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ABP POST GRADUATE DIPLOMA IN MANAGEMENT STUDIES
Assignment for Course: M2-ME: MANAGERIAL ECONOMICS
Subject: Issues of Demand and Supply in the Coca-Cola Company
Submitted to: Dr Joel Barima
Submitted by: LCMS0010539
( Student ‘s Enrolment Number merely )
Submission day of the month: 10th July
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Student ‘ Signature: Date:
Certain things in life are regarded as basic human demands. Thingss such as Food, Shelter, Clothing, and more late sex are said to be indispensable to human life. Human wants are insatiate ; unluckily there are no adequate resources to fulfill all. Due to this fact, precedences are set and the issue of pick comes in. Worlds will hence do a pick between the scarce resources with which they wish to bring forth and this leads us to the different factors of production in economic sciences speaking about Land, Capital, Labour and Entrepreneur. This study chiefly looks at these factors of production with peculiar mention to the Coca-Cola Company and besides looks into the issues of demand and supply and factors that influence it.
BREIF HISTORY OF COCA-COLA
John Pemberton, an Atlanta druggist, was inspired by simple wonder. One afternoon he stirred up a fragrant, caramel-coloured liquid and when it was done he carried it a few doors down to Jacob ‘s pharmaceutics. Here the mixture was combined with carbonated H2O and sampled by clients who all agreed this new drink was something particular. So Jacob ‘s pharmaceutics put it on sale for 5 cents ( about 3p ) a glass. Pemberton ‘s bookkeeper, Frank Robinson named the mixture Coca-Cola, and wrote it out in the descriptive book. To this twenty-four hours Coca-Cola is written the same manner. In the first twelvemonth Pemberton sold merely nine spectacless of Coca-Cola a twenty-four hours. A Century subsequently the Coca-Cola Company has produced more than ten billion gallons of sirup.
Established in 1886, Coca-Cola owns or licenses every bit good as markets more than 500 non alcoholic drink trade names chiefly scintillating drinks but besides a assortment of still drinks such as Waterss, enhanced Waterss, juices, ready to imbibe teas and javas and energy and athleticss drinks. Along with Coca-Cola which is recognised as the universe ‘s most valuable trade name, the company owns and markets four of the universe ‘s top five non alcoholic scintillating drink trade names, including diet Coke, Fanta and Sprite.
The Coca-Cola Company is really the universe ‘s prima proprietor and seller of non alcoholic drink trade names and the universe ‘s largest maker, distributer and seller of dressed ores and sirups used to bring forth non alcoholic drinks. The company ‘s branded merchandises are made available to consumers throughout the universe through a web of bottling spouses, distributers, jobbers and retailers- the universe ‘s largest distribution system. The company was eventually incorporated in September 1919 under the Torahs of the province of Delaware and succeeded to the concern of a Georgia Corporation with same name that has been organised in 1892 and today the Coca-Cola Company operates in more than 200 states of the universe. To this twenty-four hours, of the 54 billion drink helpings of all types consumed world-wide every twenty-four hours, drink bearing hallmarks owned or licensed by Coca-Cola history for 1.6 billion.
Factor OF PRODUCTION
As we know factors of production are the resources that are necessary for production, be it any good or service. They facilitate production but do non go portion of the production. Economists have classified these factors into four different groups viz. ; Land, Labour, Capital and Entrepreneur
Land by and large refers to all natural resources. This class includes wildlife, minerals, lumber, H2O, air, oil and gas sedimentations, cultivable land and mountain scenery. Land as a factor of production is usually paid in economic rent because they are merely irreproduceable.
Labour refers to the physical and rational abilities of persons to bring forth goods and services. But labour is non homogenous, that is non all workers are the same. Different persons have different physical and rational capablenesss and properties and even though all labors are non worth the same and rewarded the same but the fact remains that every human labor is indispensable to production. Labour is normally paid or rewarded in signifier of rewards.
Capital is referred to as manufactured trade goods which are used to bring forth goods and services for concluding ingestion. Machinery, office edifices, equipment, warehouse infinite, tools, roads, Bridgess, research and development, mills, and so forth and so on. A differentiation is normally made between economic capital and fiscal capital, things such as stocks, bonds certifications of sedimentations, nest eggs account and hard currency.
Entrepreneurship refers to the ability to recognize profitable chances, and the willingness and ability to allow the usage of land, labor and capital to bring forth the goods and services that are in demand by the consumer. Peoples who exhibit this ability are called enterprisers. For case an single musca volitanss a demand in the community, he thinks it might be an chance for concern and decides to take the hazard to supply that demand for people. In return he gets money for it so as clip goes on, depending on the volume, nature and utility of the good or service to the people he can do a batch of money. Bill Gate who founded Microsoft Corporation is an illustration.
COCA-COLA ‘S Use OF THE FACTORS OF PRODUCTION
Most concerns and fabrication houses normally get land in order to construct their mills so as to go on production. Therefore, houses usually have mills at different strategic locations particularly where there are greater concern potencies. The Coca-Cola Company besides has its manner of covering with this factor of production. Over the old ages, while most of its branded drink merchandises have been manufactured, sold and distributed by independently owned and managed bottling spouses, from clip to clip Coca-Cola do take control of bottling and tining operations, frequently but non ever, particularly in underachieving markets. More so, Coca-Cola has a no commanding ownership involvements in legion drink joint ventures, bottling spouses and emerging drink companies. This means that Coca-Cola does non hold to have or get the land in every market they operate, yet they make their merchandises available to all.
This is a really economically feasible determination for Coca-Cola otherwise ; it would be such an tremendous cost for the Company to purchase and get all the land as sing their planetary nature and of class the market for land as shown in figure 1. The forces of demand and supply besides play function here in that as the monetary value of land increases the demand is low, and frailty versa. Therefore alternatively of traveling into the cogency of geting land the company sells its dressed ores and sirups to independent bottlers who convert them to complete goods licensed to Coca-Cola, thereby salvaging a batch of costs and at the same clip presenting their merchandises and drinks to local communities.
However, Coca-Cola needs to keep good relationship with its bottling spouses as anything short of this will be a menace to the smooth operation and profitableness of the concern. As an independent company, its bottling
Spouses, some of which are publically traded companies, make their ain concern determinations that may non ever aline with Coca-Cola involvements.
Again, many of the bottling spouses have the right to fabricate or administer their ain merchandises or certain merchandises of other drink companies. This means that Coca-Cola will hold to supply an appropriate mix of inducements through a combination of pricing, selling and advertizements in order that the companies give every bit much attending to Coca-Cola trade names as they give their ain merchandises. Whatever be the instance this relationship has an indirect consequence on the company ‘s profitableness.
Most labour services, instead than being concluding goods ready to be enjoyed by consumers, are inputs into the production of other goods. The Coca-Cola Company believes it is built around two core assets, its trade names and the people ( the employees ) , whom it every bit refers to as associates. Therefore, the Company believes in its employees and gives them nice rewards and wages in order to actuate them towards greater productiveness. First the Company makes usage of two classs of labor ; skilled and unskilled labor. In the skilled class are the executives and board members who take major determinations sing operations, selling and advertisement. These are really seasoned professionals whereas, the unskilled employees work in the mills bottling and packaging. However, all employees receive nice wage. For every operating group ( i.e. different geographical zone ) the Company normally has a squad of employees who run the zone. Today Coca-Cola has a big work force of approximately 98,200 around the universe who lives and work in different markets. This allows the Company to larn from each market and accordingly portion those larning shortly. As a consequence the Company ‘s civilization is even more collaborative. A From drink construct and development to selling, these associates portion thoughts across sections and markets in new ways. Consequently, associates are progressively enthusiastic about their work and inspired to turn programs into action. This merely means higher productiveness for Coca-cola.
More so the Company has a scheme of perforating markets through the local people in the communities they serve. Erstwhile Coca-Cola employs un masse to do certain it does non run out of indispensable labor and pays them moderately.
The manner and mode in which Coca-Cola handles his labour concerns is applaudable in that, the Company is strong and feasible, though the Company has non done specifically good in the last 10 old ages but it has got one of the highest work force in any industry. A work force of over 98,200. So wholly things being equal the higher the work force the higher the productiveness. However, the Company must be cognizant that labor merely like any other factor of production is governed by the jurisprudence of demand and supply as shown below.
The figure for case shows the demand and supply relationship for measure of apples produced as against monetary value ( fig a ) and measure of apple choosers as against pay received ( fig B ) in a certain Company. Fig B is similar to the figure of workers Coca-Cola is likely to use. It shows that the higher the pay the more likely is the supply of labor so every bit long as Coca-Cola is willing to offer higher pay there will be more employees to run into up with the demand of its merchandises.
However the Company will be careful as a clip comes when extra employees may intend lower part or end product. See the production map below.
Fig 2. The Production Function
The curve shows that at a ulterior clip an extra worker may non bring forth an tantamount end product alternatively there may be decreasing returns. This is called the fringy merchandise of labor ( MPL ) i.e. the addition in end product due to an extra unit of labor. At this clip as the figure of employees addition, the fringy merchandise of labour diminutions. Each extra worker contributes less to production than the anterior 1. The sum of some resources-called fixed resources- can non be increased in the short tally. Therefore, any addition in the sum of labour implies that there is less of the fixed resources for each worker to work with. This leads to decreasing fringy merchandise of labour.
THE COCA-COLA COMPANY AS A MONOPOLY
The term monopoly is used to depict the market construction in which there is merely one manufacturer of a good or service for which there are no close replacements and entry into or issue from the industry is impossible. Simply put the characteristics of a monopoly are as follows ;
One and merely one house produces and sells a peculiar trade good or service.
There are no challengers or direct rivals of the house.
No other challenger can come in the market for whatever ground legal, proficient or economic.
Monopolist is a monetary value shaper i.e. he tries to take the best of whatever demand and cost conditions exist without the fright of new houses come ining to vie away his monetary values.
Under the first maxim, if the trade good is soft and carbonated soft drinks, Coca-Cola will non be regarded as a monopoly since it is non the lone house in the industry of carbonated soft drinks. Other rivals in the industry include Pepsi, Tetrapak, Harboe, AquaD’Or, 7Up, Dr Pepper, Nestle etc. Coca-Cola has no particular rights to entirely bring forth carbonated soft drinks either.
Again for monopoly to be there are no challengers or direct rivals to the house. Once once more Coca-Cola can non be regarded as a monopoly since there are other viing houses in the industry. Pepsi is the figure one rival with Coca-Cola. Others are 7Up etc. If anyone can non hold coca-cola so they can hold Pepsi or 7Up etc.
However Coca-Cola may merely be seen as a monopoly merely in footings of its trade names and market patterns. For case one of the celebrated Coca-Cola trade names is Coke and this merchandise is produced merely by the Coca-Cola Company and with a alone gustatory sensation. Consumers can merely purchase this merchandise from the Company or its spouses and bottlers so in this respects Coca-Cola can be said to monopolise the industry and sale of this merchandise “ Coke ” . Because merely the Coca-Cola Company makes the soft drink “ Coke ” , it is up to them to find the monetary value at which they would sell the merchandise. “ Fanta ” is another trade name which Coca-Cola can claim monopoly.
Coca-Cola Company may besides be monopolistic in footings of their market patterns of non leting their major spouses and distributers ( by understanding ) to stock any other drink drink at the same clip together. This is geared towards diminishing and detering competition from challengers.
More over Coca-Cola Company has a figure of patent rights for the preparation of certain drink trade names which automatically allows it the sole right to fabricate those trade names in which it has patents. So every bit long as the patency endures no other house can fabricate those merchandises and trade names except Coca-Cola.
The Coca-Cola Company can be regarded as a monopoly merely as it matters to their trade names and market patterns.
Factors THAT AFFECT THE DEMAND AND SUPPLY OF COCA-COLA PRODUCT BRANDS
The term demand refers to the measure of a given merchandise that consumers will be willing and able to purchase at a given monetary value. As a general common sense regulation – ‘the higher the monetary value of a peculiar merchandise the lower will be the demand for it ‘ . The term supply refers to the measure of a peculiar merchandise that providers ( manufacturers and/or Sellerss ) will do available to the market at a peculiar monetary value. The higher the monetary value, the greater the measure that providers will be willing to provide to the market. Markets consist of single or groups of concerns that are prepared to provide a merchandise, and clients who demand
the merchandise. Market monetary value is determined by the interaction of the forces of demand and supply. Demand and supply can be illustrated by agendas and curves that illustrate how measures demanded and supplied will change with monetary value. The figure below show the demand curve for a peculiar good. This will be similar to that of Coca-Cola.
A Demand Curve
Monetary value of
Number of Doodads
Peoples Want to Buy
Graph of Demand Curve
Change in monetary value determines a displacement in demand as shown below
A Shift in Demand
The Demand and Supply curve together demoing a point of intersection. This is equilibrium point. At this monetary value purchasers are willing to purchase and providers are every bit willing to provide.
Supply and Demand Together at Last
Monetary value of
Number of Doodads
Peoples Want to Buy
Number of Doodads
Sellers Want to Sell
Graph of Supply and Demand Curves