ECON5315 TAMU Alcoa Details Plans To Split Into Two Companies

Part 1. Based on the article “Alcoa Details Plans to Split Into Two Companies – WSJ” – i attacked in files below.. answer 3 questions below: (each atleast 150words)

i. Which market is Alcoa exiting? Why? [That is: What issues are leading to this decision?]

ii. Describe any barriers to exit you would expect Alcoa to face.

iii. Will this exit be likely to hurt company profits in the short run? In the long run?

Part2: Make 2 replies for 2 discussions below (each one atleast 150words).. please provide charts, pictures, sources if necessary

Jay:

Question 1: What is happening to the demand for US-produced cheese? Why?

The demand for US produced cheese is on the rise. According to the latest Livestock, Dairy, and Poultry Outlook, US cheese demand appears to be solid, up 1.4% from June 2017 to 2018 and up 6.2% since May (Mielke, 2018). According to Gee’s article, American’s eat an average of 36 pounds of cheese a year apiece (Gee, 2016). This is spurred by recent declines in the prices of US produced cheeses. As the prices for cheese continue to fall, cheesemakers are trying to soften the blow of declining prices by attempting to sell more. For example, retail prices for cheese were down 4.3% in April 2016. As the demand for milk declines the supply of cheese continues to rise creating a surplus. According to the Department of Agriculture, the US currently has 1.39 billion pounds of cheese in storage (Akhtar, 2018). Extra cheese means lower prices. This increase in supply and unchanging or rising demand will likely result in a lower equilibrium price and a higher equilibrium quantity.

Resources

Akhtar, A. (2018). America has a cheese problem that’s only going to get worse. Retrieved from http://money.com/money/5325694/cheese-excess-trump…

Gee, K. (2016). A cheese glut is overtaking America. Retrieved from https://portal.tamucc.edu/articles/1743833.5429/1….

Mielke, L. (2018). U.S. cheese demand appears to be solid. Retrieved from https://www.farmersadvance.com/story/money/2018/08…

Nikko:

2. How would you argue that the producers of cheese (and meat and poultry) are perfectly competitive?

A perfect competitive environment is an industry with numerous firms producing similar or identical goods. These environments allow consumers to choose among different companies based primarily on price (Besanko, 2015). Besanko (2015) explains that the perfectly competitive demand curve is a horizontal line (elastic demand function) at the market price since all businesses charge the same price. A perfectly competitive market’s characteristics include many sellers, knowledgeable buyers, costless entry and exit in the market, and perfectly elastic demand curves. The markets of cheese, meats, and poultry are prime examples of perfectly competitive industries since customers can buy these foods at countless local grocery stores in their neighborhoods.

Additionally, shoppers are generally knowledgeable about the varieties of cheese, poultry, and meats for a given dinner cuisine. Considering newer farmers are entering these markets daily in a relatively straightforward manner, this is another feature that helps characterize these industries (cheese, poultry, and meat) as relatively perfectly competitive. In perfectly elastic markets, any change in price would utterly eradicate the demand for that product (Besanko, 2015). If the cost of poultry of one company in any one market soared while others remained constant that the firm will see a plummet of demand for its product leading to ultimate exiting of the market, this would be mirrored for cheese and meats. With so many brands, distributors, and farmers available, the average shopper will buy a generic, substitutes, or more affordable alternative proteins or cheeses. If the price of poultry skyrockets then shoppers can substitute their palate with other protein dishes (pork, beef, bison, fish, soy, etc.) and vice versa for meat. If one type of cheese’s price rises higher than customers can afford, people may buy other cheese.

Besanko, et al., Economics of Strategy, Wiley, 7th Edition, 2015, ISBN 978-1- 119-17477-6

 

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