By Kalashnikova Yelena

Case Study: The Soft Drinks Industry

Before, customers were conversant in drinking only ‘Borzhomi’, ‘Narzan’ and ‘Sary-Agash’ mineral water. The assortment of mineral water was so small that people had to content themselves with what they had. Presently the situation is quite different: the problem is what to choose. Today, some 20 names of mineral and table water are being produced in the Republic of Kazakhstan. Finally, the domestic entrepreneurs realized that they might gain a profit on trading in water.

According to marketing analysis, the most top-selling beverages are following: ’Alamedin’, ‘Christall’ and ‘Sary- Agash’ mineral waters manufactured by the ‘Yemdik Ak Syu’ Company. ‘Bon-Aqua’, ‘Jalal-Abad’ beverages, produced by the Coca-Cola Company are also in great demand.

Coca-Cola Company has no equal in manufacture of soft drinks, though recently Sprite, Fanta and Coca-Cola are being sold worse than before due to their high price. Seemingly, these beverages are too expensive for the most of local population.

Review Questions and Problems.

  1. Would you characterize the soft drinks industry in Kazakhstan as monopolistically competitive? Why or why not?

  2. Is demand for soft drinks elastic in summer time? in winter time?

  3. What do you think, what methods of competition firms in this market prefer and why.

Problem #1.

Coca-Cola Company has such situation with Bon-Aqua in 1999 year (all numbers are hypothetical):

FC=160,000 tenge

Price=85 tenge

VC for unit=40 tenge

Q=18,000 units

  1. How many bottles of Bon-Aqua should be sold to make 130,000 tenge profit?

  2. What will be a profit if Coca-Cola Company reduce VC to 10% and reduce FC on 40,000 tenge? (Q is the same)

  3. Find Price if Profit is 130,000 tenge. (Q is the same)

  4. Coca-Cola Company decided to extend manufacture, so FC risen on 28,000 tenge. What should be extra Q to cover this costs?

For solving this problem you can use this formula:

Net profit = Price x Q - (FC + VC for unit x Q)

Problem #2.

Suppose, that it is a summer, it is very hot. What would you prefer to buy - an ice-cream or a bottle of mineral water? Explain your answer.

You have $20 every month for ice-cream and mineral water.

Prices to ice-cream and mineral water (in dollars):

a)0.5 0.5

b)0.5 1.0

c)1.0 0.5

d)0.4 0.4

e)0.5 0.5, but your profit was increased to $25.

Graph your budget line for each of these combinations of prices. What combination provides max. usefulness for you?
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