Managerial Economics assignment help wanted

Operations Decisions

Kenneth Shider

ECO 550

Dr. Jingxi Liu

Operation Decisions

1. There has been an increase in demand of the microwave food products in the food market today. Basically, with the availability of many types of food choices, consumers have been at the forefront of opting for healthy food products with less calories and appropriate nutrient portion.

Market profiling is a critical criterion that can be used for market segmentation. It can be used in to decide on the type of path to follow so as to make a change in the market.Market profile variables, like economic status of various geographic positions should be considered when differentiating the audience to be targeted (Best, 2000).Behaviour variables are usually used in assessing the actual behaviour of various customers towards specific products. These may include readiness to buy, brand loyalty as well as the rate of usage.

The low calorie microwave company should therefore consider doing a market structure analysis of their products and it should majorly aim at their consumers. The requirements and needs of the market are normally considered as the main factors that can increase the sales of the company (Best, 2000) Practically, they will require an audience analysis. Besides, analysing the growth trend of the market will be very essential in predicting the market trends making it very easy to know the type of products to offer. It is important to acknowledge that market structures are substantially changeable and differ from one situation to another. Thus, considering a market structure which is suitable to the products and the competitive advantage strategies is very essential in determining the effectiveness of the market structure in place. Basically, the market structure should be one that is considered as customer oriented. Lastly, inflation and employment trends as well as a more accommodative pricing strategy should be put into consideration in determining the effectiveness of the market structure (Best, 2000).

2. Some of the main factors that could have resulted to the change in the structure of the market include changes in the income of consumers as well as preferences. These factors are known to closely relate to demand and needs of employees. When a customer starts getting more income, they will start to have a habit of purchasing more products, even expensive ones. On the contrary, if the income level of a consumer decreases, they will place a lot of restriction on the amount and type of products they buy((Plunkett & Allen, 2008).This generally means that the ability of buying is dictated by the level of income (Varian, 2011).The size of sales revenue is determined by the customer’s purchasing ability. Another factor that caused change in the market structure is basically a change in the consumer taste. A product that is preferred or liked by consumers will be bought in large quantities and frequently as compared to those that are not preferred or liked regardless of how cheap it may be. It is important to know that consumer income is not controllable by the company. However, taste can be controlled but slightly. Thus, the company need to develop products and design appropriate pricing strategy that includes the above factors so as to ensure a business that is customer oriented.

3. Considering short term analysis, marginal cost is normally lower than price (Varian, 2011). This can result to profit generation in the short run. As fresh entries increases, a rise in the supplied quantity is realised. This makes the equilibrium price to reduce and the decrease is reflected in the demand curve. A monopolistic market is characterised by free entry and exit. Additionally, it is characterised by price fluctuations as well as changes in the demand of products of from firms that have been in this market for longer periods. Considering the long run, marginal revenue normally equals marginal costs (McGuiyan & Moyer, 2014).In this situation, there are zero profits and consumers are free to look elsewhere. To earn profit, price should be actually greater than the average overall price cost. The company’s price in the short run should be able to meet the average variable cost. Besides, in the long run, the average total cost must be met in order to continue with their operations.

The costs functions are given as follows;

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

VC = 100Q + 0.0063212Q2

MC= 100+ 0.0126424Q

Normally, a monopolistically competitive firm equalizes its MCwith MR, that is, at profit maximizing output, MR = MC are generally equal.

Therefore,

920.2380952 - 0.047619048Q = 100 0.0126424Q

Or, 0.174043Q = 820.2381

Therefore, Q* = 4712.846 ˜ 4713

VC = 100*4712.846+0.0063212*47128462

= 4853245.65

MC = 100+0.0126424*4712.846

=159.58.

TC = 160,000,000+ 100*4712.846+0.0063212*4712.8462

=160, 000,000+4712846+140399.65

=164853245.65

ATC = 164853245.65/4712.846

= 34979.55

AVC = 4853245.65/4712.846

= 1029.79

The information above can be used by the company to evaluate whether to change the optimum price or not. If not, the company should then be considering some relevant steps. They can decide to correct the situation by decreasing the prices of the products to make them accommodative and pocket friendly (Enke, n.d.).A growth in the volume of sales can be realized in the long run if the pricing strategy is intelligently designed.

4. A normally functioning business may decide to discontinue its operations because of several factors. One reason is the lack of the ability to effectively compete in the market with regard to pricing and innovation. The company can as well shut down its operations due to lack of enough funds. Overall, lack of enough funds to drive the company’s operations, lack of the abilities of competing effectively in the tight market, lack of supplies as well as legal requirements are reasons that can make the company to close down its activities. In order to keep progressing the activities of the company, it needs to create some effective competitive advantages and produce high quality products which can improve the competitive edge to their competitor’s in the market. This will, as a result, generate adequate flow of revenue that keeps the activities of the company moving. It should make sure that they enhance good relationship with the suppliers and stakeholders and have relatively more than one supplier. Additionally, it is important for the company to consider respecting the legal and ethical standards and codes so as to avoid breach of the law that can lead to their termination.

5. I would recommend marginal cost pricing. It is critical to point out that the process of creating the price of a product is equal to the additional costs that are incurred in the production of an extra unit of output. Based on this, a producer is able to charge for every product unit that is sold, complimenting the total costs that results from material and direct labour. During moments of reduced sales, many businesses opt to set their prices below marginal costs. Therefore, it is important for businesses to put their prices higher than the average costs at the highest level of output so as to keep it profitable in the long run. Generally, the company’s price should incorporate the average costs in the short run as well as the average cost in the long run (Varian, 2011).

By putting the independent variable values together, we get that;

Qd = 38,650 - 42P

Thus, inverse demand function will be:

P = 38650/42 – Qd/42

Total Revenue (TR) = P×Q = 38650Q/42 – Qd2/42

Marginal revenue (MR) = 38650/42 – Qd/21 = 920.2380952 - 0.047619048Qd

P = 808.0274742

This indicates that the demand for low calorie frozen food is inelastic since a price increase leads to a reduction in the quantity demanded.

6. Large values of price elasticity estimates illustrates that there are bigger changes in the rate of purchase as the prices shift. The company therefore evaluate the price elasticity of their products, the general market, collect and analyse data regarding social status of the consumers, income disparity and various features of the market niche in order to compete effectively in the market. Organizations normally realise higher profits when operating in a monopolistic market and this influences entry of new competitors in the market (Enke, n.d.).Therefore, the company should strive to maintain its monopolistic position. This can be achieved via investing in advertisement. Increase in the market output will be realised consequently reducing the price.

7. There are very many strategies that can be used to improve the profitability of the company and provide additional value to the stakeholders. First, the company should continuously upgrade the quality of their products. The company can achieve this by putting more investments on research and development so as to generate additional impact on their product popularity and reliability.

Secondly, the company should develop effective ways of advertising their products. This will positively impact on their returns hence increase the company’s profitability.

References

 Best, R. (2000).Market-based Management (1st Ed.). Upper Saddle River, N.J.: Prentice Hall.

Enke, S. (n.d.). Profit Maximization under Monopolistic Competition. The American Economic Review, Vol. 31, No. 2, 317-326. Retrieved from http://www.jstor.org/discover/10.2307/362?uid=3738256&uid=2129&uid=2&uid=70&uid=4&sid=21102582087203

Plunkett, W.& Allen, G.(2008). Management: Meeting & Exceeding Customer Expections (9th Ed.). Mason, OH: Thomson South-Western.

McGuigan, J. & Moyer, R. (2014). Managerial Economics: Applications, Strategies and Tactics (13th Ed.). Stamford, CT: Cengage Learning.

Varian, H. R. (2011). Intermediate Microeconomics: A Modern Approach (8th Ed.). NY: Norton