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Efficient Opperation of the Potatoe chip Industry - Term Paper Example

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Efficient Operation of the Potato chip Industry Introduction In 2007 the potato chip industry was characterized as long run equilibrium and was competitively structured. The operating firms were earning normal profit while operating in the monopolistically market structure…
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Efficient Opperation of the Potatoe chip Industry
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Efficient Opperation of the Potatoe chip Industry

Download file to see previous pages... Economists have put forwarded various structures of the market with different characteristics. The most fundamental of the market structure is perfect competition in which the product is homogeneous and there is absence of barriers to entry for the suppliers. The benefits to the stakeholders A firm operating in the monopoly market structure can produce at a much lower than the firm operating in perfect competition. In the monopoly situation the firm can enjoy the economies of scale while in perfect competition the firms share in total output. The monopoly is the only supplier of the good. In order to achieve higher levels of profit the monopolists have the potential to set the prices at higher levels (The Ohio State University, 2010). Because of the constraint of the demand curve they cannot charge the price that are considered fit for the manufactured product. If the price is set at the level that is considered unaffordable for the consumers the demand conditions will contract and will lead to loss of revenue for the firm. The existence of long run profits will serve as the incentive for investors to invest more on research and development. The investment will contribute to offer better products to the consumers. The investment can also contribute in lowering the cost of production and eventually the monopolist can use the return on the initial cost of capital. The capability to utilize consumers would come from the high ranged prices charged upon them. In the monopoly structure a firm can gain abnormal profits both in the short as well as in the long run and the average cost of the firm is lower than that of the average proceeds. Such a strategy will put off the potential firms put of the industry as the monopolists are aware that they will not be able to produce at such low cost in presence of competition. The benefit of low cost accrues to the consumers and therefore the welfare of the consumers is also affected (Case, Fair, and Oster, 2009). In the monopolistic market structure the firms are able to sell similar but not identical products. The products can be differentiated. In the market of potato chips the sellers can enter freely into the market. Each bag of potato chips is characterized by different genre and name. Therefore the considerations for each supplier are different. According to economics a monopoly produces a product which has no close substitutes and significant barriers of entry are present to allow new firms enter into the market. By purchasing the firms the lawyers paved the way for pure monopoly situation. It will allow the two firms to control the market. By seizing the market control the firms will now operate on the market demand curve. They now have the potential to control the output control and price. The only limitation for the firms will be the cost of production. In monopoly market there is hardly any difference between firm and industry. The price discrimination will have effects on the consumers and the suppliers. In monopoly market the Wonk potato chip firm has created a monopoly market where potential competitors cannot enter. In the new market the prices will tend to rise as there is lack of competition and the level of output will either be at the stable level or will decrease. The monopolistic industry will try to keep the industry closed as entry of new firms will lead to reduction of price and the rise in costs of production. The higher price will lead to loss of consumer surplus. The choices of ...Download file to see next pagesRead More
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