Business Economics (BUSI1105) Individual Coursework

1.

When discussing the concept of market structure, one is referring to the level of
competition in a given market as well as the degree of influence that individual
companies have on the pricing of goods and services. Generally, there are four main
types of market structures that exist: perfect competition, monopolistic competition,
oligopoly, and monopoly. ( John Sloman, Dean Garratt and Jon Guest - Economics-Pearson)

According to a recent publication by the Corporate Accountability Lab, the worldwide

price of cocoa is increasing due to a decrease in cocoa production in West Africa. This
region accounts for over 80% of the world's cocoa production. The report recommends
that this crisis in the cocoa industry provides an opportunity for cocoa producers to
have more leverage (more bargaining power). (Cocoa farmers in west Africa at mercy of
global markets (ft.com) To combat this issue, nations such as Ghana and Côte d'Ivoire
could potentially collaborate with their neighbouring countries such as Nigeria and
Cameroon to negotiate better conditions for their cocoa farmers and guarantee the use
of sustainable farming practices. ( John Sloman, Dean Garratt and Jon Guest - Economics-
Pearson)
At the farm level in West Africa, the cocoa market is characterized by many
smallholders growing cocoa beans. This market is very competitive as these small
farmers compete with each other to sell their cocoa beans to middlemen or traders.
(Cocoa in West Africa - Bantu Chocolate) However, the cocoa industry in West Africa is
dominated by a handful of large multinational companies that purchase cocoa beans
from small farmers at relatively low prices. (N. Gregory Mankiw – Principles of
Economics)

This setup suggests that the cocoa market structure at the farm level in West Africa is
more like a monopoly, with essentially only one buyer for a particular product or
service. (John Sloman, Dean Garrett and Jon Guest – Pearson Economics)

On the other hand, the chocolate products market in Kuala Lumpur has many
companies that manufacture and sell chocolate products. This is a highly competitive
market with many companies vying for consumers' attention. (The Chocolate Solution:
How the cocoa industry can end deforestation in West Africa (theconversation.com)
Against this backdrop, the market structure for chocolate confectionery in Kuala
Lumpur is more one of monopolistic competition, with multiple companies selling
similar but not identical products. (John Slow John Sloman, Dean Garratt and Jon Guest
– Pearson

The cocoa market structure at the farm level in

West Africa is more like a monopoly than a
perfect competition. A monopoly is a market
structure in which there is only one buyer for a
specific product or service. Monopolistic
competition is a market structure in which
there are many companies selling similar but
not identical products

2.
(two graphs)

Perfect competion – price taker (negative economic profit) – 0 economic profit situation
– P1 falls to p2 (shift downwards)

( supply and demand diagram ( demand shift to left) (supply shift to left)(price
decrease)

A recent report from the Corporate Accountability Lab shows that global cocoa prices
are rising. The driving force behind this upward trend is the decline in cocoa
production in West Africa, a region known as the heartland of cocoa production that
produces more than 80% of the world's cocoa supply (( John Sloman, Dean Garratt and
Jon Guest - Economics - Pearson The crisis appears to be giving cocoa producers
greater bargaining power, with possible collaboration between countries such as
Ghana and Côte d'Ivoire and regional counterparts such as Nigeria and Cameroon.
What is the goal of such collaboration? To gain more benefits, they create Favorable
conditions create conditions for cocoa farmers and promote sustainable agricultural
practices. (https://unctad.org/system/files/official-document/ditccom20081_en.pdf)

In the context of the West African cocoa market, it is essential to examine the market
structure at the farm level. Unlike the idealized model of perfect competition,
characterized by the interaction of numerous small buyers and sellers, the cocoa
market in West Africa deviates from this norm. Instead, it exhibits characteristics of a
monopsony, which can be likened to a scenario where there is essentially one
dominant buyer, akin to a one-stop shop for cocoa producers.

The surge in cocoa prices in 2023 is intricately linked to the dwindling cocoa output in
West Africa. This decline in production has led to higher prices that cocoa farmers are
able to command for their products. Reports highlight the significance of these
elevated cocoa prices in addressing farm poverty in the region. You can find more
information on this in the following sources: [UNCTAD
Report](https://unctad.org/system/files/official_document/ditccom20081_en.pdf) and
[Bloomberg Article](https://www.bloomberg.com/news/articles/2022-12-06/higher-
cocoa-prices-crucial-to-easing-farm-poverty-report-says).

At first glance, higher prices may sound like a boon for these hardworking cocoa
farmers, and in many ways, they are. After all, better prices mean better revenue.
However, as we venture deeper into this intricate market, it becomes evident that the
impact of this shift is not a one-size-fits-all scenario. According to a report by CNN in
June 2023 (source: [CNN](https://www.cnn.com/2023/06/21/business/cocoa-prices-
rising/index.html)), the profitability of a typical cocoa farmer hinges on a multitude of
factors. The size of their farm, the quality of the cocoa they produce, and their
bargaining power all play pivotal roles in determining how these price hikes translate
into profitability.

It's not just cocoa farmers who are in the spotlight here. High cocoa prices, alongside
elevated costs of other crucial chocolate ingredients, might not be great news for
chocolate lovers who are also budget-conscious. According to a report from non-
governmental organizations in December 2022 (source:
[Bloomberg](https://www.bloomberg.com/news/articles/2022-12-06/higher-cocoa-
prices-crucial-to-easing-farm-poverty-report-says)), these price increases are
significant in elevating cocoa farmers out of poverty, especially as inflation rates
continue to surge.

In conclusion, the cocoa market's recent price surge, driven by West Africa's declining
cocoa output, holds great potential for cocoa farmers in terms of profitability.
However, this situation is not without its complexities, with multiple factors influencing
the financial well-being of these farmers. Moreover, it's vital to recognize the broader
economic implications of these price hikes, especially in a world where both cocoa
prices and inflation are on the rise.
3.

3.

The profitability of cocoa crops in the area may change significantly as a result of the
deployment of a ground-breaking weather control system in West African nations.
https://www.bloomberg.com/news/articles/2022-12-06/higher-cocoa-prices-
crucial-to-easing-farm-poverty-report-says However, additional knowledge about the
technology and the application of it is needed in order to determine the precise nature
of this influence.

https://courses.lumenlearning.com/wm-microeconomics/chapter/profit-
maximization-under-monopolistic-competition/

If this technology is successfully adopted, it could have a number of beneficial effects

for West African cocoa growing. Better weather management could result in higher
cocoa crop yields and a lower chance of crop failures caused by bad weather.
https://academicjournals.org/journal/AJAR/article-full-text-pdf/0B4A8F967230

As a result, there may be an increase in the overall supply of cocoa, which might lead
to a drop in cocoa prices and a reduction in cocoa farmers' income.

https://cointelegraph.com/news/weather-tracking-blockchain-in-west-africa-but-
transparency-on-a-raincheck

On the other hand, if this technology is either not widely used or is only available to a
small number of farmers, it may give those who are fortunate enough to have access to
it a competitive advantage. These farmers might see increased revenues as a result
since they would be better able to manage their crops and keep consistent output.
Potentially, an imbalance in efficiency may lead to a limited number of cocoa farmers
gaining a competitive edge hence producing an increased output with significantly
lower cost, thus offering lower prices to customers as result driving out other farmers
in the market

https://www.iisd.org/publications/report/2022-global-market-report-cocoa

We find a landscape dominated by numerous small-scale farmers engaged in cocoa

bean production in the context of West Africa's cocoa industry. Each of these farmers
competes fiercely to sell their cocoa beans to middlemen or traders in the environment
in which they operate. When there is effectively just one key consumer for the cocoa
beans, the situation is more akin to a monopsony.
https://cointelegraph.com/news/weather-tracking-blockchain-in-west-africa-but-
transparency-on-a-raincheck

Returning to the impact of weather control technology now. If it successfully increases

cocoa yields, the increasing supply could in fact drive down prices, impacting all cocoa
producers' earnings. However, if this technology is only available to a small number of
people, it can lead to inequalities in the market, which might result in larger profits for
those who have the technological advantage.
https://www.investopedia.com/ask/answers/041315/how-profit-maximized-
monopolistic-market.asp

In conclusion, the introduction of weather control technologies to West African nations

has the potential to increase the profitability of the cocoa farming industry. However,
the real result depends on elements like accessibility and adoption rates. Any changes
in supply or demand brought on by this technology could have a significant impact on
cocoa pricing and the income of cocoa farmers because the market system for cocoa at
the farm level in West Africa t
ends to be a monopsony. In this cocoa farming equation, there are numerous variables
at play, making it somewhat of a balancing act.

4.

In Kuala Lumpur, the Royce chocolate outlet is an establishment that both produces
and vends chocolate goods. Chocolate confectionery is a bustling market in the city
with a host of companies producing and selling their wares. The competition in this
market is intense with multiple firms vying to market their products to consumers .( N.
Gregory Mankiw - Principles Of Economics)

. Kuala Lumpur's market structure for chocolate confectionery closely resembles

monopolistic competition instead of perfect competition. Monopolistic competition is
where numerous firms peddle similar yet slightly distinct items
https://www.cnn.com/2023/06/21/business/cocoa-prices-rising/index.html

Royce chocolate outlet may experience reduced profitability due to the surging cocoa
prices in 2023.
https://www.cnn.com/2023/06/21/business/cocoa-prices-rising/index.html

The cause of the price surge is the imbalance between supply and demand. In fact,
this was reflected in a CNN Business report, which talked about how demand was
outpacing supply. As a result, the company may face higher production costs. The size
of the firm, quality of cocoa utilized, and bargaining power of Royce chocolate outlet
all influence how higher cocoa costs impact their profitability.
https://time.com/6291600/cocoa-chocolate-high-price-russia/

With a plethora of small-scale farmers producing cocoa beans, the West African cocoa
industry is marked by a decentralized market structure. The competitive market is
saturated with farmers striving to sell their cocoa beans to intermediaries and traders,
resulting in cutthroat competition. .( N. Gregory Mankiw - Principles Of Economics)

As for the market structure, it leans more towards a monopsony rather than perfect
competition, given that only one buyer exists for a particular product or service.

Maintaining profitability for the Royce chocolate outlet may be negatively impacted by
rising cocoa prices, which would correspond to higher production costs.
https://www.cnn.com/2023/06/21/business/cocoa-prices-rising/index.html

Nevertheless, with the possibility of strong bargaining power against suppliers, they
could potentially negotiate prices for cocoa beans to contain expenses and maximize
profits.

Royce chocolate outlet could be facing higher production costs if cocoa prices were to
rise, but the impact on their profits would be influenced by multiple factors, including
the firm's bargaining power. The chocolate confectionery market in Kuala Lumpur
operates under a monopolistic competition structure, meaning that shifts in supply
and demand driven by cocoa price increases could have notable consequences for both
prices and profits at Royce chocolate outlet 214. Ultimately, a slew of considerations
shape how higher cocoa prices would affect this particular business.
5.

Royce Chocolate Shop in Kuala Lumpur is offering gift vouchers to customers. The Gift
Certificate Policy is a pricing policy that allows customers to purchase gift certificates
at a fixed price that can be redeemed for Royce chocolate products at a later
datehttps://royce.com.my/collections/gift-vouchers

From a market structure perspective, the West African cocoa industry is characterized
by a large number of smallholder farmers producing cocoa beans. The market is very
competitive, with many small farmers competing with each other to sell their cocoa
beans to middlemen or traders. The cocoa market structure at the farm level in West
Africa is more like a monopoly than a perfect competition..( N. Gregory Mankiw - Principles
Of Economics)

https://www.borgenmagazine.com/cocoa-trade-in-west-africa/
Implementing gift vouchers at the Royce chocolate outlet offers several advantages.
Firstly, it serves as a compelling incentive for customers, encouraging them to explore
a wider range of chocolate products available at the store. This can lead to increased
sales as customers are more likely to make purchases they might not have otherwise
considered. Secondly, this strategy has the potential to boost the outlet's revenue and
overall profitability as the increased sales volume resulting from gift voucher usage can
significantly contribute to the store's bottom line.

https://royce.com.my/collections/gift-vouchers

However, there are also potential disadvantages to consider. Gift vouchers that remain
unredeemed or are used for items with lower price points could pose a threat to the
outlet's overall profitability. Unredeemed vouchers represent a lost opportunity for the
store, while purchases of lower-priced items may not offset the costs associated with
the gift voucher program, potentially leading to a decrease in profitability. Therefore,
while the use of gift vouchers can be a valuable marketing tool, careful management
and monitoring are essential to ensure that the benefits outweigh the potential
drawbacks.

To sum up, the implementation of gift vouchers by Royce chocolate outlet has the
potential to increase sales and benefit the company, but its profitability hinges on
various factors such as the firm's size, product quality, and bargaining power. The
cocoa market structure in West Africa at the farmer level resembles a monopsony more
than perfect competition. As a result, any shifts in supply or demand stemming from
this pricing policy could have considerable consequences for both prices and profits at
Royce chocolate outlet.