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GROUP MEMBERS : NURUL HIDAYAH BINTI MOHD ZAFRI		 1202467 SITI NUR IZZATI BINTI MARHALIM		 1202468 NUR ASMANATASYA BINTI MOHD NAIM		 1202484 NISA FADILAH BINTI KAMARUDDIN JAMAIR	 1202485 NURIN AMNI AQILAH BINTI CEK AHMAD AZAM	  1202489 AUFA AMANATHUL KAMILA BINTI LILA ATTAHRI 	 1202491 SYAZANA BINTI ZAKARIA @ SHAFIE		 1202590 AMNI NAWWARAH BINTI ABDUL HANAN 	 	1202593

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Petrolium   Nasional   Berhad  or known as PETRONAS is widely known to the  world  as a  big organization  and a  corporation  that  exports  Malaysian oil.

Malaysian oil and gas company and is fully  owned  by Malaysia Government.

PETRONAS provide a  substantial source  of  income  for the Malaysian Government which is dividends from their profit.

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It was established on 17th of August 1974 and has developed into a  multinational integrated  oil and gas company.

PETRONAS now has a  presence  in over 65 countries around the world including Russia, Egypt and Argentina.

One of the top  companies of oil and gas in the world.

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Have  more than  100 subsidiaries around the world and are  ranked  among the  largest  Fortune Global 500’s companies in the world.

PETRONAS is considered to be one of the  oligopoly markets  because there are only a few companies that are  controlling  the oil market in Malaysia such as Shell, Caltex and BP.

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PETRONAS is  engaged  widely in petroleum activities. Upstream sector  - exploration and production of oil, gas and energy. In Malaysia, oil and gas will be  explored, produced  and  developed  by Exploration & Production (E&P) subsidiary PETRONAS  Carigali   Sdn  Bhd. Downstream sector  - oil refining, marketing and distributions of crude oil and petroleum products trading, gas processing and liquefaction, marketing of liquefied natural gas, marketing and manufacturing of petrochemical products, gas transmission pipeline network operations, shipping, property investment and provision of technical and engineering solutions to the whole PETRONAS Group. Petrochemical products  are being  marketed  and  traded  to both Malaysian and international by PETRONAS Chemicals Marketing  Sdn   Bhd  (PCM).   Since 1988, PETRONAS has been  responsible  for their  global industrial greenhouse          emissions . By 2050, they are  targeting  Net Zero Carbon Emissions.

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Market structure of  Petronas  is  oligopoly.

Exits  when small number of firms have all or most of the sales.

The actions of any one seller give a l arge impact  on the profits of all the other sellers.

The  oligopolists  are best off as a group by acting like a monopolist.

The number of firms in  Petronas  are a few  dominant  firms such as  Shell,Caltex  and Mobil.

The type of goods in  Petronas  is  undifferentiated .

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The government licenses are  difficult  to obtain.

Another  barrier  is that the new company  cannot  compete with the existing company.

These barriers  prevent  new firms from entering this industry.

Other characteristics of oligopoly are  interdependent .

The firms are  depending  on each other in various things such as price, output and so on.

If any firm decreases the price of the goods, the other firms must follow it.

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Kinked demand curve for Petronas for short run

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Petronas need  heavy equipment ,  large sites  and  skilled  labor , which all of this need result in fixed and variable cost. Fixed costs  are the costs that do not differ with the quantity of output produced. Change  in  long-run  but not in  short-run . Example of fixed cost regulatory compliance will not vary much with the level of production. The workers in this company usually in  long-term contracts  like company officers.

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Variable costs  are cost that vary with quantity of output produced. Can  decrease  or  increase  their production to  change  the variable costs. Example the cost of hourly  labor  needed to produce but for workers that have long-term salary contract and have fixed salary in the contract it is will not count as costs variable.  Under market of  oligopoly , the reducing or increasing in price of one firm will  not affect  others as they are in small number of sellers. If  Petronas   increase  the price, other sellers will not follow, cause  losses.

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Q1 is  output  where  MR = MC The quantity demanded   decreases  at the demand curve  before  point K. Demand is elastic.  If Petronas  decrease  the price, other sellers will follow : Only  little change  in demand quantity after point K. Demand is inelastic. Total revenue is  more  than  total cost in short run ,  gains profit  during this short run equilibrium which  supernormal profit. Long run equilibrium has earned  supernormal profit.

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1 Equate the marginal cost (MC) and marginal profit (MP) Can maximize profit  For example, the cost for advertising and revenue they get from advertising is the same. 2   Promotion and Discount Attract many customer Example : MESRA Promo, CIMB Cashback, Grab  Mesra  Fuel Saver Programme 3     Reduce Fuel Price Make competition among other firms Focus on advance technology to reduce cost of production and approach efficiency

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EQUILIBRIUM CONDITIONS IN THE SHORT-RUN AND LONG-RUN

Klinked Demand Model
Oligopolistic Pricing:
Model
o,
Quantity

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2)The average revenue < average cost (incur loss)
p

3) The averaqe revenue > average cost
S=MC

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PETRONAS can make   supernormal profit  in the long run as well as in the short run.  Super-normal profit means, when there is  extra profit above the normal profit level. They will get the super-normal profits most of the time. The firm can make all  necessary changes to production costs  as there are barriers to entry. Though they run an   oligopoly  market structure, they are  not allowed   to set their own price.  The price of the petrol can  never increase  because it is  fixed by the government  even the price of the resource increase.

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By setting prices, it can  maintain  the  equilibrium point  and  avoid shortages  and  surpluses  of petrol.

But in Malaysia, the PETRONAS and the other petrol firm have  no rights  to  set  the petrol price by themselves

Oligopolistic firms mean they are the  independent suppliers  and  can  control  the supply and the price independently

In Malaysia, there are few main petrol company  competing  with each other that call  oligopolistic marke t such as PETRONAS, Shell, Esso, BHP and Mobil

The price of petrol is  set  by the  government  of Malaysia for all the  petrol firms  including PETRONAS.

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Government also will  set  a  price control  or limit to make sure the  consumers  have the  ability  to pay the price.

It means  that when the government has  imposed  the petrol price,PETRONAS and the other firms are  unable  to raise the petrol price by themselves.

PETRONAS Company is  owned  by the government .

It uses a  price ceiling  as the price of petrol is imposed by the government.

Price ceilings  are set to  avoid shortages.  Therefore ,the government will set the  price floor  to  avoid surpluses  in the market.

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3.    PETRONAS does  not require  efficiencies to be useful.

2.    There can be a  potential loss  of economic welfare in PETRONAS as an oligopolistic market.

ASSIGNMENT : PETRONAS

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