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Assignment 3 Long-Term Investment Decisions Low Calorie
Microwavable food
Investment decisions: Low Calorie Microwavable food
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The demand function for low calorie microwavable food depends on the price of the good, its
competitive good, advertisement expenditure and income of the consumer.
From the demand function and the elasticities calculated, it is found that the market for the low
calorie microwavable food belongs to a monopolistically competitive market. A monopolistic
competitive is characterized by a fair number of buyers and sellers. Therefore people can switch
to another brand if a particular brand charges a high price. But a monopolistic competitive seller
performs product differentiation. Thus he attracts the consumers.
Now, Profit (π) = Total Revenue (TR) – Total Cost (TC)
= P×Q – TC
According to the FOC of profit maximization, we get
dQ
=
d (TR)
dQ
-
d (TC)
dQ
[Here P is not fixed]
= MR – MC = 0
Therefore MR = MC
Form the elasticity as calculated in the given assignments, we can see that the demand for the
low calorie microwavable product is inelastic in nature.
Now, in order to keep their products as inelastic as possible, the firm will try to differentiate its
product from other firms’ products. If their product is different from others then the consumers
will not find a substitute for that product easily. That will make the demand for the corresponding
product inelastic in nature. We all know that the greater the degree of product differentiation, the
greater the market power. Therefore, it is advisable for the organization to perform active product
differentiation to maximize its profits.

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