Various factors can lead to changes in the market. One factor that can cause the changes in the market is the concentration of market with data which can lead to fewer firms fewer companies competing within the industry. Since few companies are competing, there is easy control of product prices. In such a scenario, the market moves from monopoly to oligopoly market; the monopolistic competition becomes oligopolistic competition(Dhingra & Morrow, 2012). There are fewer companies in an oligopoly market, and every company monitors the competition by their prices and new products. As a result, the companies start experiencing reduced profit due to the frequent changes that they frequently make on their prices to remain competitive. Even though companies in a monopolistic market requires to be innovative by producing various types products to attract more customers to purchase their product and remain competitive. There are still various reasons that might lead to changes in demand. Some of this reasons include the pricing of the competitor, the cost of production and changes in the level of income. By changing market, the company requires knowing the market environment especially the external factors that influence the operation of the business such as competitors (Dhingra & Morrow, 2012).
To figure out what the short term and long term functions, the following equations will be used.
TC = 160,000,000 + 100Q + 0.0063212Q2
VC = 100Q + 0.0063212Q2
MC= 100 + 0.0126424Q
The company requires to use this data regarding breakeven point and make a decision to ascertain if it is doing poorly or is on track in the long run and short run. The company can use this information in setting prices in the long and short run and implement strategies to remain competitive in the market. Various operation cost can play an essential role in financial management. During the financial planning of the organization, the company requires incorporating total cost, variable cost, and marginal cost. All these are expenses for everything in the company which influences the firm in the short and long run. Organizations in an industry that is more competitive might break-even against all economic cost or operate at a temporary loss in the long run.
In monopolistic competition, firms can easily enter and exit the market, fluctuation of prices and increased demand for products from well-established companies within the market., the marginal revenue is the same as the marginal cost in the long run. While in the short run, the profit is zero, and ultimately customers are influenced elsewhere (Dhingra & Morrow, 2012). The prices are supposed to be greater than average total price cost to enable the firm to make a profit.
The firm can be able to use short and long-term cost functions in deciding if it is making a profit to stay in the market for loss to pull out its services. The company requires using an average total cost function to come up with a decision regarding the exact point it will be at its breakeven point and at what point it will need to terminate its operations. The Q has previously been solved, and the breakeven point can be found out by the use of ATC.
160,000,000/159,096.353 + 100 + .00632212 (159,096.353) =2011.36.
The price should not be less than $20.11 for the company to break even since it is in cents. The company would not be meeting its fixed cost if the price were below $20.11. If the company has a plan for reducing operational cost in future, the firm will be able to stay open. However, if the company reaches a point whereby the profit is same as negative fixed cost, then it needs to shut down. The following equation can be used to determine the shutdown point.
Where TR is equal to P * Q and TC is equal to total fixed cost (TFC) (TVC)
The company can implement various steps to ensure that such situations do not occur. For example, the company can recalculate the breakeven point. By doing so, the company will be able to make sure that it does not reach a point where it needs to shut down. The company should also be aware of the existence of some products which they have to sell at a full price so that it generates more money to cater for the variable and fixed cost.
Marginal cost pricing is one of the pricing policies I will propose. If the company uses this policy, the company will charge for every product unit it sells. In any given company, the act of coming up with prices of products is the same as the additional production cost of making an additional unit of output (Turvey, 2000). The company should make sure that it covers the average cost in the short run and cover the average total cost in the long run.
TR= ( PxQ ) = 21,000Q- 0.10Q2
MR ( dTR/dQ) =21,100-0.20Q
To maximize profit MR=MC
21,100 -0.20Q = 115.56 + 0.02222Q21,215.56 = 0.22222QQ=95470.97
When a certain firm is operating in a monopolistic sector, it means that company is collecting more revenues and hence other companies will consider joining the industry. For the company to ensure that it remains dominant, it needs to ensure that it remains innovative and should intensify its advertisements. Even though investing in innovation and advertisement, the firms profit might reduce, and at this particular period, more new companies will be entering the industry with new products and innovative concepts and customers may be tempted to shift to those companies. Therefore, there will be increased market output due to increased players and hence reduced prices. As such, retaining high profit, in the long run, becomes a problem while in the short run, the business can depend on advertising extensively its product to finance its operation.
TR = 21,000Q 0.10Q2
TC= 1600,000,000 115.56Q + 0.01111Q2
Producer Surplus = TR TVC
VC = -115.56Q + 0.01111Q22Q (21215.56 0.11111Q) = 0
Profits = 190941.95-160,000,000
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
There will be profit if the market price is more than the average cost. if the average cost of the firm is more than the price, the firm will operate at a loss in the long run and will not be able to operate.
There are various recommendations which the company need to consider to improve its profitability. The first recommendation is that the company should remain innovative in its product. Before the company comes up with an innovative idea, it should carry out a research and find out what consumers want before implementing its innovative program. Consumers taste and preferences changes more often, and such innovations aim at curbing such changes (Reguia,2014). The main aim is to continue being in the minds of consumers, keep the products advanced with high-quality foods and price competitively and this will entice more clients while maintaining the existing ones.
Secondly, the company should build advertising. Even though it looks costly to keeping up and expanding advertisement stays, the company will be able to maintain the existing customer and this much more important. The advertisement should focus on portraying what makes the company different from its competitors. Furthermore, intensive advertising will mean that the company is spending on marketing and consumers will have that perception that the firm is not cutting back on expenditures.
Dhingra, S., & Morrow, J. (2012). Monopolistic competition and optimum product diversity under firm heterogeneity. London School of Economics, mimeograph.
Hui, Y. H., Legarretta, I. G., Lim, M. H., Murrell, K. D., & Nip, W. K. (2004). Handbook of frozen foods (Vol. 133). CRC Press.
Mazilu, M., & Mitroi, S. (2010). Demographic, Social, Economic and Geographic Features-Shaping Factors of the Tourist Market. Romanian Economic and Business Review, 5(1), 159.
Reguia, C. (2014). Product innovation and the competitive advantage. European Scientific Journal, ESJ, 10(10).
Turvey, R. (2000). What are marginal costs and how to estimate them? (Vol. 13). Ralph Turvey.
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