Market Structures and the Forces of Demand and Supply (Coursework Sample)

Assignment 2: Operations Decision
Name
Institution

Market structure and competitors
From the analysis of the regression results and other computations from assignment 1, it is rational to conclude that the microwave food company operates in a monopolistic market, which is made up of many sellers. With a variety of food options to select, today’s consumers tend to look for healthy foods that contain valuable sources of nutrients but fewer calories. The low calorie microwaveable company has too key competitors: Lean Cuisine and Healthy Choice. The Lean Cuisine was founded in 1981 to reach consumer markets in Canada, US and Australia. Healthy choice, on the other hand, was established in 1989, and it’s the largest froze n food company globally. The pricing strategies of competitors are largely based on their brand image. Competitors set their own prices.
Plan for assessing effectiveness of market structure
The effectiveness of the oligopolistic market structure can equally be assessed by a point where the quantity demanded equals the quantity supplied. However, since the firms here set their own prices, the equilibrium price and quantity will be achieved at a point where the MC=MR as opposed to the perfect competition market where the equilibrium price and quantity are determined by equating price with marginal cost (Lieberman & Hall, 2008).
Likely causes of shift from perfect competition to oligopoly
The change from perfect competition to monopolistic competition market structure might have been fueled by the introduction of pricing controls possibly by the government intervention. This might have, then, made firms to start marking their own pricing and product decisions through the introduction of product differentiation and competitive pricing.
Analysis of main short-run and long-run cost functions
In the short-run, it is clear that the price of the firm’s products is greater than average total cost. This means that the firm is in the position to generate supernormal profits in the short-run. In the short-run, price profit maximization should be attained by equating MR=MC. With new firms entering the market, an increase in supply occurs that triggers a fall in price. This will eventually make the existing firms to incur significant decline in profits to the normal level. Ideally, in the long-run, the firm should set prices where the market price is equal to its average total cost, and where MR=MC. These two conditions must be taken into account.
When can the firm discontinue its operations?
From a general perspective, the firm should discontinue its operations if it constantly makes losses, and when it becomes unable to effectively compete in the market. A firm operating at a loss (RAVC (Dwivedi, 2006). This implies that the firm must earn adequate revenue to cover all its variable costs. In the long-run, the price must the average cost of operations. In this case, if PLRAC), it must operate at the point where MR=LRMC (Musgrave et al., 2009). In order to cover its costs both in short and long-run, the firm’s management mush make appropriate budget controls.
Pricing policy
The firm should employ marginal cost pricing. This is the practice of setting a price that is equal to the extra cost of producing that product. This policy will ensure that the firm always covers all its costs its variable costs in the short and its total average cost in the long run (Nicholson & Snyder, 2011). By adopting this pricing policy, the firm will undoubtedly remain profitable.
Profit maximization point (MR=MC)
At profit maximization,
MR=MC.
But, MR = 3500-0.02Q and MC=100 + 0.0126424Q.
Therefore, 3500-0.02Q=100 + 0.0126424Q
3400=0.0326424Q
Q=104159 units
By from the demand function, Q=350,000 -100 P
Therefore, 100P=350000-104159
100P=245841
P= 2458.41
Evaluation the firm’s financial performance
When a firm is in a monopolistic competition industry, its short-term level profitability is arguably high (Mukherjee et al., 2003). This attracts more firms into the industry in long-term, which may pose a threat to its long term profitability level. To maintain its profitability level, the firm needs to employ policies such as investment in advertisement and product differentiation to help attract more customers to its products. Also, there is need to initiate product innovation among the company’s production department. This strategy can help to increase the customers’ switching costs to other firms.
Profit level Short run
In short run, MR=MC, and Profit= TR-TC
TR= Q*P
Qd = 350,000 -100 P
P=3500-0.01Q
TR=3500Q-0.01Q2
TC=160,000,000 + 100Q + 0.0063212Q2
Profit=3500Q-0.01Q2-160,000,000-100Q-0.0063212Q2
Profit=3500(104159)-0.01(104159)2-160,000,000-100(104159)- 0.0063212(104159)2
Profit=245,488,967
This is profit is higher compared to the...