Campbell+profit+dips

Article: [|campbell soup profit dips] Feb 18th, 2011

Summary: In this article, Campbell soup company manages to sell more of its microwave-ready soup but does not gain any profit from doing so because the average variable cost rises tremendously to the point where total revenue is almost equal to total costs. Through advertisement, Campbell was able to increase sales, causing the demand curve to shift right. However, because the cost for attracting more customers was so high that Campbell company was not able to make any profit. The drop in profit can also be due to substitute goods such as broth and cookies and also competition between rival companies in a free market economy.

Terms: Fixed cost: refers to fixed costs of production Variable cost:refers to a firm's variable costs (labor, electricity, etc.) Demand curve:defined as the relationship between the price of the good and the amount or quantity the consumer is willing and able to purchase Free market economy: Government will have limited presence in the economy Substitute goods: a good with a positive cross elasticity of demand Profit: Total revenue minus total cost. This is what the company earns Competition-The situation when anybody who wants to buy or sell has a choice of possible suppliers or customers Opportunity cost: The first best alternative that is not the choice.

Graphs: (Hand drawn)

Application: Although the company is not making any money, by increasing a customer base, the company will eventually start earning profit again. It is always better keep a company open because at least then the company is paying for the fixed cost and is losing a minimal amount of money. In due time, the company will realize that by keeping the company open, they are doing themselves a big favor because a lot of factors that are decreasing the demand for Campbell soup are only temporary and once the time is right, Campbell soup will earn an extremely high amount of profit. Perhaps one problem that the company will face is the competition put forth by other capable firms, but I believe that as long as Campbell continues to nurture a growing customer base and getting a higher market share, Campbell will eventually be able to increase prices a little and earn a tremendous amount of profit.