Government Regulations.html

Government Regulations

“Government affects what and how firms produce, influences conditions of entry and exit, dictates marketing practices, prescribes hiring and personnel policies, and imposes a host of other requirements on private enterprises. For example, local telephone service monopolies are protected by a web of local and federal regulation that gives rise to above-normal rates of return while providing access to below-market financing. Franchises that confer the right to offer cellular telephone service in a major metropolitan area are literally worth millions of dollars and can be awarded in the United States only by the Federal Communications Commission (FCC). The federal government also spends hundreds of millions of dollars per year to maintain artificially high price supports for selected agricultural products such as milk and grain, but not chicken and pork. Careful study of the motivation and methods of such regulation is essential to the study of managerial economics because of regulation’s key role in shaping the managerial decision-making process” (Hirschey, 2009, 418).

“Although all sectors of the U.S. economy are regulated to some degree, the method and scope of regulation vary widely. Most companies escape price and profit restraint, except during periods of general wage–price control, but they are subject to operating regulations governing pollution emissions, product packaging and labeling, worker safety and health, and so on. Other firms, particularly in the financial and the public utility sectors, must comply with financial regulation in addition to such operating controls” (Hirschey, 2009, 418).

Reference:

Hirschey, M. (2009). Fundamentals of managerial economics, (9th ed.). Boston, MA: Cengage Learning, ISBN13: 978-0324584837

A company must anticipate the changes in market conditions that will result from government intervention. The two tools the government most commonly uses to deal with market failure are taxes and subsidies. In addition, there may be penalties for a harmful activity or an extra cost to incur for the additional benefits from an activity that the company undertakes. These are considerations that management must take into account, especially in the long term.