Demand Analysis For The Firm Producing Low Calories Microwaveable Frozen Food

1797 Words Aug 13th, 2016 8 Pages
Operations Decisions
In the demand analysis for the firm producing low-calories microwaveable frozen food, we have found the equilibrium price and output from the interaction of the demand and supply curve. We know that the supply function is not relevant in the case of a monopoly. Therefore, the firm in question is not a monopolist. In a perfect competition, the firm faces a perfectly elastic demand curve. However, in our case the demand curve is downward sloping. We can conclude that the firm is not in a market with perfect competition. However, there is some degree of competition. This shall be clear if we analyze the elasticity of demand. Using the regression results of the demand for the product, we have found that the price elasticity of demand for the product is around 1.2 (we consider the numerical value, so we have omitted the ‘-‘ sign). This is slightly more than one. Therefore, we conclude that the demand is moderately elastic. A fall in price of the product will not increase the demand considerably. Therefore, a pricing strategy will not help the firm to gain market power. This suggests that there is a fair degree of competition in the market. We have seen that the firm has a few close substitutes. The elasticity with respect to the closest competitor’s product will let us know the competitive edge of the firm in question.
The cross price elasticity of the product with respect to the price of the close competitor’s product is 0.68, which is less than 1. It is…

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