Managerial Decisions in Competitive Markets


Managerial Decisions in Competitive Markets

  1. Insurance agents receive a commission on the policies they sell. Many states regulate the rates that can be charged for insurance. Would higher or lower rates increase the incomes of agents? Explain, distinguishing between the short-run and the long-run.

Insurance companies and their agents make commissions based on the policies covered. The commission is also influenced by state regulations on insurance rates which are variable periodically. Naturally, the profits for insurance firms increase when rates increase, resulting in increased demand for labor. An increase in the demand for insurance agents heightens competition among them, resulting in lower commissions as competition increases. 

A short run explains economic behavior based on the time allowed for it to respond to changes (Kenton, 2020). In the short run, insurance rates, output, state regulations, etcetera, do not have sufficient time to reach a new equilibrium (Thomas, 2020). That means that insurance firms are subjected to both variable and fixed costs in the short run. Moreover, in the short run, high rates result in lower-income. Employment opportunities would also decrease due to low income, and the number of agents incentivized to continue work would decline. 

Conversely, in the long run, the number of customers increases more than the number of agents. The remaining few agents will then be able to sell more insurance policies and increase the income. The long run is a period in which costs and factors of production vary (Thomas, 2020). A firm’s influence on pricing in the short run is only through variation in production levels. However, in the long run, they can adjust costs. The benefit of monopolizing the market is also on in the short run as competition threatens monopolies in the long run (Grant et al., 2021)………….

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