Student

Topics: Costs, Economics, Marginal cost Pages: 6 (1579 words) Published: August 22, 2013
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5/9/2013| BioMed - DermaPlus Business Analysis|
| MEQA Assignment #2
Coach- Lowell Glenn
Word Count 1005
Kim DeDonato
MEQA Assignment #2
Coach- Lowell Glenn
Word Count 1005
Kim DeDonato
|

Table of Contents

Assumptions …………………………………………………………………………………………… 2 Scope …………………………………………………………………………………………………… 2 Major Issues ……………………………………………………………………...……………………. 2 Analysis ………………………………………………………………………………………………… 3 Conclusion …………………………………...………………………………………………………… 3 Recommendations ……………………………...…………………………………………………….. 4

Assumptions
BioMed manufactures prescription topical cream called DermaPlusTM which is used for treating certain skin conditions. The main buyers of DermaPlusTM are hospitals and pharmacies. The topical cream category is extremely competitive and has led to BioMed’s market share to be small. Due to the size of BioMed’s market share they are unable to influence the market price. We also must assume that the market of BioMed can be modeled as being perfectly competitive in equilibrium, allowing the use of the model’s profit maximizing criteria. The plant producing DermaPlusTM has been in operation for three years with no change in manufacturing equipment. The age of the equipment has not proven to have an impact on current or future production of DermaPlusTM based on the information provided. DermaPlusTM will be under a new reference-based pricing scheme which will allow the government to set the price of BioMed’s topical cream along with competing creams. The government will review the pricing every two years, leaving only the production and selling volume to be determined by the manufacturer. We must assume the estimates for short-run cost functions to determine the profit-maximizing output level to be accurate based on previous calculations provided by BioMed. This information is also used to determine the optimal size for the new unionized workforce. As we have been advised the company is in a risk-neutral position and wishes to maintain this strategy. Scope

This report will determine the profit-maximizing average monthly production capacity for each reference-based prices of $50.00 per unit, $100.00 per unit and $150.00 per unit and estimate the expected monthly profit at each reference-based price. This report will also recommend an average daily production capacity for the next twelve months to determine the size of the manufacturing plant’s unionized workforce. This report will not cover possible impacts of aging manufacturing equipment as we do not have the appropriate level of information provided. It will also not take into consideration the addition of any new equipment to the manufacturing process. This report will also not cover the government pricing assessment, competitive products or competitive current pricing structure. We will also not discuss, review or analyze the competitive landscape or provide any focus group feedback on the actual product or market size as we do not have any of this information available. Major Issues

DermaPlusTM distribute their product primarily to hospitals and pharmacies and have a strong competitor base that distribute a similar product of topical cream but we do not know the comprehensive target market based on the information provided. DermaPlusTM has a small portion of the market and therefore, is unable to influence the market price and will be subject to the price being set largely due to the competition. This will be rectified with the new pricing structure that will be implemented in two months by the government. As there are numerous comparable products on the market there is not one product that is a differentiator therefore, lending only the retail as the single product distinguisher. Any potential customers are unable to determine the need to purchase DermaPlusTM over any other product produced by the competitor. The product value proposition is unknown to the consumer. The ability for BioMed to...
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