1
I
INTRODUCTION
MICROSIM, a computerized microeconomic simulation, is a new and unique experiential approach to teaching many of the important microeconomic principles. The simulation was designed to be a supplement to a conventional microeconomics text and, therefore, does not comprehensively cover all of the topics in microeconomics. Rather, MICROSIM was primarily designed to focus on the theory of the firm and topics such as: demand theory, production theory, cost theory, and the four markets structures— competition, monopolistic competition, oligopoly, and monopoly.
In the simulation, you will be assigned the responsibility of managing a hypothetical firm in different market structures. This teaching approach will supplement the traditional educational process for you in three ways. First, you will be able to test and apply your newly acquired economic theories and concepts by making typical firm operating decisions and observing the effects on your firm’s performance.
Second, you can actually “experience” many of the key theoretical microeconomic phenomena, such as: how a market adjusts to an equilibrium price, and how different market structures influence firm operating behavior and resource efficiency. Third, you will have a valuable focal point or frame of reference for discussion (both inside and outside of the classroom) to clarify the microeconomic theories.
The purpose of this chapter is to introduce you to the simulation and the four market structures. The chapter proceeds by first presenting some general background information on: (1) the simulation process, (2) the requisite skills and objectives of the simulation and
(3) the decision variables of the firm Secondly, the different market structures and how MICROSIM attempts to duplicate these market structures are presented. Finally, a brief description is given of the firm's initial or starting financial position and the computer reports that are provided to you by the simulation program.
This chapter only acquaints you with some of the fundamental information provided by the simulation. A more detailed presentation of both the firm’s decisions and the computer reports is provided in Chapters 2 and 3.

2 Student Manual for MICROSIM
The appendix to this chapter contains a description of how to enter your decisions into the computer This section was placed in an appendix because some instructors may require you to read some (or all) of the remaining chapters before entering your first set of decisions into the computer. If this is the case, you may postpone reading the appendix. If this is not the case, it is important that you read the appendix. Your instructor will inform you when the first set of decisions are due.
MICROSIM— AN OVERVIEW
The instructor or administrator, before beginning the simulation, will divide the class up into teams or “firms.” You will be assigned a firm number, and it will be your responsibility to manage this hypothetical firm. The firm produces and markets a hypothetical product— phonograph records. Operating under an assigned market structure (i.e., competition, monopoly, oligopoly, or monopolistic competition) you will compete against other firms and will be evaluated on the basis of your cumulative profits.
As a manager, you will be required to make up to eight decisions per period, with each period representing three months or a fiscal quarter. The decisions you will make are concerned primarily with the two key microeconomic questions: (1) How much to produce and (2) What price to charge?
After the decisions are made, they are read into the computer and the MICROSIM program simulates the market. Computer printouts are returned to each firm reporting the effectiveness of their decisions. These printouts, which contain accounting, economic and production statements will be distributed to you for review and to serve as a basis for future decisions.
You should note that the simulation is not interactive; that is, you enter your decisions into the computer but do not receive immediate feedback on the results. A DATA ENTRY program is provided as part of the MICROSIM software package; it prompts (asks) you for your decisions and then enters those decisions into a central data file. This requires only about two minutes of your time on the terminal or CRT. However, you will not receive the results of your decisions until the instructor or administrator of the simulation executes the MICROSIM program, has the results printed, and distributes the reports.
REQUISITE SKILLS
You need no prior training or knowledge of accounting, business, or computer science. All business and accounting terms are defined or explained in this manual. Though the simulation uses the computer as a vehicle, you need no knowledge of programming or previous acquaintance with computers. The appendix to this chapter explains in a “step by step” fashion how the decisions are entered into the computer by the use of keypunched cards computer terminals, or cathode ray tubes (CRTs).
OBJECTIVES OF MICROSIM
The primary objectives of MICROSIM are threefold: (1) to reinforce and augment the principles discussed in the economics text, (2) to illustrate the relevance and application of

An Introduction to the Simulation and the Four Market Structures 3 the economic theories in decision-making, and (3) to increase interest in and appreciation for microeconomics.
Experience has shown that beginning students of economics are somewhat overwhelmed for the first few periods of participation in MICROSIM This is to be expected, for it takes time to become familiar with the decisions and the process. After this initial break-in period, however, the simulation is a highly effective tool to clarify and illustrate many of the important economic issues, such as:
• how price and output decisions change under different market conditions.
• how the market gravitates toward an equilibrium price and production level.
• how price and income elasticities can be measured and used to estimate demand and revenues.
• how variations in labor and capital affect the level of production.
• how the costs of production change with the level of output.
• how marginal analysis can be applied to decision-making.
In addition to the major concepts listed above, the simulation can be used to illustrate topics such as: excise taxes and their impact on price and output under different market structures; increasing, constant and decreasing cost industries; the impact of changing demand on price and output decisions under different market structures; nonprice competition in imperfect markets; price regulations and pollution control regulations on market equilibrium; inflation, recession, and many others. The relationship between accounting and economic terms is also clarified by the use of income statements and balance sheets.
THE DECISION VARIABLES
The 8 decision variables in MICROSIM concerning the operation of the firm are described briefly below. The purpose in this chapter is only to acquaint you with the general nature of the decisions. A more detailed discussion of the decision variables is provided in the next chapter.
Price
You are required to set the price of the “records” the firm is selling. At the beginning of the simulation, records are selling for about $9.25 each in the marketplace. If you raise price without changing any other factors, you should expect to lose some customers. Conversely, a lower price should attract some customers. The responsiveness or sensitivity of the quantity demanded to percent changes in the firm’s price (called “price elasticity”) depends in part, on the degree of competition in the market. In a highly competitive market, composed of a large number of firms selling similar products, a firm’s price elasticity of demand tends to be relatively high as compared to a monopoly market, where there is only one firm selling a unique product with no close substitutes.

4 Student Manual for MICROSIM Labor
You must decide the quantity of direct labor to employ (hours of labor per period) in order to meet the desired level of production, that is, the quantity of records to be produced per period. At the start of the simulation, each firm is manufacturing 500,000 records by employing 50,000 hours of labor, which is an average production rate of 10 records per labor hour. The level of production increases as more laborers are employed. However diminishing returns to labor occur as the plant becomes increasingly overmanned given its size, owing to problems of overcrowding, machine breakdown, and loss of management control. The wage rate is initially set at $20.00 per hour of direct hour.
Capital Investment
Each firm in the market initially operates with a plant of size 5, which is designed to produce between 500,000 and 700,000 records per period. You may construct a larger plant, if desired, by spending money on capital investment. Alternatively, you may sell part of the plant, reducing its size and productive capacity. There are ten discrete plant sizes that are technologically feasible, ranging from 1 to 10.
Capital Schedule
You have the option of choosing the number of periods required to increase plant size (i.e. construction time). By planning and permitting more than one period for construction time, you may reduce the price of construction. The minimum construction time, however, is one period. It takes at least that long to complete any plant expansion, no matter how small. If you attempt to significantly increase the size of the plant in too short a period of time, the price of construction will rapidly rise. The precise relationship between the price of construction and the time permitted for completion is given in the next chapter.
Advertising
Expenditures on advertising will influence a firm’s demand, as consumers become aware of the product and its distinguishing features. The more you spend on advertising, other factors remaining constant, the greater will be the demand for your firm’s product. However, advertising expenditures are subject to diminishing returns. After a point, consumers will no longer be attracted to the market or the firm’s product and may even become turned off to it.
Product Development
Expenditures on product development will improve the quality of the product and, consequently, differentiate the firm’s product from its competitors.
Product development expenditures enhance the design of the product, adding new and special features and making it more attractive to consumers. If you spend relatively more money on product develop-

An Introduction to the Simulation and the Four Market Structures 5 ment, you will acquire a competitive edge in the market. However, there are diminishing returns to expenditures on product quality. After a point, additional spending on product development will have little impact on product quality.
Economic Information
You may obtain information, at a cost, pertaining to the economy. The types of available information include: Current Economic Events relevant to the industry, the Leading Economic Index, and the Consumer Price Index. Current Economic Events will provide the firm with information that may impact the demand for its product or the costs of production. For example, it may be reported that: “the price of a good that can serve as a substitute for the firm’s product will significantly decrease next period.” This information may be useful in planning production requirements or setting price. The
Leading Economic Index tells you the future direction of the general economy, that is, whether the economy will be improving (growing) or heading into a recession. The Consumer Price Index will provide you with information about the inflation rate and purchasing power of the dollar.
Market Information
It is possible for you to monitor the activities of your competitors (the other firms in the market) by purchasing market information. The following information is available as either an average value for all firms in the industry or as specific values for one or more of the top nine firms in the industry: price, advertising, product development, plant size, sales, production, and net income after taxes.
THE FOUR MARKET STRUCTURES
An effectively managed firm will carefully consider the type of market structure in which it is operating before making decisions. Economic theory indicates that an optimal (successful) strategy under one market structure may not be an optimal strategy under a different market structure.
Consequently, it is important for you to understand the differences between the market structures portrayed in economic theory: competition, monopolistic competition, oligopoly, and monopoly. The distinguishing characteristics of these markets are briefly described and followed by a discussion of how MICROSIM duplicates (simulates) the market structures
1
. Table 1— 1 summarizes the characteristics of the conventional Market
Structures.
The first characteristic distinguishing the market structures is the number of sellers, which varies from a very large number in perfect competition to only one in monopoly. Under perfect competition and monopolistic competition, the number of firms is large enough so that each firm’s production and sales are a relatively small fraction or share of the total market In contrast, under oligopoly each firm comprises a significant share of the market. As a result, the success of a firm in oligopoly depends, to a great extent, on the actions of other firms.
1
For a more detailed discussion of the market structures, students should refer to their economics text.

6 Student Manual for MICROSIM
Characteristics
Number of Sellers
Market Product
Non-price
Competition
Entry into Market
Market Information
TABLE 1-1. Characteristics of the Conventional Market Structures
Perfect
Competition very large standardized no easy full knowledge
Market Structures
Monopolistic
Competition large differentiated yes
Oligopoly few
Monopoly one differentiated unique yes some relatively easy formidable available available completely blocked available
The second characteristic, market product, deals with variations in product quality across firms in a given market. In perfect competition it is assumed that all firms are producing and selling homogeneous or identical products. In the monopoly market there is only one firm selling a unique product with no close substitutes. Under the remaining market structures, monopolistic competition and oligopoly, products may vary in design, quality and service.
The third characteristic, non-price competition, refers to the use of advertising and product development. Under perfect competition all products are assumed to be homogeneous; consequently, non-price competition is not permitted. The other market structures, however, do use these types of competitive “weapons.” A monopoly firm, however, is generally argued to have less of an incentive to use nonprice competition than one in monopolistic competition or oligopoly since it is the only firm in the market.
The fourth characteristic, market entry, refers to the ease in which firms can enter a relatively profitable market and compete. In perfect competition it is assumed barriers to entry do not exist. There are no laws or regulations that inhibit entry into the market. Furthermore, acquiring financial capital is assumed not to be a problem as each firm is relatively small in size. Market entry is also relatively easy in monopolistic competition, but not as easy as under perfect competition. Since advertising and product differentiation occur in monopolistic competition, it is somewhat more difficult and costly to enter and succeed in this market structure. In contrast, market entry into oligopoly is relatively difficult. Each firm in oligopoly is a relatively large component of the market and capital investment expenditures to construct a plant and advertising expenditures to compete are generally high. Furthermore, it is more likely that firms may control the resources required to produce the commodity. Under monopoly, market entry is not feasible by assumption. In the real world monopolies may exist for political, economic, institutional or technological reasons. Nevertheless, barriers to entry must be complete and insurmountable in the “pure” monopoly market.
The fifth and final characteristic is the degree of information available to firms and consumers. In perfect competition it is assumed that all individuals and firms possess full and complete knowledge concerning price, production, and profitability. This assumption, however, is not associated with the other market environments. The information is available but must be actively sought.

An Introduction to the Simulation and the Four Market Structures 7
THE MARKET STRUCTURES IN MICROSIM
The instructor or game administrator specifies the number of firms per market (industry) in MICROSIM. In the competitive market, a relatively large number of firms per industry are required. Twenty-five or more is recommended. In the monopoly market each firm is assigned to a separate industry. The oligopoly market consists of approximately 2 to 10 firms. More than 10 firms in an industry approaches monopolistic competition; however, approximately 15 to 24 are recommended.
The decision variables under your control as a manager under the different market structures are identified in Table 1— 2.
TABLE 1-2. Decision Variables by Market Structure in MICROSIM
Eight Decision Variables
Price
Labor
Capital Investment
Capital Schedule
Advertising
Product Development
Economic Information
Market Information
Competition
0
N
N
A
A
D
D
0
Market Structure
Monopolistic
Competition
0
D
D
D
D
D
D
0
Oligopoly Monopoly
0
D
D
D
D
D
D
0
D
D
0
0
D
N
D
D
Key: D = Decision variable controlled by firm manager
0 = Optional Decision— determined by instructor
N = Decision eliminated, not controlled by the firm
A = Automatically supplied
In competition you are permitted to make price and labor decisions. Advertising and product development are not allowed, since products are assumed to be homogeneous. Capital investment and schedule decisions give the firm the ability to increase or decrease plant size, which requires you to develop a long-run as well as a short-run strategy. It is up to the discretion of the instructor to include these decisions or eliminate them from the control of the firm
Economic and market information is automatically provided to the firm since pure competition assumes full knowledge.
In the monopoly market, advertising is added as a decision variable of the firm. Product development is still not permitted as a decision variable in monopoly. This is a simplifying assumption of MICROSIM so that you may concentrate on just two demand side variables, price and advertising. Economic and market information is also added as decision variables. In the two intermediate markets, oligopoly and monopolistic competition, all decision variables are permitted.

8 Student Manual for MICROSIM
THE DIFFERENCE BETWEEN THE THEORETICAL AND MICROSIM MARKET STRUCTURES
The primary difference between the theoretical characteristics of the market structures noted earlier, and the MICROSIM model pertains to market entry. The number of firms in each market, once specified by the instructor, is fixed. There is no market entry or exit of new firms in the MICROSIM simulation.
The effect of the restriction is to limit the competitive and monopolistically competitive market simulations to a short-run industry adjustment process. Long-run firm adjustment is still permitted since firms have the flexibility to change plant size, but long-run industry adjustment, which requires firm entry and exit, is not simulated. For these reasons the competitive market in MICROSIM is referred to as
“competition” NOT “perfect competition.”
THE SIMULATION PROCEDURE
The six steps in the following box summarize the simulation process of making decisions through receipt and analysis of accounting and economic statements.
ADMINISTRATIVE INPUTS
1. One of four market structures is selected by the instructor or game administrator.
2. Each student or group of students is assigned a firm number (1 to 99) and an industry number (1 to 99). Each industry is a separate and independent market.
FIRM INPUTS
3. The student managers make decisions concerning the operation of the firm.
4. The decisions are recorded by the students and entered into the computer via computer cards, terminal, or CRT.
MICROSIM COMPUTER PROGRAM
5. The computer software program is executed and the effectiveness of the decisions is reported by a set of accounting and economic statements, which are distributed, to the respective firms. The performance of the firms are measured and ranked by profits. Firms should study the computer reports prior to making their next decisions.
6. Steps 3 to 5 are repeated for each period of play under a given market structure. (A maximum of 20 periods may be played under a given market structure.)
While the simulation procedure is repetitive in nature, the instructor or game administrator can impose shocks to the system, upsetting the market equilibrium. Wage rates or the price of materials may suddenly rise or fall. Consumer tastes, income, or the price of related goods may change. Corporate taxes, excise taxes, property taxes, or investment tax

An Introduction to the Simulation and the Four Market Structures 9 credits may increase or decrease. Recession and/or inflation may occur. As in the “real world,” any number of economic factors may change, affecting the success and behavior of the firms and market. To learn of these events in advance, you may purchase economic information. This information forecasts or predicts movements in the economic system and relevant current events. Advance knowledge of changing economic circumstances should prove to be valuable in planning and operating your firm.
COMPUTER REPORTS AND STARTING VALUES
All firms, independent of the market structure being simulated, start in the same financial position with identical plants, profits, and assets. This initial starting position is referred to as Period 0. The following six reports describe the financial position of your firm in
Period 0.
1. The Income Statement
The INCOME STATEMENT reports the TOTAL SALES REVENUES, costs (COST OF
GOODS SOLD and OPERATING EXPENSES), and profits (NET INCOME) for the period.
As noted in Table 1— 3 at the start of the simulation, the firm had $4,624,991 in TOTAL
SALES REVENUES, $4,025,022 for COSTS OF GOODS SOLD, $108,000 in OPERATING
EXPENSES and a NET INCOME AFTER TAXES of $236,625.
TABLE 1-3. Income Statement for Period 0
TOTAL SALES REVENUE
(499999. UNITS AT $ 9.25 PER UNIT)
COST OP GOODS SOLD:
BEGINNING FINISHED GOODS INVENTORY
RAW MATERIALS USED ($ 6.00 PER POUND)
DIRECT LABOR ($ 20.00 PER HOUR)
SUPERVISION AND STAFF
REPAIRS AND MAINTENANCE
POWER
DEPRECIATION
PROPERTY TAX
EXCISE TAX
POLLUTION CONTROL
MISCELLANEOUS EXPENSE
TOTAL
LESS: ENDING FINISHED GOODS INVENTORY
COST OF GOODS SOLD
GROSS PROFIT
$ 4.624.991.
0.
629856.
1000000.
293141.
787782.
571696.
375000.
175000.
100000.
26000.
66547.
0.
4025022.
599969.
OPERATING EXPENSES:
ADVERTISING
PRODUCT DEVELOPMENT
INVENTORY CARRYING COST
ECONOMIC INFORMATION
MARKET INFORMATION
PENALTY COST
TOTAL OPERATING EXPENSE
INTEREST ON LOANS
INTEREST INCOME
NET INCOME
LESS: CORPORATE INCOME TAX
(NET INVESTMENT TAX CREDIT OF
NET INCOME AFTER TAXES
0.)
$
0.
0.
0.
20000.
88000.
0.
108000.
0.
1000.
492969.
256344.
236625.

10 Student Manual for MICROSIM
2.
The Balance Sheet
The BALANCE SHEET records the ASSETS (cash, inventory, and book value of the plant), LIABILITIES (outstanding loans), and
OWNER’S EQUITY (assets minus liabilities) of the firm. Period 0 CASH holdings were $50,000; there were no FINISHED GOODS left in inventory; and the firm held no LOANS.
ASSETS:
CASH $ 50000.
FINISHED GOODS INVENTORY 0.
PLANT BOOK VALUE 15000000.
LESS: DEPRECIATION
NET PLANT
375000.
14625000.
TOTAL ASSETS $ 14675000.
TABLE 1-4. Balance Sheet for Period 0
LIABILITIES:
LOANS $
TOTAL LIABILITY
OWNER’S EQUITY
TOTAL LIABILITY AND EQUITY
$ 0
$ 0
14675000.
14675000.
3. The Production and Sales Report
The PRODUCTION and SALES REPORTS summarize relevant information pertaining to the production process and sales performance. On the production side in Period 0, fifty thousand hours of DIRECT LABOR were scheduled and 499,999 units of product were manufactured. The PLANT SIZE is 5 and CAPITAL INVESTMENT is 0. NEW CONS— STRUCTION READY is based on the
CAPITAL SCHEDULE DECISION. Since no capital is scheduled for construction, NEW CONSTRUCTION READY is not applicable and the computer prints a zero. The SALES REPORT indicates a QUANTITY DEMANDED of 549,425 units at a PRICE of $9.25.
Since the firm manufactured only 499,999 units, an EXCESS DEMAND of 49,426 units occurred. MARKET SHARE as a percent of total market demand was 11.11%.
Production Report Period 0 For all Firms
PRODUCTION (UNITS)
DIRECT LABOR (HOURS)
MATERIALS USED (POUNDS)
PLANT SIZE (UNITS)
CAPITAL INVESTMENT (UNITS)
NEW CONSTRUCTION READY (BASED ON
CAPITAL SCHEDULE DECISION)
499999.
50000.
104976.
5.
0.
0.
TABLE 1-5.
Sales Report Period 0 For All Firms
PRICE OF PRODUCT ($ PER UNIT)
QUANTITY DEMANDED (UNITS)
QUANTITY SOLD (UNITS)
EXCESS DEMAND (UNITS)
MARKET SHARE (PERCENT)
FINISHED GOODS INVENTORY (UNITS)
9.25
549425.00
499999.00
49426.00
11.111
0.00
4. Firm Rank
The firms are ranked on the basis of their income after taxes. At the outset all firms are equal in rank and have accumulated $236,625 profit (or net income after taxes).
PERIOD INCOME
CUMULATIVE INCOME
$ 236625
$ 236625
TABLE 1-6. Status Report
PERIOD RANK 1
CUMULATIVE RANK 1

An Introduction to the Simulation and the Four Market Structures 11
5.Economic Information
ECONOMIC INFORMATION reports (1) CURRENT ECONOMIC EVENTS relevant to the firm, (2) the PRICE OF
SUBSTITUTE and COMPLEMENT GOOD , (3) AVERAGE CONSUMER INCOME, (4) the COINCIDENT (current) and
LEADING ECONOMIC Indicator, and (5) the current CONSUMER PRICE INDEX and the forecasted CONSUMER PRICE INDEX for the next period.
TABLE 1-7. Economic Information for Period 0
CURRENT ECONOMIC EVENT:
NO RELEVANT ECONOMIC EVENTS ARE EXPECTED TO OCCUR NEXT PERIOD.
PRICE OF SUBSTITUTE GOOD IS $ 12
PRICE OF COMPLEMENT GOOD IS
AVERAGE CONSUMER INCOME IN MARKET IS $
$ 500
20000
COINCIDENT ECONOMIC INDICATOR
LEADING ECONOMIC INDICATOR
CONSUMER PRICE INDEX
CONSUMER PRICE INDEX (FORECAST)
100.
100.
100.
100.
6.
Market Information
Market Information reports the activities of other firms in the market. Information on competitor PRICE, ADVERTISING,
PRODUCT DEVELOPMENT, PLANT SIZE, SALES and NET INCOME is provided. As indicated in Table 1-8 under the TOP
FIRMS OPTION, all firms in Period 0 have made the same decisions.
PRICE
ADVERTISING
PRODUCT DEVELOPMENT
PLANT SIZE
SALES
NET INCOME AFTER TAXES
CUMULATIVE INCOME
TABLE 1-8. Market Information for Period 0
RANGE
AVERAGE LOW
499999.
236625.
236625.
9.25
0.
0.
5.
499999.
236625.
236625.
9.25
0.
0.
5.
HIGH
9.25
0.
0.
5.
499999.
236625.
236625.
TOP FIRMS OPTION
PRODUCT PLANT
RANK FIRM PRICE ADVERTISING DEVELOPMENT SIZE
1
2
1
2
9.25
9.25
0.
0.
0.
0.
5.
5.
5
6
3
4
7
8
9
3
4
5
6
7
8
9
9.25
9.25
9.25
9.25
9.25
9.25
9.25
0.
0.
0.
0.
0.
0.
0.
0.
0.
0.
0.
0.
0.
0.
5.
5.
5.
5.
5.
5.
5.
DEMAND
549425.
549425.
549425.
549425.
549425.
549425.
549425.
549425.
549425.
NET INCOME CUMULATIVE
AFTER TAXES INCOME
236625.
236625.
236625.
236625.
236625.
236625.
236625.
236625.
236625.
236625.
236625.
236625.
236625.
236625.
236625.
236625.
236625.
236625.

12 Student Manual for MICROSIM
All Period 0 computer reports, along with the decisions that were made, are provided to gether at the end of this chapter for ease of reference. The firm decisions are highlighted in “bold” letters on these reports. The Period 0 reports should aid you in making your first period decisions.
SUMMARY
MICROSIM is a computerized simulation designed to be used as a pedagogical tool in microeconomics. This experiential approach is intended to supplement and reinforce your learning and to increase interest in the subject material. By having you manage firms under different market structures, many of the important microeconomic concepts can be applied as well as experienced.
You will be required to make up to 8 operating decisions during each period of play. Your overall objective is to maximize profits.
Your firm will compete in one or all of the market structures, depending on the objectives of the course. An effectively managed firm will carefully consider the type of market structure before developing strategies and policies. Under the competitive market many firms are competing against one another and selling identical products. In contrast, the monopoly market consists of only one firm with no direct competitors.
Period 0 computer reports provided here (pp. 12— 13) serve as a basis for decision-making in period 1, the first period of student participation. In Chapters 2 and 3 the decisions and computer outputs will be discussed in more detail.
The Appendix to this chapter contains a description of how to enter your decisions into the computer.
INCOME STATEMENT FOR PERIOD 0
$ 4624991.
TOTAL SALES REVENUE
( 499999 . UNITS AT
$
9.25 PER UNIT)
COST OF GOODS SOLO:
BEGINNING FINISHED GOODS INVENTORY
RAW MATERIALS USED
DIRECT LABOR
($
6.00 PER POUND)
($
20.00 PER HOUR)
SUPERVISION AND STAFF
REPAIRS AND MAINTENANCE
POWER
DEPRECIATION
PROPERTY TAX
EXCISE TAX
POLLUTION CONTROL
MISCELLANEOUS EXPENSE
TOTAL
LESS: ENDING FINISHED GOODS INVENTORY
COST OF GOODS SOLD
GROSS PROFIT
OPERATING EXPENSES:
ADVERTISING
PRODUCT DEVELOPMENT
INVENTORY CARRYING COST
ECONOMIC INFORMATION
MARKET INFORMATION
PENALTY COST
TOTAL OPERATING EXPENSE
INTEREST ON LOANS
INTEREST INCOME
NET INCOME
LESS: CORPORATE INCOME TAX
(NET INVESTMENT TAX CREDIT OF
NET INCOME AFTER TAXES
0.)
$ 0.
629856.
1000000.
293141.
787782.
571696.
375000.
175000.
100000.
26000.
66547.
0.
0.
0.
20000.
88000.
0.
$
4025022.
0.
4025022.
108000.
0.
1000.
599969.
492969.
256344.
236625.

An Introduction to the Simulation and the Four Market Structures 13
ASSETS:
CASH
FINISHED GOODS INVENTORY
PLANT BOOK VALUE
LESS: DEPRECIATION
NET PLANT
TOTAL ASSETS
BALA N C E
$ 50000.
0.
15000000.
375000.
14625000.
SHEET FOR PERIOD 0
LIABILITIES
LOANS
TOTAL LIABILITY
$
OWNER’S EQUITY
TOTAL LIABILITY AND EQUITY
INDUSTRY NO. 1 FIRM NO. 1 PERIOD 0
PRODUCTION REPORT
PRODUCTION (UNITS)
DIRECT LABOR (HOURS)
MATERIALS USED (POUNDS)
PLANT SIZE (UNITS)
CAPITAL INVESTMENT (UNITS)
499999.
50000.
104976.
5.
NEW CONSTRUCTION READY IN PERIOD
(BASED ON CAPITAL SCHEDULE DECISION)
0.
0.
SALES REPORT
PRICE OF PRODUCT ($ PER UNIT)
QUANT1TY DEMANDED (UNITS)
QUANTITY SOLD (UNITS)
EXCESS DEMAND (UNITS)
9.25
549425.00
499999.00
49425.00
MARKET SHARE (PERCENT) 11.11
FINISHED GOODS INVENTORY (UNITS) 0.00
0.
$ 0.
14675000.
14675000.
PERIOD INCOME
CUMULATIVE INCOME
STATUS REPORT
$ 236623
$ 236625
PERIOD RANK 1
CUMULATIVE RANK 1
ECONOMIC INFORMATION FOR PERIOD 0
CURRENT ECONOMIC EVENTS:
NO RELEVANT ECONOMIC EVENTS ARE EXPECTED TO OCCUR NEXT PERIOD.
PRICE OF SUBSTITUTE GOOD IS
PRICE OF COMPLEMENT GOOD IS
AVERAGE CONSUMER INCOME IN MARKET IS
$ 12.00
$ 500.00
$ 20000.00
COINCIDENT ECONOMIC INDICATOR 100.
LEADING ECONOMIC INDICATOR 100.
CONSUMER PRICE INDEX 100.
CONSUMER PRICE INDEX (FORECAST) 100.
RANGE
MARKET IN FORMATION FOR PERIOD 0
4
5
6
1
2
3
7
8
9
PRICE
ADVERTISING
PRODUCT DEVELOPMENT
PLANT SIZE
SALES
NET INCOME AFTER TAXES
CUMULATIVE INCOME
RANK FIRM PRICE
AVERAGE
9.25
0.
0.
5.
499999.
236625.
236625.
LOW
9.25
0.
0.
5.
499999.
236625.
236625.
HIGH
9.25
0.
0.
5.
499999.
236625.
236625.
PRODUCT
ADVERTISING DEVELOPMENT
TOP FIRMS OPTION
PLANT
SIZE
NET INCOME
DEMAND AFTER TAXES
4
5
6
1
2
3
7
8
9
9.25
9.25
9.25
9.25
9.25
9.25
9.25
9.25
9.25
0.
0.
0.
0.
0.
0.
0.
0.
0.
0.
0.
0.
0.
0.
0.
0.
0.
0.
5.
5.
5.
5.
5.
5.
5.
5.
5.
549425.
549425.
549425.
549425.
549425.
549425.
549425.
549425.
549425.
236625.
236625.
236625.
236625.
236625.
236625.
236625.
236625.
236625.
CUMULATIVE
INCOME
236625.
236625.
236625.
236625.
236625.
236625.
236625.
236625.
236625.

I
14 Student Manual for MICROSIM
Key Terms and Concepts
•
0
Review Questions
1. Briefly describe how a firm’s performance is measured in MICROSIM. What alternative measures might be employed to evaluate a firm’s performance?
2. Briefly describe each of the eight decisions. Which decisions do you consider to be the most important? Why?
3. Under the competitive market structure, some decisions are not controlled by the student managers. What are these decisions and why are they not under the firm’s control?
4. For each market structure, what is the primary difference between the theoretical characteristics of the market structures and the
MICROSIM model of these structures?
5. Briefly list and describe the six reports that are available after each decision period. Which of these reports do you consider to be the most useful as a decision making aid?
Discussion Questions
1. What types of industries may be most easily classified as an oligopoly? As monopolistic competition?
2. What characteristics differentiate a monopolistic from a perfect competitor?
3. Describe, and illustrate with examples, the following two terms: “standardized products” and “differentiated products.”
4. What impact, if any, does the degree of information have on the nature of a market structure, i.e., how will it influence firm and consumer behavior in the market?
5.
In which market structure would you expect firm profits to be the greatest? Lowest? Explain the reasons for your answer!

An Introduction to the Simulation and the Four Market Structures 15
6. Explain why you would expect a firm operating in a monopolistically competitive market with a higher-quality product to command both (1) a larger share of the total market, and (2) a higher price than its competitors?
7. Would a firm operating in a perfectly competitive market ever deviate from the short run objective of maximization of profits?