Hypothetical Company and Industry - Term Paper Example

 The automated robotic chef is a product in the technology industry designed to help busy families be able to enjoy a family together again. The chef itself is fully automated and preprogrammed to cook a fresh meal at a predetermined time. All the family has to do is set out the proper ingredients and program the meal into the machine. Upon arriving home, at the determined time, the meal would be ready to serve. Fixed Costs There are, of course, certain fixed costs for any business, and this one is no exception. As the plant required to manufacture the robotic devices is quite large, rent on the building forms a substantive portion of such costs. The rent on the building for this business stands at $18,000 per month. While that figure might seem quite high, it is actually quite low given that rent is 3-4 times that in the downtown area. Because the manufacturing centre needs no showroom, there is no reason to have it located in a high traffic area. Other fixed costs include the monthly payment on machinery at $8,000 total per month, and labor at $12,000 per month Variable Costs Depending on the volume of demand for the product, there are certain costs that are variable and fluctuate from month. As such, it is certainly quite difficult to put a dollar figure on such variable costs. These expenses include supply costs, utilities (based upon how many units are being produced determines electricity usage, for example), and transportation and delivery costs. Type of Market to Operate In This product is best marketed to household consumers. The business itself is catered to families with children, or working professionals. By focusing on the domestic market, the business can tailor its marketing plan to reach the very people that the product is designed for. The automated robotic chef is for people who desire to eat a healthy nutritious meal at home, but the demands of their lifestyle preclude this from easily happening. By focusing on these specific individuals, the business can better capitalize on market potential. Monopoly Power? Why or Why Not? By its definition, this business will not form a monopoly. While the product design will certainly be proprietary in nature, and will be patented, there is nothing to preclude competitors from developing their own version of the product. The possibility does exist, however, to reach distributorship agreements with various household department stores to make this product the only automated chef that they offer. Barring such agreements, however, there will likely soon be other products similar to this on on the market, as the nature of the technology business is such that a monopoly is not really possible. While it might take some time for other businesses to come up with a product of their own, owing to the success of this product that will be likely to happen sooner rather than later (Jacobsen, 2012). Factors Affecting the Supply of the Product There are numerous factors that will affect the supply of this product. Given the size of the product itself, for example, air transport and freight is almost cost prohibitive. As the household electronics industry is highly competitive to begin with, it is critically important that transportation and associated shipping costs be minimized as much as possible. In addition, owing to the cost of the product, supply will be limited until to a supply and demand equilibrium is reached within the market. This is due to the fact that to manufacture an oversupply of the product, given the fixed costs already discussed earlier, would be detrimental to the business model of the product itself. It is important to keep up with demand, but not to oversupply the market to the extent that the company is overtaxed financially with product that it has paid to manufacture, yet is struggling to sell on the open market. Factors Affecting the Demand of the Product This product is not considered to be a household necessity. It is an accessory that serves as a luxury to the busy family. As such, the demand of this product will suffer during periods of recession, or when household disposable income is suffering through this segment of society. Demand will be highest when the economy is doing well and domestic households have more money to spend on items that are certainly designed to make their lives easier, but are not considered to be a necessity. This particular products certainly fits that description. Process of Arriving at Pricing Decisions for the Product Whenever a new product hits the market, it is difficult to determine the initial price. For this project, given the product that it is a new concept and will be considered a household luxury item, the price will need to be set very competitively in order to attract the necessary new customers required to generate new business. Initially, a set number of products should be produced and sent to the market. This will enable the company to determine the variable costs involved per unit, and then fixed costs can be added into that to generate a per unit cost for manufacturing each automated chef. Upon arriving at that, a mark up of no more than 10% over the variable and fixed costs should be considered in order to generate the demand that will enable costs to gradually increase over time. Type of Profit to be Expected in Both Short and Long Run In the short term, profit for this particular product will be quite low as demand is generated. As this product does not have much competition, however, profits over the long term should be expected to increase as demand for the product increases. Because fixed costs for the product enable massive numbers of the product to be produced for the same cost as a small amount, per unit cost of production will actually decrease as the number of chefs manufactured increase. This will allow profit to increase in the long term, even if the pricing point for the product itself remains relatively stable. References Jacobsen, B. (2012). Successive monopolies and product variety. Applied Economics Letters, 19(3), 67-71. Read More