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Answer to Question #59976 in Macroeconomics for Belal Abdo

Question #59976
You have been hired as an economic consultant to assess the potential of profitably entering the
market for gourmet coffee (examples are Starbucks and Coffee Bean). The firm that has hired you
would like for you to make your recommendations on what are the most important factors that
must be considered in order to successfully penetrate the market. The firm also wants your advice
(in addition to production of the coffee itself) on its interest in opening several distribution or sales
points. It would like to have your recommendation on the factors that would be most beneficial to
determining the correct location and size for the outlets.
Determine and discuss the most probable market structure of the coffee industry; then prepare a
proposal which will be presented to the firm that is hiring you as consultant.
Expert's answer
The gourmet coffee industry is one such area where the popularity of the product with consumers extends its life cycle over many years. The coffee industry as whole brought in total sales in excess of $4 billion in 2015.
The introduction stage in a product's life cycle features low sales with high retail prices for goods, high advertising costs and very selective distribution across limited markets. In the modern gourmet coffee industry, the introduction stage occurred in the years before widespread gourmet coffee chains when consumers could only purchase specialty coffee drinks and artisan coffee varietals from specialty shoppes and independent coffee houses.
The most probable market structure of the coffee industry is a monopolistic competition industry with differentiated products and firms, that can set their prices. So, your product should differ from the competitor's products and the price should be set according to the demand for your coffee.

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