The organization’s operationsdecisions shall be meant to drive the company’s long run objectives. This papershall examine the outcomes of the new supply curve as it elaborates on themarket structure taking into considerations the expected changes in the sellingenvironment and the factors that will cause such changes. It will also analyzeboth the short run and the long run production and cost functions as applied tothe cost data so as to determine the conditions under which operations can bediscontinued.
Due to the changes in the market structure, there will be a needto review the pricing structures in order to maximize for profits and make proposalsfor maximizing profitability and shareholder value. Inthe previous years, we have realized an increase in microwavable food productsin the market. Today, these types of meals are a great choice for workingparents and more parents working with more income within the household becausethey are convenient, take a little time to prepare and a majority consider themto be gourmet foods. Microwavable foods are great for family and kids afterwork and school. Almost every family owns a microwave. Two major competitors inthe market for low calorie microwaveable food are Healthy Choice and LeanCuisine.
Lean Cuisine, a Nestle company was established in 1981 with markets inthe US, Canada and Australia. Healthy Choice was established in 1989 by ConAgra, one of the largest frozen food companies (Tragakes, 2009). 1. TheEffectiveness of the Market Structure for the Company’s Operations.Any company in purely competitivemarket is a price taker because the equilibrium price and the industry outputare as a direct result of demand and supply. It is therefore paramount that ananalysis for the market structure of low calorie foods be carried out on atarget audience for the products with major stress over the factors that worlddrive for sales while considering the needs and the demands of the targetmarket.
The trends for growth of the target market should also be analyzed. Aprediction of the market trends would lead to an easy way to make decisions onthe products to produce. In this way, the organization would realize a goodstrategy to become an aggressive competitor in the food industry. This way theycan adopt a more customer oriented structure.
Having a price strategy which iscustomer friendly is also another big matter which must be looked at. (Mendoza, 2013).The company must devise ways to carry out its operations so as to ensuremaximum revenue and increase productivity in the long run. Argy 1994 explainedthat a good strategy is crucial in determining the effectiveness of the marketstructure in which the firm functions. Bragg 2012 reiterated by stating that agood market strategy would mostly emphasize on the products available for sale,the market trends in pricing products, product promotion techniques and thetotal number of companies participating in the market. From assignment 1, the regressionequation estimating demand of low calorie microwavable foods was represented asQD = – 5200 – 42P + 20PX + 5.
2I +0.20A + 0.25M and R2 being 0.55 was relatively high sought toillustrate that demand is huge. The Elasticity for advertisement was 0.
11, thismeans that advertisement plays a slightly negligible role in determining thedemand for the low calorie microwavable foods. Ultimately, the food productproved to be highly competitive. 2. So as to determine the variables thatcould be responsible for the changes in the market structures, we must firstunderstand the major differences between a monopolistic competition marketstructure and a perfectly competitive market structure. These major differencesare product differentiation and efficiency. Product differentiation in a perfectly competitive market ischaracterized by the products being perfect substitutes for one another, but ina competitive monopolistic market, the products are highly differentiated.Here, firms will work hard to emphasize the non-price related differencesbetween their products and their competitors’ products. Switching from perfectcompetition to monopolistic completion structure will decreases the consumersurplus overall, and by extension the market’s economic surplus, and createsdeadweight loss.
An entity making profits in the short run will break even inthe long run because demand will decrease and average total cost will increase.This indicates thatin the end, amonopolistically competitive entity will make no profitable income. Theentity’s demand curve will thereby slopedownward compared to a competitor whohas a superbly elastic demand.Now,on the grounds of the above criterion, I would recommend that market structurehas changed because of: a) Aneconomic crisis which would occur when suppliers and distributors are affectedby market downward direction and perfect equilibrium falls apart, market is nolonger perfect and suppliers starting toinfluence the market by charging customers differently based on their owncriteria and incurred expanses, distributors are running out of the businessthus decreasing the amount of product sold and therefore forcing company tostart selling a surplus product at loss, in order to eliminate the total loss.
b) Know-howrecipe of the product – which gave the firm a competitive advantage andopportunity to differentiate itself by locking on a specific customer andsecuring the market share.3. TC = 160,000,000 + 100Q + 0.
0063212Q2 VC = 100Q + 0.0063212Q2 MC= 100 + 0.0126424QATC = = = + ATC = MC + = 100 + 0.0126424Q + 100 – 100 0.0126424Q– 160,000,000 = 0.0063212Q2 Q = = 159096.3535 Q = 159096.3535Therefore, the value for quantity (Q) which represents theoutput level that will minimize the Average Total Cost (ATC) is 159096.
3535. Inthe short-run, if the production level is 159096.3535, the company shall besaid to produce at its optimal average total cost. ATC = + ATC = + = 1005.6799 + 100 + 1005.6799 = 2111.3598Thisis the per-unit cost of production when the company is at its most efficientlevel. In the long run, if the selling environment changes and becomes competitivethe entity shall be forced to produce at its minimum total average cost.
AVC= 100 + 0.0063Q100( * ) = 1105.6799Thisrepresents the average variable costs during production. ii).Circumstances under which the firm should cease operations. There are instances when an entitycan stop operations. Some of the reasons could be because of;- Inability to compete with itscompetition.- Inability to keep up with innovation.
– Inability to keep up with changingtechnologies that enhance for efficiency and thereby leading to the firm beingin an unfair competition with other firms. – They could close operations if there isinsufficient funding and there’s additionally the opportunity of supplies whichare used for items are now not available. – Essentially with the death ofcompetition, insufficient capital and the lack of resources may lead todiscontinuation in operations therefore there would be dire need for the entityto remain organized for the unexpected periods and plan ahead.
Inorder for the organization to live in business and remain worthwhile, they needto make sure that they understand the competitors’ products and prices andconstantly keep reviewing theirs on a need basis if it comes to that. It iscritical to stay profitable because consumers may also become bored. Everyother essential aspect is to make certain that the commercial enterprise hasmultiple suppliers that they can order from just in case one fails to deliverand always ensure that they are afloat with capital to inject in the businessfor growth purposes.iii).Pricing Policy that will allow the company to maximize profits.
Apricing policy that I would recommend would be by using the Marginal CostPricing. In a business, the setting of aprice of a commodity is equated to the cost of production of an extra unitproduced. Therefore, for each unit sold there’s a need to include the totalcosts of labor and material used in production. Cohen, 2004 explains thatduring a period of poor sales, an entity sets the prices of a commodity almostequal to the marginal costs. This is a strategy in place in order to keep theentity profitable in the long-run. The price however needs to stay more thanthe average costs in the short run so as to cover the total costs in thelong-run. Therefore, in this scenario, if we increased the price of themicrowaveable foods, the quantity supplied would consequently fall. The demandfor the low calorie microwaveable foods is inelastic.
Fromthe equation in assignment 1, Q = 38,650 – 42Pand P = – MC = 100 +0.0126424Q, MR = – MC = MR therefore; 100 + 0.0126424Q = – 100 + 0.0126424Q = 920.24 – 4200 + 0.530981Q = 38650-Q 0.
530981Q + Q = 38650– 4200 = , Q= 22501.91Q is the profit maximizing output whichis well below the output at the minimum average total output. To get the pricethat the company can charge this output to maximize its profits. Hence to findthe optimal price, the substitution function would be: Optimal Price: P= – = 920.24 – =920.24– 535.76 Optimal Price: p = 384.48iv).
Evaluation of thecompany’s financial performanceForthe entity to capitalize on its profits in the long term, the demand curve ofthe firm in a competitive monopolistic market will have shift so that it curvestowards the average total cost curve. This makes it difficult to make profitsand breakeven. Therefore, so as to improve and evaluate its financialperformance, the entity will have to implement pricing strategies in line withthe incomes of their customers amongst other influencing economic factors forinstance competition.To evaluate the company’s financial performance,the calculations form section iii above explain that at a production quantityof 22501.91units, ATC will be: ATC = + 7110.51+ 100 +1422.39 = = 332.03Thecompany is selling at 384.
48 while production of one unit will cost 332.03 andthereby giving a profit of 52.45 per unit thereby being a great economicprofit.
Theshort run profit would be TR-TC, where TR = Q*P and TC = ATC*QTR= 22501.91*384.48= 8651534.36TC= 332.03*22501.91 = 7471309.18TR-TC= 8651534.
36 – 7471309.18 = 1,180,225.18Profitin the short run would therefore be $1,180,225.18v). Recommended actionsthat the company could take in order to improve its profitabilityWhen quantity demanded remainsequal to quantity supplied, the equilibrium is reached. (Syed Zulfiqar Ali shah, 2009).
However, the equilibrium calculations are not constant. They can be changedowing to reasons for instance the cost of raw materials, different levels ofincome of the buyers, customer preferences and price of the competitionproducts. Due to these factors, the equilibrium levels can changeably go up ordown. The entity can make use of this information to analyze whether the changesin price of the microwavable foods are at optimal price or if they shouldincrease or reduce the prices to attract more buyers. With proper priceplanning, the entity would in the long-run increase their sales and therebyincrease profitability. It is important however to note that in a monopolisticcompetitive market, the demand is not synonymous to the price of the product.With this the entity will not only have to consider its pricing strategies, butalso other influencing factors such as;a. Continued research and development inquality assurance for their product.
This will be done to improve quality in a noticeableway thereby making an enduring impact of its products on the market and willgradually achieve popularity and consistency. This is because the society todayis trying to be more conscious of health and wellness especially from food andlifestyle is considered of paramount importance. This to me proves thatconstant quality development of foodstuffs is definitely an important part competition.The entity will only achieve this by conducting research for healthier and morecost effective inputs of production for the food products. b.
Effectively operational Advertising. Thefood industry market competition is highly aggressive in terms of advertising.The business will therefore have to find a more cost effective advertisingstrategy that will still ensure a more reaching means to the target market. Forinstance, advertising in parks and on school children’s exercise books e.t.c. Citations Argy, V.
(1994). International Macroeconomics: Theory and Policy. New York: Routledge.
Bragg, S. M. (2012).
Business ratios and Formulas . New Jersey: John Wiley & Sons, Inc. Mendoza, M. (2013). The Demand Driven and the.
Antonoma : Univasidad Nacional Autonoma de Mexico. Samaras1, M. (2014.). Learn Economics by Going to the Movies. Journal of Education and Human Development, 463-465. Syed Zulfiqar Ali shah, S.
A. (2009). Corporate Governance and Earnings Management an Empirical. European Journal of Scientific Research, 624-638. Tragakes, E. (2009). Economics for the IB Diploma. Cambridge: Cambridge University Press.