The under which operations can be discontinued. Due

The organization’s operations
decisions shall be meant to drive the company’s long run objectives. This paper
shall examine the outcomes of the new supply curve as it elaborates on the
market structure taking into considerations the expected changes in the selling
environment and the factors that will cause such changes. It will also analyze
both the short run and the long run production and cost functions as applied to
the cost data so as to determine the conditions under which operations can be
discontinued. Due to the changes in the market structure, there will be a need
to review the pricing structures in order to maximize for profits and make proposals
for maximizing profitability and shareholder value.

In
the previous years, we have realized an increase in microwavable food products
in the market. Today, these types of meals are a great choice for working
parents and more parents working with more income within the household because
they are convenient, take a little time to prepare and a majority consider them
to be gourmet foods. Microwavable foods are great for family and kids after
work and school. Almost every family owns a microwave. Two major competitors in
the market for low calorie microwaveable food are Healthy Choice and Lean
Cuisine. Lean Cuisine, a Nestle company was established in 1981 with markets in
the US, Canada and Australia. Healthy Choice was established in 1989 by Con
Agra, one of the largest frozen food companies (Tragakes, 2009).

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1.     
The
Effectiveness of the Market Structure for the Company’s Operations.

Any company in purely competitive
market is a price taker because the equilibrium price and the industry output
are as a direct result of demand and supply. It is therefore paramount that an
analysis for the market structure of low calorie foods be carried out on a
target audience for the products with major stress over the factors that world
drive for sales while considering the needs and the demands of the target
market. The trends for growth of the target market should also be analyzed. A
prediction of the market trends would lead to an easy way to make decisions on
the products to produce. In this way, the organization would realize a good
strategy to become an aggressive competitor in the food industry. This way they
can adopt a more customer oriented structure. Having a price strategy which is
customer 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 ensure
maximum revenue and increase productivity in the long run. Argy 1994 explained
that a good strategy is crucial in determining the effectiveness of the market
structure in which the firm functions. Bragg 2012 reiterated by stating that a
good market strategy would mostly emphasize on the products available for sale,
the market trends in pricing products, product promotion techniques and the
total number of companies participating in the market. 

From assignment 1, the regression
equation estimating demand of low calorie microwavable foods was represented as
QD = – 5200 – 42P + 20PX + 5.2I +
0.20A + 0.25M and R2 being 0.55 was relatively high sought to
illustrate that demand is huge. The Elasticity for advertisement was 0.11, this
means that advertisement plays a slightly negligible role in determining the
demand for the low calorie microwavable foods. Ultimately, the food product
proved to be highly competitive.

2.  
So as to determine the variables that
could be responsible for the changes in the market structures, we must first
understand the major differences between a monopolistic competition market
structure and a perfectly competitive market structure. These major differences
are product differentiation and efficiency. 
Product differentiation in a perfectly competitive market is
characterized by the products being perfect substitutes for one another, but in
a competitive monopolistic market, the products are highly differentiated.
Here, firms will work hard to emphasize the non-price related differences
between their products and their competitors’ products. Switching from perfect
competition to monopolistic completion structure will decreases the consumer
surplus overall, and by extension the market’s economic surplus, and creates
deadweight loss. An entity making profits in the short run will break even in
the long run because demand will decrease and average total cost will increase.
This indicates that
in the end, a
monopolistically competitive entity will make no profitable income. The
entity’s demand curve will thereby slope
downward compared to a competitor who
has a superbly elastic demand.

Now,
on the grounds of the above criterion, I would recommend that market structure
has changed because of:

a)      An
economic crisis which would occur when suppliers and distributors are affected
by market downward direction and perfect equilibrium falls apart, market is no
longer perfect and suppliers  starting to
influence the market by charging customers differently based on their own
criteria and incurred expanses, distributors are running out of the business
thus decreasing the amount of product sold and therefore forcing company to
start selling a surplus product at loss, in order to eliminate the total loss.

b)      Know-how
recipe of the product – which gave the firm a competitive advantage and
opportunity to differentiate itself by locking on a specific customer and
securing the market share.

3.      TC = 160,000,000 + 100Q + 0.0063212Q2 

VC = 100Q + 0.0063212Q2 

MC= 100 + 0.0126424Q

ATC = 
  = 

                      =  +

ATC  = 
MC 

             +     =    
100 + 0.0126424Q

              + 100 – 100 0.0126424Q

            160,000,000 = 0.0063212Q2 

                 Q =       =  159096.3535

                 Q = 159096.3535

Therefore, the value for quantity (Q) which represents the
output level that will minimize the Average Total Cost (ATC) is 159096.3535. In
the short-run, if the production level is 159096.3535, the company shall be
said to produce at its optimal average total cost.

ATC =  +     

ATC =   +

         = 1005.6799 + 100 + 1005.6799

        = 2111.3598

This
is the per-unit cost of production when the company is at its most efficient
level. In the long run, if the selling environment changes and becomes competitive
the entity shall be forced to produce at its minimum total average cost.  

AVC
= 100 + 0.0063Q

100( * )   =  
1105.6799

This
represents the average variable costs during production.

ii).
Circumstances under which the firm should cease operations.

There are instances when an entity
can stop operations. Some of the reasons could be because of;

–         
Inability to compete with its
competition.

–         
Inability to keep up with innovation.

–         
Inability to keep up with changing
technologies that enhance for efficiency and thereby leading to the firm being
in an unfair competition with other firms.

–         
They could close operations if there is
insufficient funding and there’s additionally the opportunity of supplies which
are used for items are now not available.

–         
Essentially with the death of
competition, insufficient capital and the lack of resources may lead to
discontinuation in operations therefore there would be dire need for the entity
to remain organized for the unexpected periods and plan ahead.

In
order for the organization to live in business and remain worthwhile, they need
to make sure that they understand the competitors’ products and prices and
constantly keep reviewing theirs on a need basis if it comes to that. It is
critical to stay profitable because consumers may also become bored. Every
other essential aspect is to make certain that the commercial enterprise has
multiple suppliers that they can order from just in case one fails to deliver
and always ensure that they are afloat with capital to inject in the business
for growth purposes.

iii).
Pricing Policy that will allow the company to maximize profits.

A
pricing policy that I would recommend would be by using the Marginal Cost
Pricing.  In a business, the setting of a
price of a commodity is equated to the cost of production of an extra unit
produced. Therefore, for each unit sold there’s a need to include the total
costs of labor and material used in production. Cohen, 2004 explains that
during a period of poor sales, an entity sets the prices of a commodity almost
equal to the marginal costs. This is a strategy in place in order to keep the
entity profitable in the long-run. The price however needs to stay more than
the average costs in the short run so as to cover the total costs in the
long-run. Therefore, in this scenario, if we increased the price of the
microwaveable foods, the quantity supplied would consequently fall. The demand
for the low calorie microwaveable foods is inelastic.   

From
the 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
= 22501.91

Q is the profit maximizing output which
is well below the output at the minimum average total output. To get the price
that the company can charge this output to maximize its profits. Hence to find
the optimal price, the substitution function would be:

Optimal Price: P
=  –

                          =  920.24 –

                      =
920.24
– 535.76

                      Optimal Price: p = 384.48

iv). Evaluation of the
company’s financial performance

For
the entity to capitalize on its profits in the long term, the demand curve of
the firm in a competitive monopolistic market will have shift so that it curves
towards the average total cost curve. This makes it difficult to make profits
and breakeven. Therefore, so as to improve and evaluate its financial
performance, the entity will have to implement pricing strategies in line with
the incomes of their customers amongst other influencing economic factors for
instance competition.

To evaluate the company’s financial performance,
the calculations form section iii above explain that at a production quantity
of 22501.91
units, ATC will be:

ATC =  +  

7110.51
+ 100 +1422.39 =  = 332.03

The
company is selling at 384.48 while production of one unit will cost 332.03 and
thereby giving a profit of 52.45 per unit thereby being a great economic
profit.

The
short run profit would be TR-TC, where TR = Q*P and TC = ATC*Q

TR
= 22501.91*384.48
= 8651534.36

TC
= 332.03*22501.91 = 7471309.18

TR-TC
= 8651534.36 – 7471309.18 = 1,180,225.18

Profit
in the short run would therefore be $1,180,225.18

v). Recommended actions
that the company could take in order to improve its profitability

When quantity demanded remains
equal to quantity supplied, the equilibrium is reached. (Syed Zulfiqar Ali shah, 2009).
However, the equilibrium calculations are not constant. They can be changed
owing to reasons for instance the cost of raw materials, different levels of
income of the buyers, customer preferences and price of the competition
products. Due to these factors, the equilibrium levels can changeably go up or
down. The entity can make use of this information to analyze whether the changes
in price of the microwavable foods are at optimal price or if they should
increase or reduce the prices to attract more buyers. With proper price
planning, the entity would in the long-run increase their sales and thereby
increase profitability. It is important however to note that in a monopolistic
competitive 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, but
also other influencing factors such as;

a.      
Continued research and development in
quality assurance for their product. This will be done to improve quality in a noticeable
way thereby making an enduring impact of its products on the market and will
gradually achieve popularity and consistency. This is because the society today
is trying to be more conscious of health and wellness especially from food and
lifestyle is considered of paramount importance. This to me proves that
constant quality development of foodstuffs is definitely an important part competition.
The entity will only achieve this by conducting research for healthier and more
cost effective inputs of production for the food products.

b.     
Effectively operational Advertising. The
food industry market competition is highly aggressive in terms of advertising.
The business will therefore have to find a more cost effective advertising
strategy that will still ensure a more reaching means to the target market. For
instance, 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.
 

 

 

 

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