Use the updated demand (QD) and marginal revenue (MR) functions below to complete this assignment.
Due to changes in the low calorie, frozen, microwavable industry's market structure, the firm-specific demand equation for our hypothetical company has shifted outward and is now:
QD = 350,000 - 100 P
This function generates the following Marginal Revenue Function (MR):
MR = 3500-0.02Q
Write a six to three (3) page paper in which you:
1. Outline a plan that will allow you to identify the market structure in which your company now operates. Comment on the relevant elasticity results from Assignment 1 and your research into two (2) of leading competitors in this industry, taking note of their pricing strategies, profitability, and their relationships within the industry (worldwide).
Note: In Assignment 1, the assumption was that the market structure was perfectly competitive. Changes in the market now suggest it is imperfectly competitive and that your firm now has substantial market power to set its own "optimal" price.
2. Given that the market structure has changed from the original scenario in Assignment 1, determine at least 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.
3. Analyze the major short run cost functions for this firm assuming they are represented by the equations below. Suggest substantive ways in which you may use this information to make production decisions in the short-run and possibly the long run.
- TC = 160,000,000 + 100Q + 0.00632Q
2 VC = 100Q + 0.00632Q2 MC= 100 + 0.0126Q Hints: What is the equation for average total costs? How is this useful? What is the output level and dollar value associated with minimum average total cost and minimum average variable costs?
4. Determine the possible circumstances under which your firm should discontinue operations. Suggest key actions that management should take in order to confront these circumstances. Provide a rationale for your response.
- (Hint: Your firm's price must cover average variable costs in the short run and average total costs in the long run to continue operations.)