Boise State University Improb

I’m working on a macro economics writing question and need an explanation to help me understand better.

These questions look at your ability to use economic concepts conceptually. You may find graphing to be helpful, but you must also explain the concepts in your writing. Make sure to start your answer with a quick summary of the concepts at hand. Please address each question in 500 words or less, for a total of 1,500-word limit. Note: you should write your responses in a separate document and paste it into the appropriate question box.

  1. Improbable Foods is a first of its kind company, producing meat substitutes that are completely made of plant material. Due to the years of food research, product design, and manufacturing set up the fixed cost to start an “alternative meats” company is very high. Assume Improbable Foods is a monopoly with high fixed costs. What is Improbable Foods’ marginal revenue? How should Improbable Foods determine profit? When should Improbable Foods enter the “alternative meat” market?
  2. Surpassing Meats, a competitor to Improbable Foods, has just entered the “alternative meats” market as well. While Improbable Foods is known for the quality and taste of its limited products, Surpassing Meats had decided to release a wide-ranging product line. The CEO of Surpassing Meats wants to schedule a call with Improbable Foods to discuss rising their prices in tandem. The CEO of Improbable Foods knows that if both companies raise their price, they can increase their profit over their current price. However, they also know that if Improbable Foods raises their price while Surpassing Meats keeps theirs at the current level, Surpassing Meats will be able to capture a larger market share. This will increase Surpassing Meats’ profits to a level greater then if both firms raised prices, and Impossible Foods will see their profits decrease. Considering the new market structure, set up a Prisoner’s Dilemma. Should Improbable Foods raise its price? Is there a Nash Equilibrium? Explain your answer. (Hint: set each firm’s current profits as the baseline. In what scenarios will profits increase? Decrease?)
  3. Due to the success of Improbable Foods and Surpassing Meats, a large number of competing products from other major food firms enter the market. While the products are similar, each firm has set itself apart with different branding, product lines, and quality. An analyst for Improbable Foods argues that they can no longer price their products differently than the competition and need to accept the competitive market-clearing price for alternative meats. Do you agree or disagree with this analyst? Explain your answer. (Hint: what are the assumptions for the four market types we covered in class? You should explain why this market does or does not fit the assumptions in these market types)

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