Campbell Soup Company

Introduction

Campbell Soup Company, together with its subsidiaries, engages in the manufacture and marketing of branded convenience food products worldwide. The company offers condensed and ready-to-serve soups, broth and stocks, pasta and Mexican sauces, canned poultry, juices and beverages, and tomato juices, as well as canned gravies, pasta, and beans in the United States (Glenn: 1).

Part A: The market supply curve [S] for Campbell Soup

The following figures depict the retail market for tomato juice. We represent the $1 wholesale price cut by shifting down the retail supply by $1. Let the original equilibrium be at point e. From the analysis below, the impact of the wholesale price cut on the retail price will be least if the retail supply is extremely inelastic and the retail demand is extremely elastic.

(a) Price elasticity of supply. Referring to the figure below, if supply is extremely inelastic, then the impact of the wholesale price cut on the retail price will be much smaller than if the supply is elastic (Abell: 81).

Part B: Campbell Soup Company's Cost Curves

In a supplemental note to a reprint of the classic "Cost Curves and Supply Curves," Jacob Viner relates his confusion about how long-run and short-run cost curves relate. 1 He asked a draftsman to make the long-run curve a U-shaped envelope that consisted of the minimum points on all short-run curves (Auerbach: 75).

Part C: Campbell Soup Company's Revenue Curves

While discussing the assumptions of perfect competition, we have stated that in a perfect competition, the number of buyers and sellers is so large that an individual buyer or an individual seller cannot influence the market price. A firm has to sell its products at the market price prevailing in the market (Auerbach: 75).

Under the conditions stated above, there will be one price for the identical goods in all parts of the market. If any seller wishes to sell its goods at a price lower than the market price, its goods will be sold in no time as all the buyers have perfect knowledge of the market. If he keeps the price higher than the market price, the goods will not be sold. The seller in order to get the maximum profit will have to sell its total output at the prevailing market price as is shown in the two figs. given below (Baxter: 74):

 

Diagram/Figure:

 

 

In the fig. (14.1) markets demand and supply curves intersect at point K. KL, i.e. $5 is the market price.

 In Fig. (14.2) DD is the demand curve which an individual firm has to face. A firm whether it produces 5 units or 50 units has to sell its product at the prevailing market price, i.e., at $5. If at any time the aggregate demand rises, and the price settles at PR (i.e., $8), then an individual seller can sell its products at $8. He will face the new demand curve D1 D1 as is shown in fig. (14.2).

Under perfect competition, the additional output is sold at the price at which, the first unit is ...