Cadbury Products Short run and Long run Demand analysis.

Short run refers to the concept which talks about at least one input being fixed while others can be
variable. According to economics, an economy would alter its behavior within accordance to the time
need to react to particular stimuli. In the long run there are no fixed factors of production. The land,
labor, capital goods, and entrepreneurship all vary to reach the long run cost of producing a good or
service.

This concept can be applied to Cadbury in a way that the demand for the company’s products, which
includes dairy milk being the most common, is very high in the short run. This means that in order to
sustain in the market and maintain their present situation, the company needs to capitalize in
economies of scale when there is a high rise in the price of Cocoa. So there is a need of inventing
larger and more efficient machinery to produce a huge amount of products or units cheaply while
keeping the cost of production low. On the other end, diseconomies id scale is inevitable if it
increases its business a bit too quickly. So for this, in order to maintain their economies of cost,
Cadbury needs to monitor their production plants and subsidiaries very effectively and efficiently.
This would result in a higher production in both short and long run periods.

In the short run period, daily milk’s demand is less elastic because with an increment in the price,
say from Rs. 5 to Rs. 7, there wouldn’t be a notable decrement in the demand as when people are
used to buying a good, they will keep on buying it just out of habit. But as they would realize that the
increase is permanent, they would start to look for the alternatives of dairy milk such as kit kat and
bounty which would definitely cause a downfall in the demand of the product gradualle. The criteria
for this is that the company should be have a monopolistic structure in the competitive market and it
should make sure the quality and taste remains the same. Meanwhile in the long run, the demand
become more elastic as if the price increases, say it was Rs. 5 in 2005 and reached to Rs. 10 in
2010, there be a notable effect on the demand it the quality and quantity of the product remains the
same. People would shift to other substitutes.

Other than this, the increase in demand would also affect the company itself to a great extent as
well. For instance, as in short run, if there is a greater demand for dairy milk, the company would try
to increase their labor supply by adding extra shifts, making people work overtime and a definite
increase in the raw materials to meet the additional demand for Cadbury Dairy Milk. In this case,
only the firms that are there since a long time would be able to capitalize on this increment in
demand as it would be easier for them to get access to these inputs required to increase production.
However, in the long run, the factory input is variable as well. Those tha are already existing would
change the number and size of plants they own while the new ones who enter the market can build
factories to produce chocolate. In the long run, there is a clear increment in the number of
companies in the confectionary market as those that couldn’t exist in the short run due to the
unavailability of inputs now are running very competitively.

Economies of scale & Diseconomies of scale for Cadbury Dairy milk

Economies of good can be achieved when with less input, more units can be produced on a larger
scale and diseconomies of scale occur when the amount produced is less than the inputs invested
and this would result in the rise of cost of production due to insufficiencies in the company. In order
to stay in the market, Cadbury needs to capitalize in economies of scale. An example of this can be
the merging of Cadbury with Schweppes in 1968 as the it had invested in advanced machinery in
one of its confectionary plants so it was possible for them to switch part of factory capacity from lines
where demand was in decline, to where demand was on the increase through well organised
production management. Other than this, there will be benefits from these technical and financial
economies of scale as this way it would be possible for them to build larger, better and more efficient
machinery. This definitely means a greater amount of production with a cheap and lower cost of
production. This merging also meant that a higher possibility of borrowing capital at low interest bank
rates as the other company was a vert well known and secure one which means majority banks
already knew them. But it was just until the merged company announced its splitting in 2007 in two
i.e. its confectionary and soft drinks business. (BBS News, 2007) This resulted in an increment in the
cost of inputs and production.

Diseconomies would occur if Cadbury company tries expanding a bit too quickly without taking in
consideration its current situation which include its resources and so it would become very difficult to
monitor the quality of products and productivity from these several thousand employees. Having
different managers for different branches means the company would have to invest more in the
imput cost which ultimately means low levels of production. The morale decreases with the
increasing number of employees which directly affects production, waste factor input and increase
cost. Meanwhile in 2010, Kraft being the world’s second largest food company was able to take over
Cadbury suggesting the merger of both the companies would result in a ‘global confectionary giant’
which would increase Kraft’s market share and Cadbury would be able to compete against the US
confectionary market. This combination, according to Kraft, let them invest in economies of scales
resulting in an increment of £640m in revenue synergies.(BBC News, 2010).