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Fruits and Vegetables Sourcing at SMHC: Benefiting from Perfect Competition?

CASELET, MANAGERIAL ECONOMICS
ET Cases, 6 pages

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Fruits and Vegetables Sourcing at SMHC: Benefiting from Perfect Competition?

 

On August 24th 2015, Seetha Sivakumar (Seetha) and Malini Raj (Malini) – friends, ex-colleagues and partners in their new entrepreneurial venture – were sitting at Seetha’s residence in Hyderabad, discussing the plans of their upcoming food outlet – SeeMa’s Home Cuisine (SMHC). They had plans of launching their food joint on October 1st 2015. In the run up to the launch of their new venture, the two partners held meetings every day, discussing and debating on the various aspects of their business.

They visited several restaurants, met the restaurant owners and found out the business dynamics of restaurant business along with Critical Success Factors (CSF). The CSF on the cost side were the raw materials (fruits, vegetables, cereals, spices, oils, chicken, mutton, etc.) and the cost of chefs. The revenue side CSFs, they identified, were the quality of food and service and the wholesome experience. Accordingly, they planned out their investments and lined up people and resources.

While there was an agreement on everything else, they could not reach a consensus on procuring fresh and cost-effective fruits and vegetables. During their meeting on August 24th, the two business partners had an interesting discussion on the Rythu Bazars1, the source of fruits and vegetables........

 



1 Rythu Bazars are farmers’ market run by the State Governments of Telangana and Andhra Pradesh for small farmers with small landholdings.

Teaching Note Preview

Fruits and Vegetables Sourcing at SMHC: Benefiting from Perfect Competition?

 

Synopsis

This caselet enables a discussion on the concept of perfect competition in the backdrop of the entrepreneurial story of Seetha Sivakumar (Seetha) and Malini Raj (Malini) who decide to start their entrepreneurial venture – SeeMa’s Home Cuisine (SMHC). During one of their meetings before the launch of SMHC, the two friends discuss on the right source of fresh fruits and vegetables for their yet to be launched restaurant. After little deliberation, they contemplate on sourcing fresh fruits and vegetables from Rythu Bazar – a State-run farmers’ market in Telangana and Andhra Pradesh. Seetha and Malini finally decide to source raw materials from Rythu Bazar as it is quite similar to a perfectly competitive market with a market clearance price which ensures that the fruits and vegetables are reasonably priced. While discussing SMHC’s dilemmas, the caselet helps understand the characteristics of a perfectly competitive market, profit maximization in a perfectly competitive market and the impact of market structure on a firm’s profitability.

Prerequisite Conceptual Understanding

  • • Paul A. Samuelson, et al., “Analysis of Perfectly Competitive Markets”, Economics, 19th Edition, McGraw Hill Education (India) Private Limited, 2010 – To have an understanding of the concept of perfectly competitive markets

 

Case Positioning and Setting

This caselet can be used for:

  • • MBA Program in Managerial Economics course – To understand the concept and functioning of a perfectly competitive market

 

Assignment Questions

  • I. What do you understand by perfect competition? What are the distinguishing characteristics of a perfect competition? Illustrate the same with Rythu Bazar’s vegetable market.
  • II. Why do you think a seller in a perfect competition is called a price taker? Can he make normal profits or abnormal profits?
  • III. ........................................

 

Preamble to this Caselet Analysis

This caselet provides an opportunity for the students/participants to understand the concept and connotation of a perfectly competitive market. While they would have understood a perfectly elastic demand curve in the chapter on Elasticity, this caselet builds on the logic for the same. SMHC’s owners’ – Seetha and Malini – interesting dilemma lays out a perfect classroom canvas for analyzing, discussing and debating on the salient features of a perfectly competitive market. Accordingly, this caselet was orchestrated in the classroom in the following way [Exhibit (TN)-I]: ..........................

$3.37
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Product code: ME-2-0015, ME-2-0015A

Abstract

This caselet aims to introduce the participants/students to the concept of perfect competition. An elusive, idealistic at best, the perfect competition challenges the market forces with its characteristics. While the sellers in a perfectly competitive market are price takers, they cannot make any abnormal/super normal profits given that  D=P=MR/AR. While the market clearing price plays a prominent role in perfect competition, it’s the costs (Average and Marginal Costs) that decide the quantum of profits. Through the vegetable sourcing dilemma at SeeMa’s Home Cuisine (SMHC), this caselet endeavors to connect the dots between various characteristics that distinguish a perfectly competitive market. SMHC’s Founders - Seetha Sivakumar and Malini Raj - contemplate on where to source the fruits and vegetables from? The Founders had to decide whether to source from (for their fledgling restaurant) - Hyderabad's Rythu Bazar or online suppliers like bigbasket.com, myhomefarm.in, etc.? How does an understanding of the working of a perfectly competitive market help them to take an appropriate decision?




Pedagogical Objectives


  • To understand the concept of a perfectly competitive market with its distinguishing characteristics and examine the operation of a typical perfectly competitive market in the case of Hyderabad’s Rythu Bazar

  • To examine and analyze why a seller in a perfectly competitive market becomes a price taker and not a price maker and discuss on the profit maximization concept in the case of a perfectly competitive market

  • To discuss and debate on how the nature of market structures can impact a company’s profitability and analyze the same with reference to SMHC’s fledgling restaurant business


Case Positioning and Setting

This caselet can be suitably used in:


  • Managerial Economics course to teach the concept of perfect competition






This Case Pack Includes:
 - Abstract
- Caselet
- Teaching Note (**ONLY for Academicians)
$3.37
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