
government especially on essential food items.

6. What are the externalities you can see?
Externalities are those things that affects third party, which can
be either a good or bad. I have observed more bad externalities in
present in public markets, such as rampant and indiscriminate
cigarette smoking which affects even non-smokers in the market.

Second hand smokers are exposed to the same level of dangers
as first hand smokers.
Further, the lack of proper disposal and sanitation affects
customers and the quality of the products available in the market.
A smelly market discourages customers and breed insects, flies,
and rodents which spread disease and bacteria on food products.
7. Is a market a public or private good? Explain.
A market is said to be private if it is exclusive to a select market
that usually pays a higher premium to be able to access the
products in such a market. Usually, these are high end products,
which are not readily available to the public. These private
markets are usually convenient and comfortable shopping spaces
where the customers can enjoy their shopping experience due to
those comforts such as air conditioning, sales staffs and even
delivery.
A market is public when anyone can purchase products there
from. These markets are characterized as usually ordinary day-today items that are cheap and are readily available.
8. Do you think the government should provide public markets or
should they just leave it to the public sector? Explain carefully
I think that the government should leave the market sector to the
private. The private has more knowledge, expertise and funds to
improve the market for consumers. The government does not
have enough resources to maintain markets. Further, politics can
even interfere with a professional management of a market.
However, the government cannot totally leave the market in the
hands of the private. Regulatory and supervisory powers should
still be exercised by the government to ensure that the rights of
the consumers are protected and prices of essential commodities
are checked.
9.How did you find this class? Did you appreciate the concepts
discussed? How do you think I can improve this class considering

the time and other constraints we have? What topic can you
discuss?
I’ve been enjoying economics subject just like today,
although this semester, I am having a hard time understanding
some of the topics because we were using graphs and
computations for the lecture which we didn’t have in the past
teachers, we would often just memorize different terms stated in
their power points then we are done unlike today, we really have
to carefully read the pdf that you have sent to us and understand
each sentence so that we could manage to answer the various
questions and problems that you are giving to us. However, that
what makes this class interesting since we really have to study
more for us to be able to get good grades and this let students
think harder since we should analyze different situation in every
meetings. It help us think outside the box and connect each
lessons in the reality, we somehow get to understand the inside
and outside perspective in the business world. Yes I appreciate
the concepts discussed because all of the topics are properly
explained to us. I deeply understand how our economy affects the
government, environment down to the individuals. Those concept
discussed will gonna be a big help in our future career especially
when we get to be promoted in a higher position. I could now
understand the different graphs they could be presenting to us
and all. I would suggest that you should lessen using technical
words because sometimes it hindrances some of the students in
understanding the lesson and also I think giving your students
some seatworks or assignments would be a great help since they
are forced to do some self study or it could at least serve as a
substitute in learning incase that you have an urgent matters to
attend. Regarding to what topic I can discussed, it would the
different market structures.
Thank you for telling us inspiring stories and quotations, it
really motivates me to study harder, though sometimes it also
discourages me because whenever I tried comparing myself to
what you have done I am starting to doubt on my capabilities. But
as what you have said in the end it is me who will decide my

future. Believing in yourself is halfway winning the race. May you
inspire more students.