Research Paper Sample on Monopolistic Competition

The regression equation in option one is:

Is your time best spent reading someone else’s essay? Get a 100% original essay FROM A CERTIFIED WRITER!

Order now

QD = - 5200 - 42P + 20PX + 5.2I + .20A + .25M.

Hence, the regression equation is utilized with the values P = 500, C = 600, I = 5500, A = 10000 and M = 5000 to compute the quantity demanded. Hence

QD = -5200 - 42*500 + 20*600 + 5.2*5500 + 0.2*10000 + 0.25*5000 = 17650

The Price elasticity is computed from E = (P/Q) *(dQ/dP). For this instance, (DQ/DP) = -42; Thus, EP = (500/17650) *(-42)

= -1.19

Also, other independent variables are calculated as shown below:

Cross Price elasticity: = 20* (600 / 17650) *20

= 0.68

Elasticity of Income: = 5.2* (5500 / 17650) *5.2

= 1.62

Advertisements Elasticity: = 0.2* (10000 / 17650)

= 0.11

Micro-oven Elasticity: = 0.25* (5000 / 17650)

= 0.07

Question two

The effectiveness of a company to survive and operate in a market environment for a long period requires an operational strategy that differentiates them and makes them unique in the market. The differentiation evident in the operational strategy employed by Healthy Choice and Lean Cuisine is evident in terms of market segregation. The market segregations are evident in terms of geographical location and the socio-economic setting. The study of the economic growth in the industry is important and the analysis, in this case, will capture the capabilities of the companies to cater for the markets at the local, regional and national levels.

The companies operating in the low-calorie microwave food industry exist in a monopolistic environment because there are competitors in the industry but their operational lines are differentiated making them unique. The top two firms in the industry

A change in the business operation from a given market structure to a monopolistic structure will indicate that there is only a single firm in the company offering the low-caloric frozen food products. Two factors that are likely to cause such a change include the change in the price for the commodities offered in the market and withdrawal of one of the competitors in the industry. The market share will increase thus causing the company to increase their output. The change in the supply will eventually affect the prices of the products according to the law of demand and supply. In a monopolistic market, the prices are likely to increase and the consumers have to pay for the offered price there are no close substitutes of other equal players in the market (Nikaido, 2015). When there are a few players in an industry controlling the market economy, then the market changes to oligopolistic as characterized by the case presented here. While the monopolistic companies ought to proceed with innovation and invention to deliver distinctive products and being in the forefront in terms of competing for the buyers, a change in the strategy by one company may affect the overall performance in the market.

The other change likely to affect the market structure is the emergence of new players in the industry. In a monopolistic environment, there is free entry and exit of the players into the market and the costs can be vicalized in the interest of the organizations. Over the long haul, the benefits will be equal to zero because the peripheral income is equivalent to minimal expense. At the firm's cost, in the short run, the normal variable expenses and the normal aggregates cost should be equivalent and realized in the long haul.

Total Cost: TC = 160,000,000 - 115.56Q + 0.01111Q2

Variable Cost: VC = 100Q+ 0.01111Q2

Marginal Cost: MC =100+ 0.02222Q

ATC=160,000,000/Q -115.56Q +0.01111Q

160,000,000/Q - 115.56 +0.01111Q= -115.56 +0.02222Q

160,000,000=0.0126424Q2

Q=120,006

Value of ATC

160,000,000/120,006-115.56+ 0.01111Q

1333.26-115.56 + (0.1111x120, 006)

1217.70 + 1333.26 =2550.997 units

AVC= -115.56- 0.01111Q=1217.70.

Companies can only continue operating when they are able to make a profit and compete with their rivals in the market. On the other hand, lack o finances may be a hindrance to the company's operation. Importantly, absence of the rivalries in the market results to the insufficient capital and the absence of the supplies may also lead to the closure of the company. Companies can only stay in business when they are making a profit because they will be able to meet the daily operational costs and even bank other money for growth and expansion. In addition, the other important elements in an industry with two players is the supply aspect. There must be sufficient sources of supply in the industry so that all the companies are able to acquire the raw materials and resources needed in the production process (Thienhirun, & Chung, 2018). Lack of suppliers affects the efficiency of the company's operation and they may end up making a loss as well as lose trust from their consumers because of the unreliability.

The proposed pricing policy, in this case, would be adopting the minimal cost estimation. The cost of production plays an important role in determining the price set for the products in the market. The cost of producing an additional unit must be analyzed to ensure efficiency and profitability because there is a production threshold beyond which the company will continue making a loss for every unit of production. By this policy, the company will be able to charge for every unit sold with the expansions to the aggregate costs arising from the material and direct work.

P=2100-0.10 Q

Total Revenue: TR= (PxQ) = 21,000Q- 0.10Q2

Marginal Revenue: MR - dTR/dQ) =21,100-0.20Q

In order to maximize profit MR=MC

21,100 -0.20Q = 115.56 + 0.02222Q

21,215.56 = 0.22222Q

Q=95470.97

P=21,100 - 0.10Q = 11552.90

P= 11552.90

The demand for the low-calorie frozen food is inelastic and this is evident in the fact that the increase in the price results to the fall of quantities. At the point where a firm operates in a monopolistic environment, it works with high benefits and this allows new organizations to enter in the market so that they can share and benefit from the high pricing and profits. On the other hand, when an organization keeps operating in a monopolistic environment, it must have adequate resources that will facilitate its survival. The entrance of new ventures in the market may affect the sales and the revenue generated by the operating company; however, they may come with other strategies and means of operation that are innovated and differentiated.The product differentiation reduces the competition in an industry and allows the firms to dominate their market segments. As the firms get in, the productivity in the industry will increase and this should reduce the cost of production. As a result, the company may find it difficult to continue holding on high profits because consumers have wider options to select from; the company will be expected to come u with new approaches such as product promotion which may be beneficial in the short run. Companies with a competitive advantage will continue enjoying the monopoly in the market and the results to the loss to the customers and producers' surplus.

TR = 21,000Q - 0.10Q2

TC= 1600,000,000 - 115.56Q + 0.01111Q2

Producer Surplus = TR - TVC

Variable Cost: VC = -115.56Q + 0.01111Q22

Q (21215.56 - 0.11111Q) = 0 21215.56 - 0.11111Q

Q=190941.95

Profits = 190941.95-160,000,000

For the companies in the monopolistic market to increase their benefits in the long-run, their interset must be focused on digression to the firm's normal aggregate cost bend. The bend makes it difficuly to realize profits and breakeven.

Q= 120,006

Value of average total cost:

160,000,000/120,006-115.56 +0.01111Q

=1333.26 - 115.56 + 0.01111 * 120,006

=1217.70 + 1333.26 = 2550.97 units

At the point where the company's costs exceed the normal expenses, there will be benefits. On the off aspect, it is evident that the costs are not exactly the normal one and the firms over the long haul, will not have the capacity to operate in the business environment (Bertoletti & Etro, 2017).

There are various possible measures to implement and improve the company' profitability. First, the company can invest in advertising and product promotions activities to help them compete with their rivals. Also, it should pay attention and listen to the customer's need; this will help promote customer loyalty.

References

Bertoletti, P., & Etro, F. (2017). Monopolistic competition when income matters. The Economic Journal, 127(603), 1217-1243.

Fuguitt, G. (2016). ARF David Ogilvy Awards. Journal of Advertising Research.

Nikaido, H. (2015). Monopolistic Competition and Effective Demand.(PSME-6). Princeton University Press.

Pickford, K. G. (2016). U.S. Patent No. 9,326,536. Washington, DC: U.S. Patent and Trademark Office.

Thienhirun, S., & Chung, S. (2018). Consumer attitudes and preferences toward cross-cultural ready-to-eat (RTE) food. Journal of Food Products Marketing, 24(1), 56-79.