FOR REY WRITER

NOTES FROM PROFESSOR OF LAST PAPER.

Katrina’s Candies is monopolistically competitive firm given elasticity coefficient of 1.2 using the absolute value assumption. In the long run we expect a breakeven; however price in assignment 1 is higher than output maximizing price suggesting that this firm must explore new ways to minimize cost. In the short run all variable cost must and some portion of fixed cost must be covered for a firm to continue production. A firm must shut down if price is less than the average variable cost, and all cost must be covered in the long run. Maximizing shareholders wealth requires maximizing earnings per share which means efficiency in production.

Partially determined two (2) likely factors that might have caused the change, given that business operations have changed from the market structure specified in the original scenario in Assignment 1. Partially predicted the primary manner in which this change would likely impact business operations in the new market environment.

Feedback:

The basic characteristics of monopolistic market cause the changes of business operation are: Product differentiation, the products of the company now are differentiated in some Product quality in form of physical (design of product) or qualitative differences (no sugar, , no genetically modified organism raw material, less sodium, no trans-fat, Services associated with product reward, return, discount, credit terms, advertising and packaging, use of brand names , trade mark, type of packaging etc. ** Increase substitutes as consumers have tendency to find substitutes in the long run; and increase the number of sellers in the long run. Increase substitutes as consumers respond in the long run, and potential increase in the number of sellers with product differentiation and enhanced quality.

Partially analyzed the major short-run and long-run production and cost functions for the low-calorie microwaveable food company. Partially suggested substantive ways in which the low-calorie food company may use this information in order to make decisions in both the short-run and the long-run.

Feedback:

**¿ Short run is a period of time in which at least one input is fixed. FC = $160,000,000 ¿ Long run all inputs vary. FC must be covered for the firm to break even. In the short-run the firm can still operate, if all variable cost and some portion of the fixed cost are covered. The short-run cost function: TC = 160,000,000 + 100Q + 0.0063212Q2 AC = TC/Q = 160,000,000/Q + 100 + 0.0063212Q VC = 100Q + 0.0063212Q2 FC = 160,000,000 MC = ¿TC/¿Q = 100 + 0.0126424Q The long-run cost function: TC = 100Q + 0.0063212Q2 AC =100Q/Q + 0.0063212Q2/Q = 100 + 0.0063212Q VC = 100Q + 0.0063212Q2 AVC = VC/Q = (100Q + 0.0063212Q2)/Q

Partially determined the possible circumstances under which the company should discontinue operations. Partially suggested key actions that management should take in order to confront these circumstances. Partially provided a rationale for your response.

Feedback:

SD if P is less than or equal to AVC P < 100 + 0.0063212Q All cost must be covered for a firm to breakeven or make profit, however; a firm can continue to operate in the short run at a loss if all variable cost and some portion of fixed cost is covered. P > AVC. All cost must be covered in the long run.