Long-Term Investment Decisions

Date of submission

Operations decisions refers to the short term strategies made to manage the day to day business activities of an organization. In order for the organization to remain profitable and competitive, it has to keep track of its operation. In this instance the company deals in low calorie frozen microwavable foods therefore, it has to study its market structure and employ pricing strategies that enable it to beat the competition in the market.

A plan that will assess the effectiveness of the market structure for the company’s operations:

Of late there has been an increase in the market of microwavable food products, this is because they are a convenient option in today’s society where more parents are working long hours. Microwavable food products are convenient because they require less time to prepare. The popularity of microwavable foods has sparked producers to produce more with greater nutritive quality and less calories. The competitors for low calorie microwaveable food are Healthy Choice and Lean Cuisine. Lean Cuisine is a Nestle subsidiary which was established in 1981. It has markets across US, Canada and Australia. Healthy Choice is one of the largest frozen foods companies and was established in 1989 by Con Agra. Market segmentation is based on; profile, behavioral and psychographic criteria. Even thou profiling is not considered major criteria for market segmentation, it is among the factors to be put into consideration when deciding which direction to take in the differences in the markets. The profile variables that is geographic locations, economic status are mandatory to consider in order to differentiate the target market. The behavior variables are based on actual customer’s attitude towards the products. For example the usage rate, readiness to buy and brand loyal. Psychographic segmentation differentiates consumers in terms of their lifestyle such as interest and opinions (Lynn, 2011).

By setting QD equal to QS

QS=5200 x 45P

P= 5200/45 + Q/45

QD= 211000 -10P

P=21100-0.10Q

MR= 21100-0.20Q

21100-0.10Q

5200/45+Q/45

21100+5200/45=0.10Q+Q/45

954700145=5.5/45Q

Q=173581.82

P= 3741.82

Factors that influenced the change in market structure:

Using the current data the company has become more concentrated with less companies in the industry. This means more controlled product prices. The monopolistic competition morphs into an oligopolistic competition. Oligopoly markets have more companies and each of them need to keep up with the competition through product quality, price and introduction of new products to the market. If producers in monopolistic market changes their prices and increase competition, this would result to a reduction in profits. The demand will change for a number of reasons; a change in consumers’ income, competitors’ product prices or the price of the goods used. For the company to maintain it’s competitive and remain profitable it has to observe the changes in the markets and the factors influencing the changes so as to put in place strategies that relevant to the current market structure (Lynn, 2011).

Analyze the major short run and long cost functions for the low-calorie, frozen

The short run cost in a monopolistic competition, the price is normally greater than marginal cost and hinders generation of profits in the short run. When new firms penetrate into the market there will be an increase in supply of goods hence a reduction in the product prices. This decline is reflected by shifts in the demand curve. In monopolistic competition free entry and exit into the market, results to fluctuations in price and supply (Scholsticus, 2011). However, in the long run, marginal revenue equals to marginal cost, profits are zero and consumers tend to switch to other brands. In order to remain profitable in the long run, prices has to be greater than the average total cost .Therefore, the company has to set a price that will enable it to meet the variable costs in the short run and the average total costs in the long run.

Total Cost: TC = 160,000,000 +100Q + 0. 0063212Q2

Variable Cost: VC = 100Q+ 0. 0063212Q2

Marginal Cost: MC =100+ 0.0126424Q

Average Total Cost= Total cost/Quantity

160,000,000=-100Q-0.0063212Q2

160,000,000/Q=-100-0.006312Q

160,000,000=0.0126424Q2

Q=120,006

Value of ATC

160,000,000/120,006+100 + (0.0063212*120,006)

1333.26+ 100 + (0.0063212*120,006)

1433.26+758.58=2191.84 Units

AVC= 100+ 0.0126424*120,006 = 1617.16.

Possible circumstances under which the company should discontinue operations and key actions that management should take in order to confront these circumstances.

The periods where it becomes inevitable for a company to discontinue its operations, mostly it could be as a result of the inability to effectively compete with its competitors innovative products and prices. Inadequate funding could also lead to the closure of the company operations. Other factors such as lack of competition, inadequate capital and inadequate supplies are other reasons to discontinue operations. A company should understand the competitors’ products and prices for it to remain relevant and maintain its level of profitability. A company should also have multiple suppliers to be able to have a continuous production process in case one supplier fails to deliver. Finally it’s necessary to ensure the company has adequate financing for its projects (McGuigan, 2014).

Pricing policy that will enable your low-calorie, frozen microwavable food company to maximize profits.

A company operating in a monopolistic market has to invest more in advertising and producing innovative products so as to continue enjoying high profits. This investments are crucial because the entry of new firms into the market brings in more innovative products and customers may be persuaded to switch, making it harder for a firm to maintain high profits in the long run. However, in the short run, the company can advertise to sustain its profit level. This can change its variable inputs to increase market share and profit (Scholatious, 2011) in the short run.

TR = 21,000Q – 0.10Q2

TC= 1600,000,000 + 100Q + 0.0063212Q2

Producer Surplus = TR –TVC

Variable Cost: VC = 100Q + 0.0063212Q2

Q (21215.56+0.0063212Q) = 0

21215.56 + 0.0063212Q

Q= 3,356,255.14

Profits = 3,356,255.14-160,000,000

=

For a company to make profits in a monopolistic competitive market in the long run, the demand curve will shift so that it is tangent to the firm’s average total cost curve. This will enable the firm to make a profits at breakeven point.

Q= 120,006

Value of average total cost:

160,000,000/120,006-115.56 +0.01111Q

= 1333.26+ 100 + (0.0063212*120,006)

= 1433.26+758.58=2191.84 Units

Profits are made when the market prices and revenues exceed the average variable cost. When the price is less than the average cost, the firm will operate at a loss in the long run hence discontinue its operations in the market.

Actions that the company could take in order to improve its profitability and deliver more value to its stakeholders

For the company to remain relevant and retain its profitability, I would recommend, adaption of marketing strategies that will promote the company’s products. This may look expensive but culturing brand loyalty and recognition increases sales as consumers tend to buy products they are familiar with. The company could also conduct research and advertising campaigns that emphasize on the company’s strengths over their competitors as this will enable the company to cut its share in the target market (McGeehan, 2014).

The company could also appreciate the value of innovativeness in the production of their goods to keep them ahead of their competitors. This will enable the company to take over the markets and create new penetration for their products therefore increasing their market share. Lastly, the company can conduct market surveys to exactly understand their customer wants which will enable them produce quality products that suit the consumers’ desires (McGeehan, 2014).

In conclusion, the company’s management has to be aware of the market they operate in, the emerging trends and the changes in the market structure to be able to make relevant operations decision. It is also important to pay attention to forces of supply and demand in deciding product prices and put in place strategies that seek to maximize the firm’s sales. The use of market and competitive intelligence is key to ensure the firm stays ahead of its competitors.

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