Res Ec - HW #1 - Resource Economics Homework on product definitions and the markets PDF

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Resource Economics Homework on product definitions and the markets...

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ResEc HW #1 “Why Are There Still Not Enough Paper Towels?” 1. I.

c. Taiichi Ohno, engineer at Toyota

II.

A. Have extensive back up plans in case of sudden supply chain interruptions

III.

One element of the basic market conditions for the paper towels market that changed during the pandemic is the overall demand for the product, and that caused an increase in market growth. As Americans tried to stay clean, they stocked up on paper towels during the pandemic, and the demand for the product increased dramatically. As the shelves of bricks-and-mortar' stores began to empty, Americans were buying more and more, and the product demand was higher than the supply. The initial fear of not having enough paper towels during the pandemic by the average American, shot up demand, which then shot up the market growth. The article describes how stores experienced a 150% increase in paper towel sales during March, and one of the largest paper towel retailers, Procter & Gamble Co., described how demand remained 25% higher than it was before the pandemic. The demand conditions for the paper towels market changed drastically.

IV.

Products like face masks, disinfecting wipes, and a handful of food products experienced shortages during the pandemic due to the location of the supply chain or the decline in raw materials from the supplies. In comparison, the problem for the paper towels market occurred due to the producers shortage of spare manufacturing capacity. The paper towels industry was run primarily on the concept of lean manufacturing, and when the demand rose, many firms were unable to start idled machinery to increase production.

For products like face masks, the shortage occurred due to the location of the supply. The article describes how the face masks industry relied heavily on overseas makers, and that's what caused their halt in supply to the US. Both industries experienced problems in supply, however the elements that caused the problem were different supply conditions. V.

One element of market performance that had a feedback effect on market conduct is the increase in profits for these firms then caused a change in the product strategy used by these companies. Because the companies were performing very well, and experiencing positive economic profit, they were able to invest in different strategies to counter the lean manufacturing concept, and push to keep up with the demand. For example, Kellogg Co. was experiencing positive economic profit, however they experienced shortages in their production for cereal due to their ways of transportation. Because of this, they invested those profits into access to greater transportation to then increase production, which will then put more Kellogg cereal on the shelves for the American people. Another example was seen with P&G, one of the largest paper towel retailers. Their market performance was outstanding, and they were experiencing great positive economic profits. With those profits, they decided to maintain their current product strategy and come up with a way to stimulate production to keep up with the growing demand. P&G decided to invest their profits in increasing production with their idled machinery, which they would normally not do had they followed the concept of lean manufacturing. After investing in engineers to restart this machinery, they were able to restart the machinery in half the time then it normally would have taken. P&G used an element of market performance, their positive economic profits, to invest in product

strategies, which was the hiring of engineers to restore the manufacturing machines, and that then led to an increase in production. 2. One industry unrelated to the paper towel industry that has had feedback effects starting in performance that affected conduct then structure is the electric car industry. A rapid rate of technological advancement and improvement of production efficiency over the last decade caused a direct and significant change in several aspects of firm conduct. Specifically, as battery technology advances for use in vehicles, it creates a feedback effect from progress in performance resulting in change for research and development and pricing strategy. Research objectives are modified and production becomes more cost efficient, furthering the feedback effect. These revisions of conduct then have a direct impact on the market structure that entails increased product differentiation and availability for more buyers and sellers. This can be exemplified by Tesla’s emergence in the market as an affordable electric when historically the foreign hybrid manufacturers dominated the space. Now the market contains more significant players; and changes in firms’ performance can be expected to foster change with feedback effects moving through the SCP paradigm in a similar form....