Case Study:
Alex Lopez & Sons, Inc. - A hydroponic farm with eight greenhouses for producing tomatoes in a perfectly competitive industry competing with other greenhouse growers and field producers in the U.S. and Mexico. (In the short run).
Part I. Compute the values for the blank cells.
|
Q *
Green-
houses/
lbs. of
Tomatoes
|
Expected
Wholesale
Market
Price/ Per lb.
|
TR
|
MR
Per/lb.
|
FC
|
VC
|
TC
|
$ Profit or loss
|
AVC Per/lb.
|
ATC Per/lb.
|
MC Per/lb.
|
|
0/0
|
$ .80
|
|
|
|
$ 0
|
|
|
|
|
|
|
1/ 25,000
|
$. 80
|
|
|
|
15,000
|
$ 37,000
|
|
|
|
|
|
2/ 50,000
|
$ .80
|
|
|
|
25,000
|
|
|
|
|
|
|
3/ 75,000
|
$ .80
|
|
|
|
27,000
|
|
|
|
|
|
|
4/ 100,000
|
$ .80
|
|
|
|
30,000
|
|
|
|
|
|
|
5/ 125,000
|
$ .80
|
|
|
|
|
$ 57,000
|
|
|
|
|
|
6/ 150,000
|
$ .80
|
|
|
|
48,000
|
|
|
|
|
|
|
7/ 175,000
|
$ .80
|
|
|
|
66,000
|
|
|
|
|
|
|
8/ 200,000
|
$ .80
|
|
|
|
99,000
|
|
|
|
Experience indicates that their yield is 25,000 lbs. of tomatoes per greenhouse. Therefore, for all per lb. computations, use thousands for Q
in the formulas, e.g. 25,000, 50,000, 75,000... etc. lbs. - instead of 1, 2, 3... etc. greenhouses.
Part II. Graph - The graph may be generated from EXCEL, or you may use the grid on the next page. Plot the per/lb. variables of Price, MR, AVC, ATC, and MC from your table. Scale your numbers on the Y axis to accommodate the Price, MR, AVC, ATC, numbers in your table. Use the number of greenhouses from 1 to 8 on the X axis. Be sure to use titles for the graph, on the axes, and for the variable lines.
Part III. Individual Writing Questions. Answer the following questions in a few well-written sentences. Support your answers with data.
1) How many greenhouses should Alex Lopez & Sons plant with tomatoes to maximize profits, and what determines this?
2) Should they try to get a price higher than $.80 per lb. to improve profits? Why, or why not?
3) Assume the price is $.80 per lb., should they consider closing down? Why, or why not?
4) Explain which of the variables computed in the table and plotted on the graph represent the supply and demand curves for the Alex Lopez & Sons Company.
5) Explain what the Break-Even point is, and where this is for the Company.