Supply Chain Management at Boost Juice

Company Characteristics and Products Janine Allis founded Boost Juice bars in 2001. The company’s home country is Australia. Janine’s aim was to provide a healthy alternative to fast food, especially for children. She enlisted the help of a nutritionist and came up with several menus. Thereafter, she raised funds from friends and with the help of her husband set up the first Boost Juice Bars Store.Advertising We will write a custom report sample on Supply Chain Management at Boost Juice specifically for you for only $16.05 $11/page Learn More The company has grown through franchising and now has 190 stores spread all over the world. Initially, the menu consisted of various types of juice and smoothes. Today, snacks, soups, banana bread and wraps are served alongside the juice and smoothes. These are popular with customers especially during the winter. Boost Juice focuses on providing healthy snacks and fast food that can be eaten quickly or taken to the office. The company avoids using preservatives and other additives to food. Instead, natural cultures are used to preserve the food. This means that the company needs a constant supply of fruit and milk. Theirs is a short supply chain. It consists of the farmers who provide the milk and juice, the Juice Bars and finally the consumer. The farmers deliver the milk and fruits to the bars daily. Each bar has a cold room to preserve the products. The juices and smoothes are all made in the bars. The processes are standardized and this increases the employees’ efficiency in preparing them. A customer will usually wait an average of five to seven minutes for their order (Franchise Expo,3). Customers can now get some of the Boost Juice products from supermarkets as well as the Boost Juice Bars. This is quite convenient as there are more supermarkets than Boost Juice bars. This is a new distribution channel and has opened up new opportunities to the company (Kirby,23). T he Supply Chain The aim of Supply Chain Management is to provide value for the customer while minimizing the cost to the members of the supply chain. In the case of Boost Juice, customers would like to get healthy products at an affordable price. The task for the company therefore is to provide this healthy food and drink at that affordable price. This can only be done if all the components of the supply chain work together efficiently and effectively. Boost Juice operates a just in time system of procurement, purchasing only when absolutely necessary. The company has created excellent supplier relationships which are crucial to the success of this strategy. This system supports their low cost strategy as it helps in reducing the holding cost for inventory.Advertising Looking for report on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More The company has also managed to do away with a substantial proportion of the cost of r otten fruits and milk, which is common in the industry especially during summer. The company also operates an Electronic Data Interchange and an Intranet which aids communication with suppliers. Orders are placed automatically when inventory runs low and suppliers confirm whether or not they will be able to deliver (Boost Juice Bars Limited,2). The company bargains with suppliers for lower prices in return for purchase in bulk. This is possible only in Australia where their operations are large scale. In other countries like South Africa, suppliers have more power than the buyer, Boost Juice Bars. The company employs several tactics to find out what the customer wants. Research is done on focus groups and customers are encouraged to give their feedback via email. This has ensured Boost juice stays ahead of its competitors and satisfies its customers’ needs. Knowing what the customer wants and delivering it creates competitive advantage. Boost Juice has managed to succeed in t his area due to excellent management of its supply chain. The company’s supply chain management can be said to be effective as it has enabled it to meet its goal of venturing into the international market. The company also earns a profit of more than $10million annually. This indicates that whatever strategies they are employing are actually succeeding. Their good people skills have enabled them to recruit suitable people who share the vision of the company. Their Love Life philosophy also draws people to their Bars. Illustration Advertising We will write a custom report sample on Supply Chain Management at Boost Juice specifically for you for only $16.05 $11/page Learn More Importance of Supply Chain management to The Company Supply Chain Management can be classified as a core competence for any business in today’s world. Failure in any part of the supply chain will usually result in customer dissatisfaction and loss of revenue. Thus, Boo st Juice needs to invest in management of information and materials that flow in its supply chain. Customer satisfaction is a critical success factor in business, without it, Boost Juice would be put out of operations in a short time. Customers require service and product providers to be responsive to their needs. Supply Chain Management empowers companies to respond promptly to their customer’s needs. Establishing open communication channels with consumers helps in predicting their needs and thus creating products that satisfy these needs (Boost Juice Bars Limited,4). Changes in supply and demand can be anticipated and dealt with in the best way possible as early as possible. This is also a result of management of the flow of information in the supply chain. Instances of stock outs or over production can be avoided through Supply Chain Management. It also leads to better supplier relationships which lead to credit and discounts. Supply Chain Management helps Boost Juice to s ave time and money. Information is available therefore reducing the uncertainty in the planning process. Efficiency in procurement and transport help in lowering operating expenses. This in turn raises the profit margins (Boost Juice Bars Limited,3). The Practise of Supply Chain management at Juice Boost Bars The company’s supply chain management is evident in the database and IT system LeaseEagleâ„ ¢. This system enables the company to manage its franchises all over the world while keeping in touch with suppliers and other business partners. Multiple users can work on the system simultaneously, improving information sharing. The selection of partners who will own the franchise stores is also an element of supply chain management. There is a set criterion that prospective partners have to meet before joining the Boost Juice family. This is an attempt at ensuring efficiency in the production stage. New partners are required to work in their juice bars (Boost Juice Bars Limi ted,1).Advertising Looking for report on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Finance flows along the supply chain in the same way as information. Boost Juice ensures it pays its suppliers promptly in order to keep them in business. The company recognizes that they need the farmers if they are to continue in operations. Late payment of suppliers is poor practise in Supply Chain Management as it leads to poor supplier relationships. This will impact negatively on the supply chain and result in poor value for the customer with high cost on the members of the supply chain. The company relies on customer feedback in order to create new products. This feedback is collected by the individual Juice Bars and analysed centrally. If the juice bars fail in their duty to collect customer feedback, the company may find itself losing revenue to competitors. Suppliers are crucial because they provide the raw materials necessary to make the food and drink. Recommendation Boost Juice should consider vertical integration as a means of securing a constant supply of fruits and m ilk for its juice bars. This is a form of backward vertical integration. The implementation of such a plan would require the company to purchase fruit and dairy farms. Owning the farms will enable the company to control the quality of produce delivered to its Juice Bars. High quality raw materials should lead to high quality end products and greater customer satisfaction than before. Transport costs can also be minimized by locating the Juice Bars close to the farms. The company can also benefit from the profit margins on the milk and fruits. The coordination between the farms and the juice Bars can also benefit greatly from such an arrangement. There are several considerations Boost Juice Bars has to make before adopting this proposal. The company should consider whether it has or can obtain the necessary manpower to manage the farms. Vertical integration is expensive and suitable sources of funds would have to be sought. In case the company finds vertical integration to be too exp ensive or unsuitable to its mode of operations, then other options can be sought. This would include long term contracts with the best suppliers or joint ventures with the farm owners (Franchise Expo,4). Works Cited Boost Juice Bars Limited. Boost Juice Bars. 6 March 2005. 12 February 2011 https://www.boostjuice.com.au/#/home. Franchise Expo. Boost Juice Bars. 16 May 2010. 12 February 2011 https://www.franchiseexpo.com.au/franchise_locations/new-zealand. Kirby, James. Janine Allis: Business Secrets of the Woman Behind Boost Juice. Chicago: John Wiley and Sons, 2005. This report on Supply Chain Management at Boost Juice was written and submitted by user Madeline Albert to help you with your own studies. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly. You can donate your paper here.

Aristotle and Living a Virtuous Life

Aristotle and Living a Virtuous Life Free Online Research Papers Although he lived 2,392 years ago, Aristotle’s ideas and theories of how people think of themselves and their life are still discussed today. What is good? What are we trying to achieve? Why, how, what, and when are all questions we as people ask ourselves all the time. Aristotle tries to help us understand ourselves and the questions that consume the human mind. The core of his ideas comes down to what appears to be may or may not be the true reality; the difference of true good and what seems good. In order to find â€Å"the good†, one must understand the function of a human and find the virtuous way of everything; finding excellence in all they do. All of this leads up to the ultimate goal of happiness. True happiness is being all you can be. The appearance verses reality concept helps us define what ways we can understand to improve our lives and ultimately find happiness. Appearance is what we believe to be true even if it is false. It is what seems to be the good at the time, like a wolf in sheep’s skin. We might think it is a sheep and believe with our whole being that it is in fact a sheep, when in reality, it is a wolf. In the same way we may think we know something is truth and it is false, Aristotle argues we may believe we are happy, when indeed we are not. Happiness, or eudemonia, means to have a good life; to back on life without regret. This brings up the question: can one truly say they are happy when living? Someone would be able to say they believe they are happy or they are working on achieving that goal. To be clear, the good is the goal which leads to happiness. One must always strive to â€Å"the good† in every part of their life. In order to achieve the balance of the good, one must practice. An example is how long should someone study for a class. For every person, the time will be different. If someone does not study long enough, they could regret it because of a poor grade on a test. If someone studies too long and avoids a balance of studying and having fun with friends, they could regret missing out on the time they did not spend with their friends. So either way, there is regret. In order to achieve â€Å"the good† in this situation, the person must find a balance of studying and time spent with their peers. This balance can also be called arà ªte, or virtue and excellence. Performing the ergon, function, of yourself as best as you can is how you achieve virtue, which leads to goodness, which brings happiness. Aristotle believes the ergon of a human being is to train our desire to desire and love what is best. We must use our reason and our rationality and apply it to our lives. A good person will love what is best for them. Their desires will no longer be driven by pleasure, but by the idea of the higher goal. They will be able to not only have a strong will against pleasurable desires of things that seem good, but will not even desire those things. They will only desire the good. They will love what is best for them, and will ultimately lead them to happiness. In order to begin making rational choices by using self control, one must learn to recognize a moral fact as a fact. Knowing the difference between a fact, acting upon it towards the good is how to begin the way to happiness. Within the human soul, there are two parts; the irrational and the rational. The irrational is made up of vegetative and animal drives. Vegetative makes us grow and the animal can listen to reason but not rec ognize it by itself. The rational side of the soul is made of the practical and theoretical parts. The practical part uses reason to get what it wants. The theoretical part is relatively useless. It is the abstract part of thinking. The interaction of the animal and the practical is what we need to perfect. Making a habit of doing good things for the right reason and at the right time is how someone can start towards loving what is good. There are many metaphors that elaborate on the concept of appearance and reality. One is a child and an adult. A child is driven by pleasures alone whereas an adult has the ability to make decisions based on knowledge of what they perceive good to be. This can also be described as asleep verses awake or â€Å"enslavement verses freedom† and the practical sylloquism. Children do not make choices. They can act voluntarily and respond to a parent telling them no by not doing something, but cannot decipher what is best for them. There is a major premise, a universal moral fact (example: stealing is wrong). The minor premise is a particular part of the universal idea (example: stealing item X is wrong) and can be mistaken and deemed part of involuntary ignorance. A child can sometimes understand a universal fact once told, but cannot think of it themselves. They might also mix up a minor premise of a major premise and believe they are doing good, when in fact they are not. This is involuntary wickedness. Yet, when a person does not know the universal moral fact, they are deemed wicked. Children may not be able to put the two together, even if they understand both premises, to make a conclusion (â€Å"I should not steal this†). This is all related to Choice and deliberation. Most children do not have ends or a major premise. They cannot deliberate and come to a conclusion. This is why they are described as asleep, while an adult can be awake. Everything to Aristotle is desirable as a means to happiness. Another visual to apply to the idea of finding virtue is an archer aiming an arrow at a target; the bulls-eye is happiness. At first, it takes a lot of work trying to hit the bulls-eye, but eventually it becomes easier. This is just like happiness. At first, you may hit too high or too low on the spectrum around virtue, but eventually the archer will get closer to excellence and happiness. The danger of the archer is called hamartia, the fatal flaw. It means â€Å"missing the mark† because of a lack of practice. In order to get to â€Å"the good†, one must practice. If there is no practice, then the good is not even a thought let alone a desire of that person. Finding the good can also be called finding the â€Å"golden mean†. This is doing the right thing, at the right time, for the right reason. In order to find it, one must use self control. There is an insensitive and an indulgent part of self control. When there is not a balance of the two, there will be regret; either regretting not doing enough of something or doing too little. Every person’s mean is different, but everyone must practice and experiment in order to find what is right for them. This is hard to figure because in order to experiment, there will be regrets involved, so can someone ever be truly happy? I believe so. I think that there will be regrets for a short amount of t ime, but in the long run, at the point of old age, if those regrets have not stayed regrets, then happiness is still achievable. There are three pieces of advice for being able to hit the mean. 1. Generally avoid extremes. 2. Move away from â€Å"proclivity† (when you know you tend to be a certain way, force yourself to find the real mean- not natural inclinations). 3. Beware of pleasure. It is usually not the good, but an instant gratification that can have worse consequences than not meeting that desire. Yet, in order to find the mean, mistakes are inevitable. People fit into six levels of goodness. One can move up and down the levels throughout life and different experiences and reactions to those experiences. The megalopsyhchias are super virtuous and their mean is higher than everyone’s. The virtuous person knows a fact is a fact and lives a good and happy life. The strong willed person knows a fact is fact, but struggles desiring what is best, but makes the good decision in the end. The weak willed person is knows the right thing and tries to do the right thing, but frequently does the opposite. The bad person does not believe that anything is wrong with feeding the appetite of pleasure; maybe someday they will feel regret. Finally, the brutish person is extremely bad and does not regret it. When going through life trying to reach the goal of happiness and living a virtuous life, seeing what is truly good and what only seems good can be a very difficult thing to decipher. Acting upon the knowledge of the good is even more difficult. Sometimes it may seem like there is no hope for anyone in Aristotle’s way of seeing the world. So many obstacles come in the way of happiness, that even when you die, an heir can be bad and therefore make your life unhappy. Yet, other people may see Aristotle’s ideas as relieving because mistakes are ok and expected. A person is not stuck on one level of the hierarchy for their whole lives; it is moveable by means of knowledge and thinking. Overall, understanding the good and desiring what is best for you, not necessarily what is instantly pleasurable is the way to the good. Once this is found, what is desirable will become pleasurable to you, leading to a life of happiness. Research Papers on Aristotle and Living a Virtuous LifeComparison: Letter from Birmingham and CritoNever Been Kicked Out of a Place This NiceLifes What IfsEffects of Television Violence on ChildrenResearch Process Part OneStandardized TestingRelationship between Media Coverage and Social andIncorporating Risk and Uncertainty Factor in CapitalWhere Wild and West MeetHip-Hop is Art

Understandings of Anderson's (2007) 'Imagined Communities' Essay

Understandings of Anderson's (2007) 'Imagined Communities' - Essay Example Understandings of Anderson's (2007) 'Imagined Communities' Other analysts for the concept will be included in the essay. Conclusion This compilation provokes will thought that ‘Imagined communities’ actually exist and that all nations have endeavored to strive towards accomplishing their imaginings. Anderson's 'imagined communities' The concept of imagined communities has had numerous opinions among various analysts and researchers in the context of geographical notion. In the words by Anderson, the concept of imagined communities is of the opinion that nations are not fallacial as the word imagined contemplates (6). Rather, this concept means that the making of a nation is of the meaning that the states are created from various processes that are common to the populace of that particular state. According to the research conducted by Anderson, the concept of ‘imagined communities’ relates to the fact that all persons hope to have touch with the members of their state and all that these members engage in (7). At most times, the members of the nation do not have the opportunity to interact with each other, meet all the members of the nation or even interact with all, but they all act in communion. Anderson continues to emphasize that imagined communities are mostly shaped by the institutions that are put in place in the nation (6). These institutions range from the political to cultural systems. Through these institutions, the beliefs, opinions and outlooks shared by a people in the nations are shared generally. The nation is indeed a large territory that encompasses numerous persons from all walks of life, with finite boundaries. These boundaries, must however bar persons from interacting with each other, but bring them together at all times (Chasteen & Castro-Klaren, 117). Additionally, Anderson is of the opinion that nations are imagined from the fact that all nations hope to be free (142). This relates to the sovereignty of the state and limited demography or spatial barriers. The hierarchies present in a nation as expected of a sovereign nation are in one way or another imagined being absent, and freedom is the pillar of the nation. The nation is expected to have assumed the archaic systems and replaced them with societal systems that include all persons in the social order. The nation, in this case, is one that should be inclusive of rule and sovereignty. Anderson emphasizes that this form of rule must be allow the nation exercise its authority over its citizens (6). On another point of view, the nation is imagined for the reason that all nations always hope to have a form of solidarity despite the forms of inequality and abuses prevalent in the nations (Anderson, 137). Members of the nation will always endeavor to uphold respect for each other for the nation is considered greater than all the individuals. It is also in this line that the members of the nation uphold respect and love for each other and will not watch the nation derail due to their individual differences. The imaginings by the members of these nations steer the nation towards heights of success. It is also evident that the members of the nation will be more than willing to offer any thing to see the achievement and maturation of their imaginations of a successful nation. This is a depiction of

See upload Assignment Example | Topics and Well Written Essays - 500 words

See upload - Assignment Example Tax returns, copies thereof, or other records may be sufficient to establish the use of the method of accounting used in the preparation of the taxpayers income tax returns (i)  Cash receipts and disbursements method.  Generally, under the cash receipts and disbursements method in the computation of taxable income, all items which constitute gross income (whether in the form of cash, property, or services) are to be included for the taxable year in which actually or constructively received. Expenditures are to be deducted for the taxable year in which actually made. For rules relating to constructive receipt, see  §1.451-2. For treatment of an expenditure attributable to more than one taxable year, see section 461(a) and paragraph (a)(1) of  §1.461-1. (ii)  Accrual method.  (A) Generally, under an accrual method, income is to be included for the taxable year when all the events have occurred that fix the right to receive the income and the amount of the income can be determined with reasonable accuracy. Except as provided in section 5.02(2) of this revenue procedure for certain short taxable years, this revenue procedure does not permit deferral to a taxable year later than the next succeeding taxable year The court, distinguishing from the holding in Schlude v. Commissioner, held that accrual method taxpayers are not required to include prepayments in gross income when there is certainty as to when performance would occur. Verdict: the Court held that, under the accrual method, taxpayers must include as income in a particular year advance payments by way of cash, negotiable notes, and contract installments falling due but remaining unpaid during that year. Verdict: It was held that the Commissioner of Internal Revenue did not abuse his discretion in determining that the prepaid dues were taxable as income in the year in which they were actually received and in rejecting

Initial Assessment Essay Example for Free

Initial Assessment Essay The reasoning for using Initial Assessment in my curriculum area is because the majority of students have not completed a formal education or if having done so hold little or no qualifications. The majority of the courses start at entry level therefore no qualifications’ are require, but to offer students progression on to higher levels they need to be holding or be able to achieve a level 1 in communication and application of number. This is the minimum requirement to complete an apprenticeship programme and the vast majority wish to follow the vocational route to being a ‘qualified tradesman’. Procedures Before the day of enrolment students are fore warned at the interview stage what the awarding bodies’ requirement is to do a particular course. In the case of Construction Awards Alliance they have their own assessment criteria to try a match the suitability of the student to a particular trade. However because we deliver from entry to level 2 with three bodies to keep to the assessment process standard the college format is used( booklet produced by the learning centre, attached). Hillier. J (2005 p62) states â€Å"Great care must be used with such assessment activities. Many potential learners will feel highly by being threatened by being asked to undertake a diagnostic assessment. † In my opinion as long as students are made aware that this is not a formal test the majority do not mind taking the test, provided that the reasoning behind it is explained correctly. As a tutor it is important I remember the purpose of the test as Lambert. D and Lines. D (2000 p20) state â€Å"formative assessment is undertaken so that positive achievements of a pupil can be recognised and the appropriate next step planned†. Once all the information is collated this is entered into the course/ student profile booklet, this enables me or any other tutors to look at a particular student or group qualifications and progress as they are recorded for each achievement. Personally I think that the process works well when we complete the diagnostics on line as students can not see how others are doing. Most students feel more comfortable using this method as they do not feel as much pressure as they can wear head phones if required. The whole purpose works well because as a tutor working on entry level and to a certain degree on level 1, communication and application of number can be imbedded into the practical aspects of the course. The major weakness that I feel of the assessment process is that they are not curriculum specific; aspects of application of number are not relevant to the vocational subject. As I have experienced my self and some mature students the terminology of key words has changed until we have had them explained. When using the paper versions students that struggle to read or write often do not complete enough of the booklet, for the tutor to find the true level the students capable / working at. An important aspect that is often missed is the fact that to help students there is a requirement to have extra support in place if require for individuals. If there is no support is there a need for assessment? Yes but ensure all the support is provided and available as required in a timely manner.

The History of the Panama Canal :: American America History

The History of the Panama Canal The Panama Canal has been called the big ditch, the bridge between two continents, and the greatest shortcut in the world. When it was finally finished in 1914, the 51-mile waterway cut off over 7,900 miles of the distance between New York and San Francisco, and changed the face of the industrialized world ("Panama Canal"). This Canal is not the longest, the widest, the deepest, or the oldest canal in the world, but it is the only canal to connect two oceans, and still today is the greatest man-made waterway in the world ("Panama Canal Connects). Ferdinand de Lesseps, who played a large role in building the Suez Canal in 1869 (Jones), was the director of the Compagnie Universelle Du Canal Interoceanique de Panama ("Historical Overview"). At first De Lesseps seemed to be "the perfect choice for the Panama task." Though as time went on De Lesseps was found to be "anything but the ideal" (Dolan). As soon as de Lesseps' company took over the canal it was doomed (Jones). De Lesseps was a 74-year-old man who was stubborn, vain, and very opinionated (Considine). Because of his experience with the Suez waterway, De Lesseps thought he was smarter than all the engineers beneath his command (Dolan). De Lesseps overrode all opposition of his sea-level canal due to his very popular reputation. He was sold on the idea of a sea-level canal and would not listen to the ideas of others such as French engineer, Adolphe Godin de Lepinary. De Lepinary's idea was to create two large lakes on either side of the mountains. In order to do this they w ould have to dam the Chagres River on the Atlantic side and the Rio Grande River on the pacific side (Considine). Although as time went on more than just a poor director held back the finalization of the canal. Disease, death, and rough terrain slowed down the completion of the canal. "The Terrain at the Isthmus was something they had never experienced and had not put a serious study of it, a very grave error" ("Panama Canal Connects"). Mosquitoes were responsible for many deaths. Illnesses such as yellow fever and malaria made "many of the work forces go to the hospitals or in some cases die" ("Panama Canal"). Mosquitoes carried the diseases and when a person got bit he would give a disease to the mosquito and the mosquito would pass it on to the next victim ("Historical Overview").

Perfect competition Essay

The focus today’s lecture is the examination of how price and output is determined in a monopoly market. Pure monopoly is a single firm producing a product for which there are no close substitutes. It is important for us to understand pure monopoly since this form of economic activity accounts for a large share of output and it provides us with an insight into the more realistic market structure of monopolistic competition and oligopoly. It is characterised by: †¢ a single seller producing a product with no close substitutes. The firm and the industry are the same. The product is unique – there is no close substitute for it. You either buy the product or go without. †¢ effective barriers to entry into the market (legal, technological, economic). These barriers block new firms from entering the industry, blocking potential competition. †¢ the firm is a price maker; faces a downward sloping demand curve for its product (this demand curve is the market demand curve). The firm has considerable control over price since it controls the quantity supplied and can cause price to change by varying the amount supplied. †¢ effective barriers to entry One special type of monopoly is a natural monopoly, a monopoly that arises because of the existence of economies of scale over the entire relevant range of output and competition is impractical, e. g. , water, electricity. These industries are usually given exclusive rights by the government, with the proviso that government regulates the operations to prevent abuses of monopoly power. A larger firm will always be able to produce output at a lower cost than could a smaller firm. The pressure of competition in such an industry would result in a long-run equilibrium in which only a single firm can survive (since the largest firm can produce at a lower cost and can charge a price that is less than the ATC of smaller firms). Natural monopolies have low MC and it is to their advantage to expand output. Barriers to entry The absence of competition in an industry is due largely to barriers to entry. Barriers to entry may take different forms: 1. economies of scale: costs – efficient, low cost producers are usually large firms operating under conditions of economies of scale, where AC falls over a range of output. 2. Legal barriers: Patents and Licences – government creates legal barriers in giving patents and licences. Patents: this is the exclusive right to control a product for a number of years, protecting the inventor from rival competitors who did not spend any money and time in its development. Licences: the issuing of licences by the government limits entry into an industry. 3. ownership of critical raw materials: a firm that owns a critical raw material can block the creation of rival firms. 4. unfair competition – rivals may be eliminated and the entry blocked by aggressive, cut-throat tactics such as pressure on resource suppliers and banks to withhold materials and credit, aggressive price cutting designed to bankrupt competitors. Unfair competition is illegal or borders on illegality. Under conditions of economies of scale, large firms can produce output at a lower cost than can smaller firms. Assume that the ATC curve of all firms in the industry is ATCo; however, one firm has become larger than the others, thereby producing at a lower ATC. This larger firm can sell its output at a lower price (at P’) at which point smaller firms will experience economic losses. At Po, smaller firms would receive zero economic profit. At P’ the larger firm will receive zero economic profit, but smaller firms would receive economic losses and so leave the industry or merge with others. This situation will continue until only one large firm remains. This gives us a â€Å"natural monopoly†. A large firm can operate as a regulated monopoly in which the government regulated the prices that could be charged for product/services. [pic] A firm may acquire monopoly power by having sole ownership of a raw material. Firms can also raise the sunk costs associated with entry into an industry to help discourage entry by new firms. Sunk costs are costs that cannot be recovered upon exit from an industry – advertising expenditures. If firms know that they’d lose a large amount in the form of sunk costs, they may hesitate to enter an industry. Large sunk costs are also difficult to finance. Patents and licenses provide two types of barriers to entry that are created by the government. While patent protection is necessary to ensure that there are sufficient incentives for firms to engage in research and development expenditures, it also provides the patent holder with some degree of monopoly power. A local monopoly is a monopoly that exists in a specific geographical area. Monopoly Demand, AR, MR, TR, and elasticity The demand curve facing a monopoly firm is the market demand curve (firm is the market). Since the market demand curve is a downward sloping curve, marginal revenue will be less than the price of the good. The monopolist can increase its sales only by lowering its price. This is different from the perfectly competitive firm which faces a perfectly elastic demand curve at the market price. Recall that MR is: †¢ positive when demand is elastic, †¢ equal to zero when demand is unit elastic, and †¢ negative when demand is inelastic. We will examine the implications of a downward sloping demand curve. i) P > MR – the monopolist can only increase sales if price falls, this causes MR < P (AR) for all output except the first. The falling MR means that TR will increase at a decreasing rate. Since it must lower price to sell more, the firm’s MR lies below its demand curve. ii). Price elasticity Recall the TR test for price elasticity of demand. TR tests tells us that when demand is elastic (inelastic), a decline in price will increase (decrease) TR. A monopolist or other imperfectly competitive firm will not chose to lower price into the inelastic segment of its demand curve, this will reduce TR and increase production costs, thereby lowering profits. The relationships between demand, MR and TR curves are shown in the diagram below, TR is maximized at the level of output at which demand is unit elastic (and MR = 0). Since the objective is to maximize its profit, the firm will look at its costs and revenue in determining its output level. As long as TR is increasing, MR is positive. When TR is at its maximum, MR = 0 and when TR is decreasing, MR is negative. [pic] Note that, as in all other market structures, AR = P of the good. (AR = TR/Q = (PxQ)/Q = P. ) This means that the price given by the demand curve is the average revenue that the firm receives at each level of output. iii) Cost Data The price-quantity combination depends not only on the MR and demand data, but also on costs. Profit-maximising firms produce the level of output where MC = MR (as long as P > AVC). For the monopoly firm, MR = MC at an output level of Qo and firm will charge Po. Since Po > ATCo at this level of output, the firm receives economic profit. These monopoly profits, though, differ from those received by a perfectly competitive firm in that these profits will persist in the long run (due to the barriers to entry that characterize a monopoly industry). [pic] A monopoly firm may experience losses (see diagram below) if P < ATC. The economic losses equal to the shaded area. Since price is above AVC, it will continue operations in the short run, but will leave the industry in the long run. [pic] A monopoly firm will shut down in the short run if the price falls below AVC. [pic] It may be a widely held view that a monopolist can charge any price s/he wants, but the firm is constrained by the demand for its product. If a monopoly firm wishes to maximizes its profit, it must select the level of output at which MR = MC. An increase in the price above this level would reduce the profits received by the firm. Some misconceptions about monopoly pricing i) One common misconception is that the monopolist will charge the highest price it can get. This is not true. Monopolist may not seek higher prices since these bring in smaller than maximum profit. Total profit = TR – TC, and these depend on the quantity sold, price and unit cost. ii) The monopolist is more concerned with maximum total profit, not maximum unit profits. He accepts a lower than maximum per unit profit since additional sales will more than make up for the lower unit profits, e. g., willing to sell 5 units at a profit of $30 per unit (total profit = $150) than 4 units at a profit of $70 (total profit = $140). Economic effects of monopoly It will be profitable for the monopolist to sell a smaller quantity and charge a higher price than would a competitive producer. The profit maximizing output will result in an under allocation of resources since the restricted output uses fewer resources. Given the same costs, a monopolist will find it profitable to charge a higher price, produce a smaller output and mis-allocate resources compared with a perfectly competitive industry. X-efficiency: occurs when a firm’s actual costs of producing any output are greaterthan the minimum possible costs. Price discrimination and dumping Firms operating in markets other than those of perfect competition are able to increase their profits by engaging in price discrimination, where higher prices are charged to those customers who have the most inelastic demand for the product. It takes place when a given product is sold at more than one price and these price differences are not justified by cost differences. Necessary conditions for price discrimination include: i) Monopoly power: the firm control output and price (not be a price taker); ii) separation of buyers – the firm must be able to sort customers according the their elasticity of demand or willingness to pay for the product, and iii) no reselling – resale of the product must not be feasible – cannot buy low and sell high.. The diagram below illustrates how price discrimination may be used in the market for airline travel. Vacation travelers are likely to have a more elastic demand than business travelers. The optimal price is higher for business travelers than for vacation travelers. Airlines engage in price discrimination by offering low price â€Å"super saver† fares that require a weekend stay and tickets to be purchased 2-4 weeks in advance. These conditions are much more likely to be satisfied by individuals traveling for vacation purposes. This helps to ensure that the customers with the most elastic demand pay the lowest price for this commodity. [pic] Other examples of price discrimination include daytime and evening telephone rates, child and senior citizen discounts at restaurants and movie theaters, and cents-off coupon in Sunday newspapers. When countries practice price discrimination by charging different prices in different countries, they are often accused of dumping in the low-price countries. Predatory dumping occurs if a country charges a low price initially in an attempt to drive out domestic competitors and then raises the price once the domestic industry is destroyed. Consequences of discrimination The monopolist will be able to increase profits by engaging in discriminatory price practices. Monopolist will produce a larger output than a non-discriminating monopolist. Comparison of perfect competition and monopoly The diagrams below show a perfectly competitive market and the loss in consumer and producer surplus that results when a perfectly competitive industry is replaced by a monopoly. The introduction of a monopoly firm causes the price to rise from P(pc) to P(m), while the quantity of output falls from Q(pc) to Q(m). The higher price and reduced quantity in the monopoly industry causes consumer surplus to fall by the trapezoidal area ACBP(pc). This does not all represent a cost to society, though, since the rectangle P(m)CEP(pc) is transferred to the monopolist as additional producer surplus. The net cost to society is equal to the blue shaded triangle CBF. This net cost of a monopoly is called deadweight loss. It is a measure of the loss of consumer and producer surplus that results from the lower level of production that occurs in a monopoly industry. [pic] Some economists argue that the threat of potential competition may encourage monopoly firms to produce more output at a lower price than the model presented above suggests. This argument suggests that the deadweight loss from a monopoly is smaller when barriers to entry are less effective. Fear of government intervention (in the form of price regulation or antitrust action) may also keep prices lower in a monopoly industry than would otherwise be expected. A related point is that it is unreasonable to compare outcomes in a perfectly competitive market with outcomes in monopoly market that results from economies of scale. While competitive firms may produce more output than a monopoly firm with the same cost curves, a large monopoly firm produces output at a lower cost than could smaller firms when economies of scale are present. This reduces the amount of deadweight loss that might be expected to occur as a result of the existence of a monopoly. On the other hand, deadweight loss may understate the cost of monopoly as a result of either X-inefficiency or rent-seeking behavior on the part of monopolies. X-inefficiency occurs if monopolies have less incentive to produce output in a least-cost manner since they are not threatened with competitive pressures. Rent-seeking behavior occurs when firms expend resources to acquire monopoly power by hiring lawyers, lobbyists, etc. in an attempt to receive governmentally granted monopoly power. These rent-seeking activities do not benefit society as a whole and divert resources away from productive activity. Regulation of natural monopoly A monopoly firm can produce at a lower cost per unit of output than could any smaller firms in a natural monopoly industry. In this case, the government generally regulates the price that a monopoly firm can charge. The diagram below illustrates alternative regulatory strategies in such an industry. If the government leaves the monopolist alone, it will maximize its profits by producing Q(m) units of output and charging a price of P(m). Suppose, instead, though, that the government attempts to emulate a perfectly competitive market by setting the price equal to marginal cost. This would occur at a price of P(mc) and a quantity of output of Q(mc). Since this is a natural monopoly, though, the average cost curve declines over the relevant range of output. If average costs are declining, marginal costs must be less than average costs (this relationship between marginal and average costs was discussed in detail in Chapter 9). Thus, if the price equals marginal costs, the price will be less than average total costs and the monopoly firm will experience economic losses. This pricing strategy could only exist in the long run if the government subsidized the production of this good. [pic] An alternative pricing strategy is to ensure that the owners of the monopoly receive only a â€Å"fair rate of return† on their investment rather than monopoly profits. This would occur if the price were set at P(f). At this price, it would be optimal for the firm to produce Q(f) units of output. As long as the owners receive a fair rate of return, there would be no incentive for this firm to leave the industry. Roughly speaking, this is the pricing strategy that regulators use in establishing prices for utilities, cable services, and the prices of other services produced in regulated monopoly markets.