Part (A)
The demand changes as a result of changes in price, other factors determining it being held constant. These other factors determine the position or level of demand curve of a commodity. Coffee growth is everywhere in Dubai and in the Middle East. From the visible numbers of more coffee shops on the streets to the sheer amount of different roast and ground coffees being offered in super markets, there is no denying the boom in coffee culture. (Graham Dawson & Maureen Mackintosh. 2003).
There are many factors effect in the demand for coffee include; first; Tastes and Preferences of the Consumers: coffee is increasing in Middle East and most consumers admire with the taste of coffee, as a result the demand for coffee is large and its demand curve will therefore lie at a higher level. Coffee is fashionable habits between GCC and other Middle East youth with the pressure of advertisement from branded coffee shop like Starbucks and Costa all that lead to the increase in demand.
Second; Income of the People; the demand for coffee in Middle East also depends upon the incomes of the people. GCC countries have a higher rate of income which leads to the higher demand for goods. When as a result of the rise in the income of Middle East, the demand increases, the whole of the demand curve shifts upward and vice versa. The greater income means the greater purchasing power. Therefore, when incomes of the people increase, they can afford to buy more. It is because of this reason that increase in income has a positive effect on the demand for a good. (Jennings, Lisa, 2014)
Third; Changes in Prices of the Related Goods: the demand for a good is also affected by the prices of other goods, especially those which are related to it as substitutes or complements. When we draw the demand schedule or the demand curve for a good we take the prices of the related goods as remaining constant. This is one of the biggest roasters in the Middle East and the company also recently opened the first Coffee Museum in the Middle East, where tourists and coffee lovers alike can learn about the history of coffee from seed to cup. When the price of a substitute for a good falls, the demand for that good will decline and when the price of the substitute rises, the demand for that good will increase.
Fourth; Advertisement Expenditure; advertisement expenditure made by a firm to promote the sales of its product is an important factor determining demand for a product, especially of the product of the firm which gives advertisements. Since the earliest of times in coffee, the Middle East is where coffee drinking as we know it today began. And since the first cup of brewed coffee was enjoyed at least 600 years ago, coffee consumption has been at the heart of Middle Eastern culture, used as the standard welcome at hotels and at home. Today, this part of history is thriving and industry officials believe this may be why the Middle East is bound to become one of the emerging markets with highest growth potential in the next 10 years. The purpose of advertisement is to influence the consumers in favor of a product. (Fridell, Gavin, 2010)
Part (b)
Middle East coffee market structure is considering monopolistic competitions where a monopolistically competitive firms generally produce less output and charges a higher price than would be the case for a perfectly competitive firm. In particular, the price charged by a monopolistically competitive firm is higher than the marginal cost of production, which violates the efficiency condition that price equals marginal cost. A monopolistically competitive firm is inefficient because it has market control and faces a negatively-sloped demand curve. There are over 60,000 coffee retailers in the Middle East. When the products are distinctive, each company has a mini-monopoly of its particular style or flavor or brand. However, the companies that produce these products must also compete with other styles and flavors and brands. (Fridell, Gavin, 2010)
The demand curve for the coffee industry in the Middle East is not flat, but is inclined downward, which means that all coffee retailers can increase its price without losing all of its customers or lowering the price. price and win more customers. Since there are substitutes, the demand curve faced by a monopolistic enterprise is more elastic than that of a monopoly where there is no close substitute. In the Middle East, taking advantage of coffee with the differentiation normally achieved by monopolistic coffee companies by branding their products with the use of logos and slogans, labels and product packaging. In addition to Starbucks, there are still many competitive companies in the coffee industry, such as Old Town White Coffee, Ambrosia Coffee, Caribou and Dunn Bros. Coffee. The cafeteria must differentiate itself from others because it provides similar products, such as coffee with milk, espresso, capucino and tea. Starbucks has a simple idea to set its price, which the customer is willing to pay if he satisfies and enjoys good quality. (Jennings, Lisa, 2014)
Yes, Medium If the government restricts the number of new branches that can open both chains, and this affects the equilibrium price and chains profits of the coffee market, it will increase in monopoly. The price of coffee will increase and the exixant branches will control the price completely, they will be completely creative of price. By restricting new branches, existing demand will be high and supply will be low, so the price will rise and businesses will earn higher profits. Therefore, in markets where the government is restricting the opening of new branches, it is true that the abnormally high profits will attract new businesses, and that the entry of new firms will eventually bring down the price, so that companies Survivors only get a normal level of profit in the long run. (Fridell, Gavin, 2010)
Part (c)
Costa ensure maintaining a profit margin over its competitors for a longer period of time before economic profits becomes zero because in long-run equilibrium will still occur at a zero level of economic profit and with Costa operating at the lowest point of the ATC curve, but this cost curve will be slightly higher than before the entry. The increase in Costa’s demand will increase prices and induce entry. This will increase the demand for workers in the business and will probably result in higher wages in the industry, which will increase costs. This type of situation in which Costa earns an average of zero profits, but with a combination of traces and very profitable losses of money, can be found in other industries, characterized by high initial sunk costs. (Jennings, Lisa, 2014)
For Costa to remain in the coffee market, it must be in a borderline position between these two cases; the demand curve must simply touch the average total cost curve.
In other words, it must be tangent to the production level that maximizes the company’s profit the level of production in which the marginal revenue is equal to the marginal cost. Therefore, in the zero gain equilibrium, Costa must be in a borderline position between these two cases; the demand curve must simply touch the average total cost curve. In other words, it must be tangent to the production level that maximizes the company’s profit the level of production in which the marginal revenue is equal to the marginal cost. The rest; In the long term, the equilibrium of a monopolistically competitive industry, the equilibrium of zero profit, companies only balance. The demand curve of Costa is tangent to its curve of total cost to the average profit. In the long term, coffee is a monopolistically competitive industry where, in a balance of zero profit, in its level of production that maximizes profits, the demand curve for each existing company is tangent to its average total cost curve. There are no profits in the coffee market and there is no entry or exit. (Baltes, Sharon, 2012)
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