The transportation is the one of the key factors of today services and obtains almost all spheres

8/7/2019 The transportation is the one of the key factors of today services and obtains almost all spheres

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Introduction

The transportation is the one of the key factors of today services and obtains almost all spheres.

For example : schools, universities and other education centers, some of them prefer to hire the

transport from external companies and include the transportation fee in total tuition.

We will discuss one of the transportation companies which serve private schools. Our mission is

to examine transportation market on the example of the West travel company. Lets talk first

about the market type this company pertains.

Market

The company West travel acts on monopoly competition market. There are many existing

firms which produce same , but not identical service. Products are differentiated. The question

arises about the difficulties of accessing this market. Transportation firm is profitable when it

serves more then 150 children, because of that new companies have not got motivation to be part

of existing business. This factors help firm to get economic profit during the long period too and

the demand is not decreasing. As we can see in the table the companies ATC is decreasing and

nears zero during the increasing quantity , but the company stops when Q= 250 . The companys

got absolutely flexible (elasticity) Demand Curve, and its Marginal Revenue equals the Price.

Deman and Supply conditions. Elasticity

Transportation service is complementary product for school service. The demand on companies

service is bonded with the quantity of children. This service is normal product for children ,so

the demand is rising with income rize. The use of private transport is 1,5 more expensive when

the use of bus , so the choice is made on bus. The consumer quantity has influence on price. The

price equals marginal revenue so the firm gets profit.


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Nonprice determinant- the number of buyers affected on the supply , for our example where is

one supplyer for the school.

$

P

D

250

Q

The companys got absolutely elasticity curve, we can characterize the product with

crossover elasticity. Because the use of this service is compelemantary for school service, the

demand on it is dependent on the school tuition. Ex = (Q2-Q1)/(Q2+Q1) : (P2-P1)/(P2+P1)

As we know for the complementary products the crossover elasticity is negative, because the

rise of price of one product means the decrease of demand on another product.

Background

Company West Travel founded in 2006. Its basic activity is transportation service. Based

on this year information it serves four private school and one upper school also: several


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banks, Seven restaurant , many organizations, 2 big building company. . . also it serves

foreign delegations, ministeries and touring groups.

Today company has 16 standard omnibus also two high class minibuses, several cars and 1

minivan. To not check profit from schools the companies constant income every month is

30,000-50,000 .

Break-even analysis

Companys income and cost table

Q TFC TVC TC AFC AVC ATC MC MR TR

0 84000 84000

1 84000 8300 92300 84000 8300 92300 8300 480 480

2 84000 8300 92300 42000 4150 46150 8300 480 960

3 84000 8300 92300 28000 2766 30767 8300 480 1440

4 84000 8300 92300 21000 2075 23075 8300 480 1920

5 84000 8300 92300 16800 1660 18460 8300 480 2400

6 84000 8300 92300 14000 1383 15383 8300 480 2880

7 84000 8300 92300 12000 1185 13186 8300 480 3360

8 84000 8300 92300 10500 1037 11538 8300 480 3840

9 84000 8300 92300 9300 922 10256 8300 480 4320

10 84000 8300 92300 8400 830 9230 8300 480 4800

20 84000 8300 92300 4200 415 4615 8300 4800 9600

30 84000 8300 92300 2800 276 3077 8300 4800 14400

40 84000 8300 92300 2100 208 2308 8300 4800 19200

50 84000 8300 92300 1680 166 1846 8300 4800 24000


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60 84000 8300 92300 1400 138 1538 8300 4800 28800

70 84000 16600 100600 1200 237 1437 8300 4800 33600

80 84000 16600 100600 1050 208 1258 8300 4800 38400

90 84000 16600 100600 933 184 1118 8300 4800 43200

100 84000 16600 100600 840 166 1006 8300 4800 48000

200 84000 33200 117200 420 166 586 16600 48000 96000

300 84000 41500 125500 280,00 138 418 8300 48000 144000

400 84000 58100 142100 210 145 355 16600 48000 192000

500 84000 66400 150400 168 133 301 83000 48000 240000

600 84000 83000 167000 140 138 278 166000 48000 288000

700 84000 99600 183600 120 142 262 166000 48000 336000

800 84000 107900 191900 105 135 240 83000 48000 384000

900 84000 124500 208500 93 138 232 166000 48000 432000

1000 84000 132800 216800 84 133 217 83000 48000 480000

1100 84000 149400 233400 76 136 212 166000 48000 528000

12000 84000 166000 250000 70 138 208 166000 48000 576000

1300 84000 174300 258300 64 134 199 83000 48000 624000

1400 84000 190900 274900 60 136 196 166000 48000 672000

1500 84000 199200 283200 56 133 189 83000 48000 720000

y Price 480 Lari

y Variable cost 8300>133

y Fixed cost- 84000

BEP Q-250

BEP Income-120,000


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y Income- 480,000

y Fixed cost- 84,000

y Variable cost- 132,800

y Revenue- 263,200

$ TR

TC

FC

250 Q


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Technology

Technological designation means the companys decision how to distribute scarce resources

such as budget, the hiring of technique, Labor and other resources.

West Travel operates through the following technologies: the company uses its constant income

to cover constant cost, and the current income is used to cover current expenses, while the vast

majority of cash inflow is used for reinvesting: the company purchases additional techniques, etc

in order to expend business. One third of companys machinery consists of rented cars as the

demand is fluctuated and seasonal. For example during the winter and summer holidays demandis less than during the study period and in good weather the demand is rising because of

increasing demand on excursions,etc. The company needs 16 cars permanently; the rest is rented

only in case of necessity.

Staff of the company contains only 22 co-workers; administrative personnel-6, drivers on regular

basis -16, drivers according to short-term contracts-7.

The company has agreements with several strategic partners in the sphere of technical

maintenance and gas supply. On the basis of these agreements, company gets allowances and

discounts.

Future Conditions

From the standpoint of the company determining future conditions means choosing strategies

and using opportunities for maximizing profit and increasing market share.

As we have indicated, West Travel started operating with serving only one school. During this

period the company has managed to expend its activities and has increased annual income from


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12000 to 100000. According to current conditions the company can expand business activities by

penetrating the tourism market or attracting more customers in already established segments.

Macroeconomic Factors

On the first stage of companys operation the following macroeconomic factors were

supposed to influence the firms performance:

1. Unemployment

2. Inflation

The rate of unemployment is very high nowadays in Georgia and it was even higher 4 years

ago. The instability of customers income created concern regarding customers willingness

to purchase transportation service. However, managers considered this factor less important

because of increasing popularity of private schools as well as their affordable prices.

Inflation was also taken into consideration, as the company gets payment for its

transportation service at the beginning of academic year and the fees for the services cant be

changed according to the agreements the firm signs with each customer. As executives of the

company declare, because of inflation and change in prices company has losses, but the firm

manages to negotiate stable prices for its products with the partners, and the risk of inflation

has decreased.


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Competitive advantage

For gaining competitive advantage Company West Travel use s all the below listed

components:

y Price leader

y Product differentiation

y Focus on niche market

y Incorporation

The price-leadership model of oligopoly assumes that there is one dominant firm in the

industry that sets the price and then all the other firms in the industry behave like perfectly

competitive price-taking firms. Once all the other small firms have chosen their desired

quantity, the price leader will produce to meet the remaining demand at that price. In theMonopolistic competition there is no price competition because it is a form of imperfect

competition where many competing producers sell products that are differentiated from one

another (that is, the products are substitutes, but, with differences such as branding, are not

exactly alike). In monopolistic competition firms can behave like monopolies in the short-

run, including using market power to generate profit. In the long-run, other firms enter the

market and the benefits of differentiation decrease with competition; the market becomes

more like perfect competition where firms cannot gain economic profit.

Product Differentiation- Company West Travel uses several different ways for

differentiation:

y Place selection

y Service development

y Advertisement

y Promotion

The company will send the representators to the partner schools to offer the service to the

students on the place. This plays the great role for attracting the customer. Tastes and

preferences of the already existed customers diffuse on the potential buyers and increase the

number of customers. The company using the prior permission from directors of the schoolwill hang the advertisement banner on the central place in order to sudden the registration

process. On the spring semesters students who are already registered for the next semester is

offers 10-25% discount. This campaign gives company chance t get cash inflows. Also

customers will have motivation with the product differentiation.

At the fall semester 2 weeks earlier before the study process starts school representators are

declaring the registration process.


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Registration process lasts one week after the study process starts in order to gather all

students and from the second week starts semester. It must be noted that company is making

the new registration with the old customers in order to renovate the base every year with the

maximal preciseness. Customer duties end with registration and the payment of tuition fees.

School drivers are given the addresses and phone numbers of students and they agree on the

optimal time.

For the differentiation example we can illustrate the example of taking children at the home

and in order of heavy traffic on the road helping children to cross the road, also the additional

groups with several activities including sport clubs dance clubs and so on. Families that have

more than two children they are offered discount from the company. In case of two children

this discount is 15% and in case of more than two children the discount is 20%.

It does not matter for the company in which school the children from the family study, the

discount will still affect regarding the school internal regulations children are studying.

Conclusion

Nowadays 134 private schools operate in Tbilisi; the vast majority of them are served by

transportation service. We must admit, that most of them are engaged not only in educating

pupils but also they offer students combined service. As we have mentioned, main activities of

large transportation companies are linked with tourism business. In our case we have focused on

discussing specialized companies, which deal with serving private schools, by examining

example of West Travel. The starting point of company was operating in this sphere and still it

has the central part in the firms business activities.

By conducting market analysis we have clarified that the market has structure of monopolistic

competition. Many sellers operate in the market and the product is differentiated. Demand is

elastic, as there are product substitutes. We have calculated companys revenue as well and have

determined the break-even point for the company.

We have inferred, that the company has managed to establish the specific quantity of sales,

necessary for minimizing costs as well as achieving operating efficiency in order to gain the

profit maximization.


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pol kiti, fillip iangi ,,menejeruli ekonomika, mexuTe gamocema;

gregori menqiu ,,ekonomikis principebi;

kompania ,,vest Trevelis monacemebi.

www.mos.gov.ge

www.wissol.ge

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The transportation is the one of the key factors of today services and obtains almost all spheres