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Economics and Ethical Issues

In: Business and Management

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Introduction (Background of Mrs. Acres Pies) Mrs. Acres Homemade Pies derived from Shelly Acres whose grandmother gave her a family recipe for making pies. Shelly Acres loved to cook so she decided to start her own business called Mrs. Acres Homemade pies. The company produced specialty pies and sold them in local supermarkets and selected family restaurants. In the first six months Shelly Acres and three part time employees sold 2,000 pies for $4.50 each, netting $1.50 profit per pie. The business was so successful they could not keep up with demand. In order to meet demand Shelly Acres had to expand operations, borrow money, and increase staff to four full-time employees. Production and sales of the homemade pies increased to 8,000 pies per month and profits increased to $12,000 per month. Shelly Acres’ homemade pies continued to increase beyond what she could supply. Now Shelly has the dilemma of making a decision of how she should proceed with her company in the short run and long run to continue to make profits.

Short-Term Supply, Demand and Price In the short run with supply staying constant and demand increasing. Shelly Acres will have to make a decision whether to increase price to maintain supply and demand. With an increase in demand in pies will raise both the equilibrium price and equilibrium quality. In the short run Shelly Acres has expanded her operations, borrowed money, and increased her staff in order to keep up with demand. In the short term of things Shelly Acres has made all of the correct business decisions to make her business stay afloat with the increase in demand of her homemade pies.

Long-Term Supply, Demand and Price In the long run Shelly Acres will have to increase supply as well as price in order to keep up with demand. In order to keep up with demand for Mrs. Acres Homemade Pies, Shelly Acres will have to expand her business and staff more to what she currently has done to continue to make a profit. Shelly Acres could also contract the production of pies to another company giving her a percentage of the profits.

Differences A short run equilibrium is define to be a price and quality of output where demand is derived from utility maximization, supply is derived from firms choosing variable inputs and outputs to maximize profits and supply equals demand. In the long run companies can adjust all inputs. New companies can enter the market in search of profit and opportunity, and existing companies can exit the market if they are receiving negative profits.

Introduction (Soft Drink or Laundry Detergent) Monopolistic competition is a market type in which many firms compete by selling similar, but slightly different products. Soft drinks are one type of monopolistic competition. There are many different types of soft drinks, differing only in flavor and packaging, of what is, essentially, flavored, carbonated, sweetened water. Firms in this market spend a lot of money on advertising, trying to impress the differences of their products upon the buyers and building the brand.

Factors of Production Land, labor, capital, and entrepreneurial ability are combined to produce goods and services they are called factors of production. Land is a natural resource that is found in nature that can be used for the production of goods and services. Land can be used for the plant that will produce the soft drinks. Labor is the human effort that can be applied to the production of goods and services to create the soft drink. Examples of labor are the person in the plant mixing the ingredients together to make the soft drink down to the retail clerk in the grocery store selling the item to the consumer. Labor’s contribution to an economy’s output of goods and services can be increased either by increasing the quantity of labor or by increasing human capital. Capital is a factor of production that has been produced for use in the production of other goods and services. Capital for soft drinks is the machinery that is used in the production of making the good that the consumer will use. An entrepreneur is a person who, operating within the context of a market economy, seeks to earn profits by finding new ways to organize factors of production, which in the soft drink industry it maybe the owner of the business down to the employees of the business. The entrepreneur combines the resources of land, labor, and capital to produce a good or service, such as a soft drink.

Factors and Competitive Advantages
No other country has as high of a soft drink consumption rate as the U.S., however, many international areas have been targeted as potential areas for expansion. The strategy of overseas expansion involves similar use of the differentiation and consolidation methods that are used in the U.S., but are often geared toward specific foreign populations, e.g. PepsiCo's introduction of a unique Guava-Flavored Slice in India (Hartogh, 2008). Selling soft drinks internationally is advantageous to soft drink companies because they are able to sell their products overseas at a lower price since local bottling companies produce the drinks. The major competitors, therefore, are essentially responsible for selling brand names and the image that goes with them.
Soft drinks are commonly sold in stores in bottles and cans. They can also be dispensed using a soda gun. Sales earn a significant amount of money for the producers and distributors. Most famous name-brand soft drinks are produced and bottled by local or regional independent bottling companies. These companies license the name, and are usually sold the main ingredients, with syrup made by the main manufacturing plants of the trademark holders.
In the past, most cola-flavored and other soft drinks were sweetened with ordinary sugar, but to save on production costs in some markets, high-fructose corn syrup is now commonly used as a sweetener.
Competition in the industry among soft drink producers is widely referred to as the cola wars, a term mainly used to describe the ongoing battle for market supremacy between Coca-Cola and Pepsi (Kruschand).

Conclusion In conclusion Mrs. Acres Homemade pies became a great success as soon as production started. Demand was so great for the homemade pies that Shelly Acres found she had to increase staff and borrow money to keep up with demand. To maximize profits Shelly Acres should contract the production of the pies to another company and give her a percentage of the profits so that the demand will not accelerate beyond what Shelly Acres can supply. In monopolistic competition soft drinks have to compete with the competitive advantage of being different in the market. They have to make consumers aware of product differences through advertising. Consumers some times value the taste or the look of other products than others and are willing to pay a higher price to get what they want.

References: Kruschandl, Nelson. (n.d.) The Solar Navigator retrieved from http://www.solarnavigator.net/solar_cola/soft_drink.htm Hartogh, Matthew, The Profitable Fizz: A Critical View of Competition in the Soft Drink Industry (January 1, 2008). Available at SSRN: http://ssrn.com/abstract=1103093…...

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