FPT UNIVERSITY- CAMPUS HO CHI MINH

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Group Assignment [ECO111]

Class: MKT1602

TOPIC: Current Microeconimics issues.

Name of group member Student code

1. Nguyễn Thị Hồng Ngọc SS160011

2. Nguyễn Quang Thiện SS160006

3. Nguyễn Đức Phú SS160019

4. Nguyễn Trọng Minh SS160182

5. Phạm Anh Tuấn SS160575

6. Nguyễn Quốc Anh SS160169

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 TABLE OF CONTENTS

I. Monopoly:

A. Research Methods:

- use elasticity to determine Monopolistic Competition

- use the method of analysis and synthesis to speak of monopoly
of the petroleum industry.
- use the analytical method to summarize and propose solutions.

B. Research range

Research topic on the monopoly of petroleum business in Vietnam and the effect this has on
producers and consumers through an increase in the price of the enterprise.

1. Exclusive model

The opposite of a perfectly competitive market is a monopoly market. Market monopolistic

market for a particular good is a market in which there is only a supplier of the goods. This sole
supplier is called monopolist permission. Since he is the only one supplying the goods to the
market, the supply curve of
The monopolist is the industry supply curve and the main market demand curve
is the demand curve for the monopolist's product.

- An industry is considered a monopoly when the following two conditions are met:

- Competitors cannot enter the industry: Due to monopoly. There are absolutely no
competitors, so it is possible to set output or price depending on ideas without worrying
about attracting other businesses to enter the industry because of that.

- It will be difficult for new businesses to enter the industry because of barriers and
production costs.

- There are no similar substitutes. If there is no replacement product

then the monopolist is not concerned about the impact of his price policy on reactions of other
businesses.

2. Trends lead to monopoly

2.1. Production cost

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 Monopolies arise in cases where an industry has economies of scale. For these industries, the
long-run average cost (LAC) declines as output increases. Therefore, large-scale enterprises are
often those that produce lower costs and can eliminate other businesses by reducing the selling
price of their products and still be able to make a profit.

Once a monopoly position is established, it will be difficult for other firms to enter the industry;
because new firms produce at a low level of output, thus incurring high costs. These firms will
be easily removed from the market by the monopolist by reducing the selling price of their
products. The monopoly formed by such competition by cost is called a natural monopoly.

a. Monopoly from legal reasons

Monopoly can be created from legal causes, Law can create a monopoly through the following
two common forms:

- Protection of patents and inventions.

- Protecting industries important to national security, by law and price policy.

b. Monopoly from the merger trend of large companies

In the world today, there is a trend of mergers of large companies. This trend is due to the
following reasons:

- The pressure of finding customers.

- The merger of companies will open Expanding the market for each member company, helping
companies increase their market share and come to dominate the market, in order to take
advantage of economies of scale. Therefore, the merger can create favorable conditions for
enterprises to capture the market and form a monopoly position.

- Reduce production and business costs.

c. Factors determining the type of goods

Elasticity: Quantifies the change in quantity supplied and demanded according to the change of
commodity prices.

Recipe:

Meaning: The percentage change in demand due to 1% change in price.

+ If E(QD,P) < -1, demand is highly elastic, because the percentage change in demand is large
than the percentage change in price.

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+ If E(QD,P)= - 1 is unit elastic demand. Then, the percentage change of
quantity demanded is equal to the rate of change of price.

+ If E(QD,P) > - 1, demand is less elastic. Then, the percentage change of

quantity demanded is less than the percentage change in the price increase.

Figure 1: Point Elasticity

Factors affecting e
- Substitutability of goods and services: monopoly,
- Essential level of goods and services: essential and luxury;
- Target level for goods and services in the total target;
- Point elasticity coefficient,
- Length of time.

d. Monopolist Profit Maximization Principle

The demand curve of a monopoly firm is the market demand curve (because the firm is unique in
the market). Since the market demand curve is a downward sloping curve, marginal revenue will
be less than the price of the good. As noted earlier, marginal revenue is: Positive when demand is
elastic, zero when demand is elastic, and negative when demand is inelastic.

As we know, any firm maximizes profit by producing at the level of output where marginal
revenue equals marginal cost (as long as P > AC). For the monopoly company described in the
red chart above, MR = MC

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at the output level Q0. The price charged by the company is P0 (the price the company can
charge at each tại
level of output with a given demand curve). Since the price P0 exceeds average total cost (AC) at
this level of output, the firm will make a profit. Even so, these monopoly profits are different
from those received by perfectly competitive firms because these monopoly profits will be
maintained in the long run (since barriers to entry are characteristic of a monopoly market)

Figure 2: Monopolist profit maximization principle

Price discrimination for two markets: Firms operating ty

In non-perfectly competitive markets, it is possible to increase profits by discriminating prices
based on the elasticity of demand, a practice in which higher prices are charged to customers
who have higher demand. most inelastic to the product. Necessary conditions for price
discrimination include:
The company cannot be a price maker, the company must be able to classify customers
according to the elasticity of their demand, it must be impossible to resell the product.

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 C. THE STATUS OF THE EXCLUSIVE ISSUES IN THE PETROLEUM BUSINESS IN
VIETNAM

1.1. Current status of petroleum business:

Petroleum is one of the essential fuel sources in human's daily life, it serves for production and
consumption, is an important input factor of production processes. Therefore, the regulation of
trading conditions for this item is a very sensitive issue for each citizen.

In addition to the selling price, there are two other regulatory tools, namely quality and service
regulation, and entry and exit regulation. In terms of quality and service, the most important are
the standards to ensure safety and sell properly to customers. Regarding regulations on entry and
exit from the business sector, the State needs to enhance the competitiveness of the market by
allowing the participation of
many importers, and at the same time it is necessary to reduce the monopoly in petroleum
distribution activities.

It should not be expected that the market mechanism in the condition of monopoly will improve
consumer welfare and improve efficiency for the economy. In other words, as long as there is a
monopoly and lack of competition, the market mechanism will not be able to operate effectively.
At that time, there is a need for fair and effective regulation by the State, which depends on the
ability to separate business goals from socio-political goals and transparency.
to streamline the cost structure of petroleum businesses, especially those with a dominant
position in the market.

1.2. Business valuation issues:

Enterprises will set prices as follows: The base price will be established to form the "retail price
of gasoline". The base price is the sum of the following items: CIF price
(ie the world petrol price as published in Platt’s Singapore is calculated on the average of the
number of days of storage according to regulations along with the costs incurred to bring the
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product to the port) plus import tax, consumption tax special income, foreign exchange rate,
VAT, petrol and oil fees, rate of deduction for price stabilization fund, taxes, other statutory
deductions, business expenses, and profit norm...
Any fluctuations of this price will be considered as a basis for enterprises to increase or decrease
the retail price of petrol and oil in the market. Thus, when the "base price" decreases from over
3% to 12%, the Enterprise must reduce the retail price at a rate not lower than 50% of the base
price.

1.3. Effects of gasoline prices on producers and consumers:

It can be said that the increase in gasoline prices does not bring benefits to the Vietnamese
economy. In theory, a sharp increase in gasoline prices could burden the economy in two
different ways, depending on how dependent a country is on imported petroleum and its
consumption. gasoline incense compared to gross national product.
Firstly, the high and increasing price of gasoline reduces the standard of living of the population
below what could have been achieved due to the increase in total consumption of petroleum
products relative to income (estimated The increase in gasoline prices in Vietnam makes each
individual using a motorbike each month only have to add an average of 30 - 40,000 VND
compared to before; moreover, petroleum products.
relatively inelastic for the price - that is, the price increases but motor vehicle users still have to
use the meter without alternative fuels, so when gasoline prices rise, consumers have fewer
imports than used to target other goods).
"Secondly, this increase affects the economy in ways that are difficult for policymakers to
manage: on the one hand, an increase in gasoline prices puts upward pressure on inflation.
Because petroleum is an input factor for almost all other economic sectors, an increase in input
prices, in the absence of other factors, will lead to output prices. product
The increase in products leads to an increase in the general price index, affecting the purchasing
power of society and causing inflationary pressure. Increasing production costs will affect the
competitiveness of Vietnamese enterprises.
can see the limitations and harms of monopoly abuse on the economy as a whole, which notably
increases the prices of inputs that lead to higher living standards.
lives of affected people. This not only causes damage to customers but also adversely affects the
business environment.

When a monopoly occurs, consumers and producers must accept to pay at a certain price set by
the monopolist because petroleum is an indispensable commodity to serve people's lives and
serve products. business. The cost of production has not been disclosed transparently, the
problem of incorrect gasoline pricing is still a lot of virtual costs that consumers have to bear.

1.4. Solution:
Limiting monopolies are necessary because monopolies cause damage to the economy.
Monopolistic restraint is an important issue in applied economics. Some important industries
such as the petroleum industry are often restricted by law, in order to force this industry to
operate in the most beneficial way for society to limit the damage caused by monopoly. Some
proposed solutions to reduce the damage
loss to the economy.

- The State needs to clearly define and separate between two tasks of different nature: Petroleum
trading as the self-purpose of petrol trading enterprises. oil, with petroleum reserves ensuring
energy security as a national political goal.

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- The State needs to determine the floor and ceiling prices based on properly grouping the roles
of each factor constituting the retail price of gasoline.

- The State needs to allow automatic adjustment of retail gasoline prices according to market
trends and competition while strengthening State sanctions and social supervision.

 - Promote the process of liberalization of the petroleum business, creating adequate fair
competition in the wholesale and retail market of petroleum in Vietnam. At that time, the State
still collects taxes, businesses have more incentives and opportunities to invest in development,
and consumers benefit both in terms of service quality and prices provided by "gas stations".

- The Government directs functional agencies to conduct a comprehensive and objective audit of
current and standard business expenses of petroleum business activities, to establish and
publicize relevant databases. (purchase price, only transportation fee, maintenance of gasoline
storage and distribution system, rated profit and financial obligations of petroleum business...), to
authorities and consumers.
using a transparent scientific basis for calculating and checking "standard prices" in the domestic
petroleum trading market.

- Authorities should regularly inspect and check the observance of legal policies in petroleum
production and business activities of enterprises to ensure fairness for businesses and consumers.
use.

- Legalize regulations and requirements for state management related to quality, pricing, and
management of gasoline prices, ensuring free competition and transparency on prices, as well as
creating stable bases. Determining and facilitating the formation and forecasting of petroleum
prices closely follows market movements and minimizes "questions", guesses and false rumors
in this market.

II- Common Resources:

1. Example:

A classic common resource, which is fishing. Suppose that fish cost you $1 per pound, and the
marginal cost of running a vessel is about $200 per day.
Now suppose that the catch is given by this simple table here. 

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Depends on the number of vessels. A number of vessels that go out fishing, tell you how
much fish is caught completely. And, when there's one vessel out, the total catch is 400. When
there are two vessels out fishing, the total catch is 800. When there three vessels out fishing, the
total catch is 1,200. And so forth and so forth. So, when you have seven boats fishing the total
catch for all the boats together is 2,100. And the question is, let's say there are seven boats out
fishing, and you own the eighth boat. You don't own any of the other seven, you only own the
eighth boat. You can sell the fish you catch, at $1 per pound. And it costs you only $200 to go
off fishing. The question is, should you go out fishing with that eighth boat? If you own the
eighth boat, and there are seven other boat fishing already, and you don't own any of them,
should you go out fishing that day?
You will make $250 in revenue if you actually go out fishing.

The total cash would be 2,000. You divided by the eighth boat, then each boat get 250 tons of
fish. They sell it at $1 each. So each boat makes $250. So you make $250 if you go out fishing. It
only costs you $200 to go out. So clearly, if you own the eighth boat, and you don't own the
other seven, you should make that rational choice, to maximize your own individual interest, and
go out fish, and you make $50. Now, how will you answer this question, if you own the eight

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boats. If you had a company that owned eight boats, and these are the only eight boats, how
many boats would you send out?
- How many boats would you send out to fish every day if you owned the eight boats, all
the boats, the eight of them?
That's a whole different story. In order to do that, you have to calculate the cost and benefits of
all of them together. And you see that this table is showing exactly that. When you have one
vessel out, you make a revenue of $400. When you have two vessels, you make 800, and so
forth, and so forth. So every time you add one more vessel when you have one, two, three, four,
you make $400 extra. Now, when you add the fifth vessel, you only add $300 extra. When you
add the sixth vessel, you only add $200 extra. And when you add the seventh vessel you actually
don't add anything.
And actually, you can look at the profits actually to know what you're going to do. If you own all
the boats, you're going to send boats that maximize your profits. And that is, when either you can
take either five or six. Definitely, no more than six, because if you send seven boats out, your
profits go down to 700.
And if you send eight vessels out, your profits go down to 400. So if you own all the companies,
and all the boats, you would only send six boats out. Beyond that point, the additional revenue
that you get for each boat is less than the cost of 200. So here's a paradox right? because if one
company owns this, the best for the whole company would be to only send six boats. But if each
boat is owned by individual fishermen, they will go out, eight boats will go out fishing.
Now the problem, here as you can see, has to do with the catch, right? The catch, up to when you
have six boats, the catch is kind of growing, right? But beyond six boats, the cash counted per
boat starts to go down. And if you think about what's happening in the water, is that basically
when you have eight boats in the water, people are catching too much fish already. And they're
kind of driven that fish stock to extinction.
So here this is the classic paradox called, the Tragedy of the Commons. If this was owned by one
company, the better for the commons will be for only six boats to go out. Because if six boats go
out, the fish has enough time to replenish. And technically, every year, you could go out and
catch whatever extra fish you have every year, and you'll be okay, right? And if one company
owns this resource, they will operate in that way, because they will operate based on profits, and
revenue, and cost. But the problem is that there's difficult for only one company to do this,
because access to the water is public, right? It's really hard to prevent people from going out
fishing. And the problem is that each individual fisherman does behave selfishly, right? As we
predict they will behave in a market condition. And they all need to consider their own costs and
their own benefits, not the costs and benefits of all the other fishermen. And every time they go
in together to the commons, they making all of them worse off.
So this is the classic problem. If we let this open to all fishermen to go, their resources will be
driven to extinction. And we see that in all the cases that we have had this. These are examples
of some famous fisheries that actually crashed. The Peruvian Anchovy Catch. You see, it started
at the beginning a lot of people started to go out. Stopped continued to eat and eventually at
some point they were catching too many fish. They weren't letting fish reproduce, and from that
point on, the fishery crashes pretty quickly. There's many, many examples of that happening.
When the resource is left to open access, the behaviors of each individual person is to drive the
resource to extinction. Even though, if they all behave as a community, if they all behave in
commons as one company, they will actually not do it because they will protect their resources in
the best possible way for all of them together. There are examples of this, and the fisher is a
classic example, but there's examples of this all around. Think about clean air, clean water,
traffic congestions in the highways. We opened the week in the library, where we have a lot of
noise. And it's a common resource, but the more people use it, the worse it make it to everyone
else. If you ever live with someone, you have a classic example of a common resource, which is
the apartment. And the more that you people use it, the dirtier their apartment will be. In order
for the apartment to stay clean, when you live with people, you have to come up with some kind
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of way of managing the resource between all the people that live there. So there's different ways
of trying to deal with the issue of common resource. The classic ways in which people have tried
to solve the issue of the Tragedy of the Commons of the paradox, that forces people to drive
common resource to extinction.

2. The solution:

- Think about the issue when, the problem  when we were talking about the fishery. If you
can get the rights to the one person for controlling the resources, and that person will
actually probably use it efficiently like when we talk about the example of one person
owning the A boats. So therefore to solve the problem of the commons, It's going to
require some measure of giving property rights or transferring the property rights in
some way and controlling the access to it. So there are different ways that
our governments have tried to do this. A common one for a resource like, fish is quotas.
So you have a particular, the rights to a fishing community, and they can establish quotas
that would allow the fishery to be used in a sustainable way or an efficient way.
- Now that's really hard to do because, the waters are open access so you, it's, It's kind of
difficult to control access to different parts of, of the oceans. But that's one way of, of
doing it, if you give the, the rights to the community. Then the community as a whole,
will be able to perhaps, try to use their resources more effectively. 
- In the U.S, for, things like, species accessation, and so forth, we, and hunting, we have
hunting licenses that we give or fishing licenses. And that is one way that the, the
government tries to control the resource or take, take ownership of the resource and use it
in a way that is more sustainable that is more efficient instead of just giving people free
access to it. For things like, slike sort of highway congestion. Which is another common
resource when you have a lot of people using the highway. And then everyone ends up
spending more time in the traffic and so forth, everyone's putting more cost into it. One
thing that the governments have done is to put tolls. There's a particular amount of money
you must pay to drive on a particular road. Now a lot of roads, it's difficult to do and
politically it's a very tricky thing to put more tolls because consumers should always
demand you know, tolls to be roads to be free since they are paying taxes on it. But on
the other hand, a lot of economists will say, well, you know, but the, the result of
everyone, however, having free access to the roads is that it will be in a traffic jam. So in
the, in the high populated cities in the US like Houston and you know, the corridor
between Houston and Austin and San Antonio and Austin in Texas and also in places like
Chicago where they have a lot of traffic congestion. Government have suggested or have
play around with the idea of, what I call, congestion pricing. Which is a road in which a
toll, the access to the road is controlled by a toll. And the toll price changes according to
how much traffic the road has. And some of the experience at that, you know, the places
that have actually done this, and probably the main one we have in Texas. But it is a
really difficult thing to sell, for government officials, that people have to pay higher price
for roads.

THE END

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[Name group. Class.GA] 1