Assignment 2: Operations Decision

Assignment

2:

Operations

Decision

Using

the

regression

results

an

d

the

other

computations

from

Assignment

1,

determine

the

market

structure

in

which

the

low

-

calorie

frozen,

microwavable

food

company

operates.

Use

the

Internet

to

research

two

(2)

of

the

leading

competitors

in

the

low

-

calorie

frozen,

microwavable

food

ind

ustry,

and

take

note

of

their

pricing

strategies,

profitability,

and

their

relationships

within

the

industry

(worldwide).

Write

a

six

to

eight

(6

-

8)

page

paper

in

which

you:

1.

Outline

a

plan

that

will

assess

the

effectivene

ss

of

the

market

structure

for

the

company’s

operations.

Note:

In

Assignment

1,

the

assumption

was

that

the

market

structure

[or

selling

environment]

was

perfectly

competitive

and

that

the

equilibrium

price

was

to

be

determined

by

setting

QD

equal

to

QS

.

Y

ou

are

now

aware

of

recent

changes

in

the

selling

environment

that

suggest

an

imperfectly

competitive

market

where

your

firm

now

has

substantial

market

power

in

setting

its

own

“optimal”

price.

2.

Given

that

business

operations

have

changed

from

the

market

st

ructure

specified

in

the

original

scenario

in

Assignment

1,

determine

two

(2)

likely

factors

that

might

have

caused

the

change.

Predict

the

primary

manner

in

which

this

change

would

likely

impact

business

operations

in

the

new

market

environment.

3.

Analyze

t

he

major

short

run

and

long

cost

functions

for

the

low

-

calorie,

frozen

microwaveable

food

company

given

the

cost

functions

below.

Suggest

substantive

ways

in

which

the

low

-

calorie

food

company

may

use

this

information

in

order

to

make

decisions

in

both

the

short

-

run

and

the

long

-

run.

TC

=

160,000,000

+

100Q

+

0.0063212Q2

VC

=

100Q

+

0.0063212Q2

MC=

100

+

0.0126424Q

4.

Determine

the

possible

circumstances

under

which

the

company

should

discontinue

operations.

Suggest

key

actions

that

management

should

take

in

o

rder

to

confront

these

circumstances.

Provide

a

rationale

for

your

response.

(Hint:

Your

firm’s

price

must

cover

average

variable

costs

in

the

short

run

and

average

total

costs

in

the

long

run

to

continue

operations.)

5.

Suggest

one

(1)

pricing

policy

that

will

enable

your

low

-

calorie,

frozen

microwavable

food

company

to

maximize

profits.

Provide

a

rationale

for

your

suggestion.

(Hints:

·

In

Assignment

1,

you

determined

your

firm’s

market

demand

equation.

Now

you

need

to

fin

d

the

inverse

demand

equation.

Having

found

that,

find

the

Total

Revenue

function

for

your

firm

(TR

is

P

x

Q).

From

your

firm’s

Total

Revenue

function,

then

find

your

Marginal

Revenue

(MR)

function.

·

Use

the

profit

maximization

rule

MR

=

MC

to

determine

you

r

optimal

price

and

optimal

output

level

now

that

you

have

market

power.

Compare

these

values

with

the

values

you

generated

in

Assignment

1.

Determine

whether

your

price

higher

is

or

lower.)

6.

Outline

a

plan,

based

on

the

information

provided

in

the

scenario

,

which

the

company

could

use

in

order

to

evaluate

its

financial

performance.

Consider

all

the

key

drivers

of

performance,

such

as

company

profit

or

loss

for

both

the

short

term

and

long

term,

and

the

fundamental

manner

in

which

each

factor

influences

mana

gerial

decisions.

(Hints:

·

Calculate

profit

in

the

short

run

by

using

the

price

and

output

levels

you

generated

in

part

5.

Optional:

You

may

want

to

compare

this

to

what

profit

would

have

been

in

Assignment

1

using

the

cost

function

provided

here.

·

Calculate

profit

in

the

long

run

by

using

the

output

level

you

generated

in

part

5

and

cost

data

in

part

3

and

assuming

that

the

selling

environment

will

likely

be

very

competitive.

Determine

why

this

would

be

a

valid

assumption.)

7.

Recommend

two

(2)

actions

that

the

company

could

take

in

order

to

improve

its

profitability

and

deliver

more

value

to

its

stakeholders.

Outline,

in

brief,

a

plan

to

implement

your

recommendations.

8.

Use

at

least

five

(5)

quality

academic

resources

in

this

assignment.

Note:

Wikipedia

does

not

qualify

as

an

academic

resource.

Assignment 2: Operations Decision

Using the regression results and the other computations from Assignment 1, determine the market

structure in which the low-calorie frozen, microwavable food company operates.

Use the Internet to research two (2) of the leading competitors in the low-calorie frozen, microwavable

food industry, and take note of their pricing strategies, profitability, and their relationships within the

industry (worldwide).

Write a six to eight (6-8) page paper in which you:

1. Outline a plan that will assess the effectiveness of the market structure for the company’s

operations. Note: In Assignment 1, the assumption was that the market structure [or selling environment]

was perfectly competitive and that the equilibrium price was to be determined by setting QD equal to QS.

You are now aware of recent changes in the selling environment that suggest an imperfectly competitive

market where your firm now has substantial market power in setting its own “optimal” price.

2. Given that business operations have changed from the market structure specified in the original scenario

in Assignment 1, determine two (2) likely factors that might have caused the change. Predict the primary

manner in which this change would likely impact business operations in the new market environment.

3. Analyze the major short run and long cost functions for the low-calorie, frozen microwaveable food

company given the cost functions below. Suggest substantive ways in which the low-calorie food

company may use this information in order to make decisions in both the short-run and the long-run.

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

VC = 100Q + 0.0063212Q2

MC= 100 + 0.0126424Q

4. Determine the possible circumstances under which the company should discontinue operations. Suggest

key actions that management should take in order to confront these circumstances. Provide a rationale

for your response. (Hint: Your firm’s price must cover average variable costs in the short run and average total

costs in the long run to continue operations.)

5. Suggest one (1) pricing policy that will enable your low-calorie, frozen microwavable food company to

maximize profits. Provide a rationale for your suggestion.

(Hints:

 In Assignment 1, you determined your firm’s market demand equation. Now you need to find the inverse demand

equation. Having found that, find the Total Revenue function for your firm (TR is P x Q). From your firm’s Total

Revenue function, then find your Marginal Revenue (MR) function.

 Use the profit maximization rule MR = MC to determine your optimal price and optimal output level now that you

have market power. Compare these values with the values you generated in Assignment 1. Determine whether your

price higher is or lower.)

6. Outline a plan, based on the information provided in the scenario, which the company could use in order

to evaluate its financial performance. Consider all the key drivers of performance, such as company profit

or loss for both the short term and long term, and the fundamental manner in which each factor influences

managerial decisions.

(Hints:

 Calculate profit in the short run by using the price and output levels you generated in part 5. Optional: You may

want to compare this to what profit would have been in Assignment 1 using the cost function provided here.

 Calculate profit in the long run by using the output level you generated in part 5 and cost data in part 3 and

assuming that the selling environment will likely be very competitive. Determine why this would be a valid

assumption.)

7. Recommend two (2) actions that the company could take in order to improve its profitability and deliver

more value to its stakeholders. Outline, in brief, a plan to implement your recommendations.

8. Use at least five (5) quality academic resources in this assignment. Note: Wikipedia does not qualify as an

academic resource.