Elaine Gordon wants to start a business supplying florists with field-grown flowers. She has located an appropriate acreage and believes she can grow daisies, asters, chrysanthemums, carnations, and other assorted types during a nine-month growing period.
By growing the flowers in a field as opposed to a greenhouse, Elaine expects to save a considerable amount on herbicide and pesticide. She is considering passing the savings along to her customers by charging $1.25 per standard bunch versus the prevailing price of $1.50 per standard bunch.
Elaine has turned to her neighbor, Bob Winters, for help. Bob is an accountant in town who is familiar with general business conditions. Bob gathered the following information for Elaine.
a. There are 50 growers within a one-hour drive of Elaine’s acreage.
b. In general, there is little variability in price. Flowers are treated as commodities, and one aster is considered to be pretty much like any other aster.
c. There are numerous florists in the city, and the amount that Elaine would supply could be easily absorbed by the florists at the prevailing price.
Required:
1. What type of market structure characterizes the flower-growing industry in Elaine’s region? Explain.
2. Given your answer to Requirement 1, what price should Elaine charge per standard bunch? Why?