Bottled Water

The competitive strategy for Farm Fresh Orange Juice Company is to become the low cost leader in the production of fresh orange juice. With the strategy of low cost, California was the best choice of location because it offered the lowest AVC and ATC of all three locations. The AVC in California reaches a low of $15 per ton compared to $18 per ton in Texas and $21 in Florida. The ATC in California reaches a low of about $20 compared to $22 in Texas and $25 in Florida. With a price of $30 per unit, the company can maximize its profit by producing in California at a quantity of 120,000 tons. This is the point where marginal revenue equals marginal cost. The AFC in all three states are similar, and as a result, the AVC is the factor that differentiates the ATC between the states. California offers the lowest ATC of all three states due to having the lowest variable (Input) costs such as labor, energy, and raw materials (Oranges). To maintain the competitive advantage as the low cost leader, these costs must be lower than the competition in order to offer a lower price.

Ease of production must also be a priority in order to maintain the low cost leader position. The more efficient the production process, the lower the cost in labor, energy, and other variable costs. Some quality may have to be sacrificed in order to keep the production time lower. It is also important to stay on the leading edge of technology. As competitors catch up on our low cost processes, it is important to stay ahead of them to maintain the low cost advantage. California is a technology hub in the United States, which is also a reason for California having the lowest ATC. If the company is able to stay ahead in process technology, it can maintain the low cost advantage.

Being the low cost provider of fresh orange juice comes with risks. The largest risk the company faces is competition reaching the cost levels of our company thus losing our competitive advantage.

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