Factors that might have caused change could be for example consolidation of the industry, i.e., firms become bigger and have now some control on the price.

utline a plan that will assess the effectiveness of the market structure for the company’s operations. Note: In Assignment 1, the assumption was that the market structure [or selling environment] was perfectly competitive and that the equilibrium price was to be determined by setting Qd equal to Qs. The market structure in the first assignment was competitive. This means that the firm does not have control over the price and it has to charge the equilibrium price. You are now aware of recent changes in the selling environment that suggest an imperfectly competitive market where your firm now has substantial market power in setting its own “optimal” price.

 

  • Since the company has control over the price, it has to decide how much to charge and how much to produce to maximize profit. 
  • The profit-maximizing/loss-minimizing quantity and price can be determined by setting the MR = MC. This involves the following.
    • Find the total revenue: TR = P x Q
    • Find the marginal revenue by calculating the derivative of the total revenue function.
    • Set MR equal to the provided MC function and solve for Q, and then for P.
  • Based on the results, the company should make a decision to continue producing or shut down.

 

 

 

Question 2

 

Given that business operations have changed from the market structure specified in the original scenario in Assignment 1, determine two (2) likely factors that might have caused the change. Predict the primary manner in which this change would likely impact business operations in the new market environment.

 

  • Consider the change in the degree of competition.
  • Review the sections “Industry Performance” and “Competitive Landscape” in the IBISWorld report provided.
  • Factors that might have caused change could be for example consolidation of the industry, i.e., firms become bigger and have now some control on the price.  Also, firms can differentiate their product from the products of their competitors, which again results in more control over the price.  Firms’ actions are interdependent and now their decisions are affected not just by the demand and supply conditions, but by what moves their major competitors make.  These are just examples.  You might come up with other factors.

 

 

 

Question 3

 

Analyze the major short run and long cost functions for the low-calorie, frozen microwaveable food company given the cost functions below. Suggest substantive ways in which the low-calorie food company may use this information in order to make decisions in both short and the long-run.

 

TC = 160,000,000 + 100Q + 0.0063212Q2

VC = 100Q + 0.0063212Q2

MC= 100 + 0.0126424Q

 

  • To maximize profit, the firm has to find ways to maximize its total revenue and minimize its cost. You should also consider the difference between short and long run.  In the short run, at least one of the costs is fixed.  In the long run, all costs can be changes, i.e., all costs are variable. A review of the IBISWorld Industry Report on the frozen food production in the US can also help you answer this question.  The cost functions affect the profit. The cost functions are to be used to answer question 4 as well.
  • Using the provided cost data for the firm, determine whether the firm is making a profit or a loss by charging the equilibrium price determined in Assignment 1.
    • Calculate the total revenue.
    • Calculate the total cost.
    • Find the difference between TR and TC, which is the profit or the loss. 
    • Review the section “Cost Structure Benchmarks” (p. 22) in the IBISWorld report.
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