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Operations Decision

1

Operations Decision 5

Assignment 2: Operations Decision

Lashunta Grant

Dr. Zohre Ardalni

Managerial Economics and Globalization

February 13, 2017

Question 1

The major two tops companies that are Healthy Choice and Lean Cuisine deals majorly in low-calorie frozen foods. This paper addresses one the competitors in the market that has been a strong competition in the business. The first plan will be to state clearly a plan that will be used in order to access the effectiveness of the market structure for the operations of the organization. The second thing will be to address two other factors that can cause the change in the market structure at large. The following thing will be to analyze the primary short and long run cost functions for the organization basing on the given cost functions. In the analysis, there is need to highlight substantive ways in which the organization can employ that information when it comes to doing critical thinking to be used in both the short run and the long run (Carl, 2012).

The next plan is to determine the conditions under which the company should to disrupt its operations. This is critical as it helps the company to plan well for such circumstances. In this regard, therefore, I will highlight the most paramount points of actions in which the company will have to follow in such circumstances so as to emerge victors. The next plan is to suggest one pricing policy that will be used in the company so as to increase the profits making in the company. There will be a need also to state a plan that will be useful in the company in the process of evaluating their financial performance. This is the key point since it will help the company plan well and thus avoids unnecessary losses in their operations. The last plan I will suggest is to recommend two actions that the company will use in the process of profit maximization and thus delivers more benefits to their owners. I will also suggest the mechanism in which the company will use in the implementation of my recommendation for the full success and realization of the benefits of the whole organization.

Question 2

The industry of low-calorie frozen microwavable operates under the monopoly form of competition market structure. The conclusion as to state that it is a monopolistic market is that there are few dominant firms and a larger number of competitive companies. The top three firms under this category therefore include are Lean, Cuisine, Smart Ones, and Healthy Choice. These are the same firms that control the market share, and thus they are termed as monopolistic companies in the market and thus the dominant firms since they command a bigger market. In the market, there must be fringe which is used to test whether a certain firm enjoys monopoly advantages or not (Stackelberg, 2011). An example of this company in this context includes Kashi, Amy’s, Michelina’s and Trade Joe’s and others. They play a critical role as thy balance the market and help in accessing the effectiveness of other firms in different market structures.

One of the factors that may have influenced the change in the market structure is the stiff competition in the market and thus forcing those firms which are not serious in the market to quit. The companies with higher competitive advantage enjoy when other companies quit the business because of the anticipated higher returns in the market. The other factor that might have caused the change is the lack of incentives from the government which makes the cost of production to be lower. Lack of such incentives gives rooms to only a few firms with higher capital to survive and thus the monopoly. In the new market environment, the demand will be higher while the supply will be lower since few firms in the market are responsible for production and many consumers who look after this few companies for their satisfaction. This scenario will give the monopolistic companies the prime privilege of setting the price at any level since they are the one determining it (McGuigan, 2014).

Question 3

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

VC = 100Q + 0.0063212Q2

MC= 100 + 0.0126424Q

The first thing to do here is to find out the short and long run cost functions using the information given above. The first thing to do is to determine the average total cost (ATC). ATC is found by using the equation: ATC=TC/Q and thus the equation will look like this:

ATC= 160,000,000/Q + 100Q/Q + 0.0063212Q2/Q = 160,000,000/Q + 100 + 0.0063212Q

The next thing to do is to find the average variable cost (AVC) which is calculated as AVC= TVC/Q= 100Q/Q + 0.0063212Q2= 100 + 0.0063212Q.

The next following step is the use of this function to solve for the value of G. First we must set ATC=MC which will be like this 160,000,000/Q+ 100 + 0.0063212Q = 100 + 0.0126424Q160, 000,000/Q +0.0063212Q = 0.0126424Q.

After subtracting 100 from both sides then160, 000,000=0.0063212Q2

After we subtract 0.0063212Q from both sides and then in both sides we multiply each by Q; we will have 25,311,649,686.786=Q2.

The following step is to find the square root of each side; we will have 159,096.353=Q.

This is the value of Q, and it implies that it is the number of units that we must produce to the market in the process of minimizing the ATC. It is also the number of units the company should to output so as to reach its outbreak point. It is this outbreak point that the company uses in her decision concerning whether it is making profit or losses both in short and long run.

Question 4

An organization can know they are making profit or losses in its operations by using the short and long run cost functions and thus they can make an informed decision on whether to continue or quit the industry. They should use the ATC function so as to know the point at which they will reach the breakeven point and the point at which they should to pull out of the industry (Scholasticous, 2011, January 1). To use the ATC function, the value of Q which we had earlier solved is used so as to determine the breakeven point. Our equation therefore will look like this 160,000,000/159,096.353 + 100 + .00632212 (159,096.353) =2011.36. The decimal part represents the cents and thus the price should to be lower than $ 20.11 for the company to break even. The value is lower than $ 20.11 it implies that the company is not maximizing their total fixed costs.

The implication of this in short run is that the organization will have to stay open if at all they had a decision to cut on costs in the future. The company will have to shut down when they reach a point where the profit in the company is negative total fixed cost. The company may also decide to use an equation so as to identify the point in which they will have to shut down their operations. The equation will be profit (π) = total revenue (TR) – Total cost (TC). The total revenue in this equation is given by P * Q while the total cost is the same as total fixed cost (TFC) – total variable cost (TVC). The total variable cost is the same as average variable cost (AVC) * Q. The shutdown point is at the point where π = (P*Q) – TFC- (AVC * Q). The only one thing that the management should to do is to keep on calculating the breakeven point more often so as to make a prior decision so as to avoid going to the point of shutting down the business. When the organization knows its boundary in operations, then decisions can be made so as to avoid such undesired circumstances in the company.

Question 5

I will suggest marginal cost pricing as one of the pricing policies. Normally, to attain the prices of different products in business is it the extra cost of producing the additional output of that product. In this manner, therefore, the producer charges for each product unit that is sold, only the additional to the total cost that comes from the materials used and the direct labor. The prices are typically set close to the marginal cost in the time there are not good sales. The prices need to be set higher than the average total cost for the company to gain profit (Nagle, 2009). The highest level of output implies that the company prices should be in a position to meet the average cost in short run and average total cost in the long term. P= 2100 – 0.10Q. To get the Total Revenue: TR = (P*Q) = 21000Q – 0.10Q. The Marginal Revenue: MR = (dTR/dQ)= 21,100= 0.20Q. For the company to maximize the profit then MR=MC= 21,100 – 0.20Q= 115.56 + 0.02222Q=21215.56=0.02222Q = 95470.97P= 21,100.

0.10Q=11552.90P = 11552.90.

Question 6

The most important thing in every company is the financial performance and regular check of it so as to ensure that the company operates in the right direction. One sure way of measuring the implementation of the budget is through keeping an eye on the number of customers which will allow the company to identify its sales patterns. The other plan that the company may use is the maintenance of both horizontal and vertical analysis so as to ensure that its performance is going well as compared to other past years. It can also opt for industry analysis so as to ensure that its performance is in line with the standards of the industry (Johansson, 2012). These steps are paramount in the industry in the process of determining the financial performance and understanding the trend in business that will lead to a decline in the performance. The other thing is that this method allows the company to measure its total revenue in line with sales in particular period. The revenue is used in the determining the total net income of the organization. The primary use of the financial performance of the company is to ensure that the investors are always available in the company and thus keeps the company on the high knot.

Question 7

For the company to be profitable there is urgent need to improve the quality of the products. The primary advantage of this is that it will bring more customers and in the process creates value for the whole company since offering quality products at the price that is fair will increase the sales that the company sales.

The other recommendation I will recommend is that the company should work on corporate social responsibility projects so as to increase the investment to the community. The primary advantage of this is that it will develop the company in the long run and improves the image of the company. People will build the respect of the company, and thus they will buy more products from the company.

References Carl, S. (2012). Market Structure (1st ed.). Delhi: Orange Apple. Johansson, B. &. (2012). Road pricing: theory, empirical assessment, and policy. Springer Science & Business Media. McGuigan, J. M. (2014). Managerial Economics. Cengage Learning. Nagle, T. T. (2009). The strategy and tactics of pricing: A guide to growing more profitably. Upper Saddle River, NJ: Pearson/Prentice Hall. Scholasticous, K. (2011, January 1). Monopolistic Competition Example. Stackelberg, H. B. (2011). Market structure and equilibrium (1st ed.). Berlin: Springer.