2. One of the jams and jellies producer’s most popular products has always been

Question

2. One of the jams and jellies producer’s most popular products has always been strawberry jam. Recently, however, the demand for the product has stagnated. The product manager for this product, Emily, has been very outspoken about the fact that the product must be modified to reduce the sugar content of the product or to replace sugar with a zero calorie, natural sweetener called “stevia.” Emily requested a study from the firm’s economics team of the quantity of demand at various price points for such a stevia-sweetened strawberry jam product. The following demand schedule transpired from the team’s work: Hypothetical Prices for Stevia Strawberry Jam Quantity of Demand at Various Price Points $2.00 1,000,000 Jars Per Month $2.50 900,000 Jars Per Month $3.00 800,000 Jars Per Month $3.50 700,000 Jars Per Month $4.00 600,000 Jars Per Month $4.50 500,000 Jars Per Month $5.00 400,000 Jars Per Month In addition, she requested the finance team address profit/margin analysis at similar price points. The team indicated that $2.00 would be the rock-bottom price, as that is the breakeven point for the product, i.e. the product’s cost would be $2.00 per jar. At that price, the team would expect substantial quantity of demand, and that said quantities would decline as prices increased up to $5.00 per jar, which they see as the absolute ceiling for the product. Beyond that, the quantity of demand would be so small that it would not provide the critical mass in the market to pursue it. However, at and above $2.00, the firm would be interested in supplying more and more of the product to the market because of increasing profitability as prices rise. The following is the supply scheduled defined by the finance team: Hypothetical Prices for Stevia Strawberry Jam Quantity of Supply at Various Price Points $2.00 1,000,000 Jars Per Month $2.50 900,000 Jars Per Month $3.00 800,000 Jars Per Month $3.50 700,000 Jars Per Month $4.00 600,000 Jars Per Month $4.50 500,000 Jars Per Month $5.00 400,000 Jars Per Month a. Using Excel or similar software, graph the demand curve for the Stevia Strawberry Jam. b. Using Excel or similar software, graph the firm’s supply curve for the Stevia Strawberry Jam. c. Label the projected Equilibrium point for the product on a graph that shows both the supply and demand curves.

Explanation / Answer

The problem is related with the product Strawbery Jam. Its demand in the market is falling due to excessive sugar content. It has been suggested to reduce the sweetness by using Stevia. After this change demand schedule is as follows. It indicates quantities demanded at different price. It is sownward sloping as product becomes more expensive to buy when its price moves up. On the basis of demand schedule, demand curve is drawn below:

Based on the demand schedule as stated above, demand curve is drawn below:

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Regarding supply schedule data, it appears that problem has erroneously mentioned the same set of data as is observed for demand schedule. Quantities supplied as stated is falling. It should rise. So it has been assumed that supply quantitiies as stated in the problem will be inreverse order. On the basis of this assumption, suply schedule

is shown below:

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Finally both supply and demand schedules are taken together in the understaed diagram, to get equilibrium price and quantity. It is found from the intersection of these curves. Note that curves here are drawn by measuring price on the horizontal axis. Equilibrium price is $3.5 and quantity is 700,000

Demand Price 1000000.00 2.00 900000.00 2.50 800000.00 3.00 700000.00 3.50 600000.00 4.00    500,000.00 4.50 400000.00 5.00

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