Kraft Mac & Cheese is Trying to Maintain its Dominance with Flavor Drops and New Shapes

EconEye Admin

1 year ago

Kraft Mac & Cheese is releasing limited-edition flavors and shapes, selling only 15,000 boxes–less than 2% of its daily original sales–exclusively on Walmart’s website. This move mirrors the strategy of streetwear brands, departing from its usual nationwide grocery store launch. cnn.com, November 29, 2024

Some Macaroni and Cheese Market Data

Macaroni and cheese is an extremely differentiated product. The table provides data on the 19 firms that produce the top 50 varieties.

Source: https://www.nutritionix.com/grocery/category/prepared-dish/macaroni-and-cheese/35

Answer the following questions to check your understanding of the story.

1) In what type of market is macaroni and cheese traded? How does Kraft make an economic profit?

The market is ___________ and Kraft makes an economic profit by____________.

a) monopolistic competition; continuously developing new varieties

b) perfect competition; producing the quantity at which marginal revenue equals marginal cost

c) monopoly; charging the highest price that buyers are willing to pay for the profit-maximizing quantity

d) oligopoly; creating barriers to entry

Wrong! - Check the definitions of market structures.

Is a market with a large number of firms, many of them small, producing an even larger number of differentiated products, an example of oligopoly? Kraft would like to operate behind a barrier to entry, but is that a choice available to Kraft?

A market with a large number of firms is very competitive but what other features make it perfect competition. Don’t all firm try to maximize economic profit? How many firms are there in a monopoly? Don’t all firms charge the highest price that buyers are willing to pay for the profit-maximizing quantity?

Well Done! - A large number of firms, many of them small, producing an even larger number of differentiated products, makes the market for macaroni and cheese an example of monopolistic competition. Kraft must continuously develop new varieties to avoid competition driving its economic profit to zero.

2) Why might Kraft have decided to release a limited-edition Kraft Mac & Cheese with new flavors and shapes, selling only 15,000 boxes exclusively online?

Kraft might have made this decision to ___________ Kraft's macaroni and cheese products.

a) increase the demand for

b) lower the average fixed cost of

c) lower the marginal cost of

d) lower the fixed cost of

Wrong! - Which cost would additional ingredients and shape molding machines required to produce and release the limited-edition product change? With only 15,000 boxes produced, how would total fixed cost spread over a smaller quantity, change average fixed cost?

Good Job! - Kraft must continuously develop new varieties to increase the demand for its products and prevent competition from decreasing the demand for its products and driving its economic profit to zero.

Source: https://www.nutritionix.com/grocery/category/prepared-dish/macaroni-and-cheese/35

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