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The Theories of Microeconomics - Term Paper Example

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This rationale of the paper is the real-life application of the microeconomic and macroeconomic theories. In this paper, the author will deal with the theories of microeconomics like perfect competition, monopolistic competition, monopoly, cost and also with some macroeconomic theories…
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The Theories of Microeconomics
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Download file to see previous pages A US firm Hansen Natural Corporation which markets soft drinks and beverages is considered for the purpose of our analysis. Soft drinks market is a highly competitive market in the US and there are numerous small and large competitors already present in this industry. Policies are also suggested which will be useful for the company in the value creation over the next four years. One of the most critical issues regarding a business is the identification and development of a sustainable competitive advantage. It is much more critical when the business in concern is a small and emerging business where the market is already infested with numerous existent competitors. It has been found that many small businesses have often failed to develop a competitive advantage over their competitors in the market. The entrepreneur of the business has to take steps in order to gain a competitive advantage in their business. It is noteworthy to mention that the business community never welcomes new entrepreneurs with open arms rather prevent the new entries from appropriating the market share from them. Thus the development of competitive advantage is critical for a firm right from the entry stage to the end of the life of the business (Bressler, n.d., p.192). Areas, where the firms need to intervene in order to develop competitive advantage Small businesses, are unable to compete with the large firms in terms of price as the price mechanism behavior remains in their hand due to market reputation as well as historical sales background. Typical behavior of a small firm can be given by an example in this case. Suppose a restaurant is opening and when asked its entrepreneur about the prospective a common answer is that, “we will offer good food at good prices” (Bressler,n.d.,p.193). Marketing mix elements can be viewed to deliver a competitive advantage to the businesses. The elements of the marketing mix include product, price, place, and promotion. The companies have to concentrate on these variables in order to gain a competitive advantage. Cost also plays an important role in the competitive advantage paradigm (Rothaermel, n.d., p. 201). Big companies can negotiate lower costs and have advantages over smaller companies. However, there are possibilities of lowering the costs with the help of less capital equipment, location, overhead, lower distribution cost, lower labor cost, and lower investment cost. Before explaining them in brief with economic theories first of all we will discuss the characteristics of the market of soft drinks in the US and its relevance with the Hans Natural Corporation. Characteristics of the soft drinks market in the US In the present situation the soft drink industry is highly competitive for all the corporations involved in this business (Davies, n.d.). The soft drinks industry faces pressure from the rival seller, new entrants to the industry, substitute goods, suppliers, and buyers. In the US soft drinks industry Coca-Cola, Pepsi Co, and Cadbury Schweppes are the largest competitors. In 2004, Coca Cola’s working capital was around $1.1 billion and Pepsico’s total sales were $18.4 billion. Many small companies are also there like Facedrink, Arcadia Brewing Co, Banko Beverage Company, Carolina Canners Inc, etc.( Beverage Companies, n.d.). The market is almost saturated and the growth is small. It is a pretty difficult prospect for the new entrants in the industry. Another significant barrier for the entrants in the high fixed costs for warehouses, trucks, labor, and economies of scale. ...Download file to see next pagesRead More
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