Submitted by: Submitted by princesony
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Pages: 6
Category: Business and Industry
Date Submitted: 09/16/2014 10:51 PM
Operations Decision
Laurell Jones
Dr. Saeed Nabaee-Tabriz
Eco 550 Managerial Economics
February 16, 2014
From the data provided, we can see that the demand function for low-calorie microwavable food is –
QD = QD = - 5200 - 42P + 20PX + 5.2I + .20A + .25M
The most important result that follows from the regression is that advertisement plays an important role in determining the demand. Therefore, the market for low-calorie microwavable food is not perfectly competitive. This is because there is no role of advertisement in a perfectly competitive market. The market is also not a monopoly. This is because even monopoly doesn’t require advertisement expenditure. Moreover, the demand function estimated states that the demand depends on the price of its competitor. Therefore the market for low calorie microwavable food is surely not a monopoly. This implies that, the market for low calorie microwavable food must belong to either an oligopoly market or a monopolistically competitive market. We know that advertisement plays an important role in a monopolistically competitive market. Besides this, another salient feature of a monopolistically competitive market is product differentiation. Every firm under a monopolistically competitive market performs product differentiation.
In our example, there are several firms producing low calorie microwavable foods. But each of the firms practices product differentiation. They slightly differentiate their product from their competitors to highlight their own product and thereby increase the market share. Therefore this firm is an example of a monopolistically competitive market.
Pricing Strategies: In a monopolistic competitive market, there are a large number of sellers. Hence a price change will induce the consumers to shift to other firm. This makes the demand curve relatively elastic. But since the products sold under monopolistic competitive market are differentiated, the demand curve is not perfectly elastic like...