Outline a plan that managers in the low-calorie, frozen microwaveable food company could follow in anticipation of raising prices when selecting pricing strategies for making their products' response to a change in price elastic. Provide a rationale for your response.
Currently, most food companies have opted to use low, calorie when preparing foodstuffs. It is an option that is gaining momentum in the current business atmosphere. Nowadays, schools, hotels, and even universities make healthy foods because of the introduction of this concept. People prefer living a healthy life and also to lead healthier lifestyles. The purpose of this paper is to provide an outline plan that managers expecting upward change in price, evaluate the effects the state have on production and employment, find out if the Government regulations can promote fairness, analyze most important complexities when there is expansion and finally provide an explanation how this food company can develop a strong relationship between the interests of different stakeholders such as managers and shareholders.
This company has an intention of ensuring that the prices of its products remain inelastic for a foreseeable future. In this case, the pricing strategy that low-calorie, frozen microwaveable food company should use must not have an effect on the perception of consumers when buying the products (McGuigan, Moyer, & Harris, 2011). Such kind of demand is only available in cases where goods and services are necessaries and the consumers must use such products on daily basis. The demand curve of the products of this company relies heavily on the product price, alternate commodities, advertisement overheads and income level of consumers.
The demand function indicates that low-calorie microwave foods fall within the monopolistically competitive market which has more buyers and sellers and who can easily change from one product to the other due to change in price level. In this market, suppliers are the determinant of product differentiation and have the capacity to attract consumers for their products.
Profit = TR-TC
Where TR is total revenue while TC is total cost
TR = price x products (PQ)
And according to profit maximization rule=
Marginal Revenue = Marginal cost or MR MC =0
From elasticity curve, the quantity demanded the products of this company are inelastic and in order to ensure that the products of low-calorie microwave Food Company remain inelastic as possible, it must differentiate its products from competitors. This will help this firm in retaining its customers because consumers will not get a perfect substitute for its products. It is known that when there is the high quality of differentiated products in the market, the market power increases and therefore it is necessary for this company to increase its product differentiation to maximize its profit.
Managers of low-calorie microwave Food Company can also increase the price of their products by becoming more inelastic. They must ensure that customers believe that they cannot do without their products and for that matter they must increase prices of their products carefully because there are other brands in the market which consumers can switch to. For the company to increase its market share price elasticity, therefore, mean reducing the unit price of its products to increase sales volume (McGuigan, Moyer, & Harris, 2011). When the company is also offering a product for sale with economies of scale, the price reduction will support low average cost as it increases the company level of output which also increases firms productivity.
It is also appropriate when Low-calorie microwave Food Company takes advantage of its current price level by ensuring that it sets prices of some of its product high, low and medium. This will allow its customers to select products which they can afford base on the income level of the customer.
Examine the major effects that government policies have on production and employment. Predict the potential effects that government policies could have on your company.
Usually, there is a belief that the market must be regulated by the state and the opposite of the market controlled by the state is an unregulated market. It does not matter whether the market is regulated or not but what matters is that there must be some interventions in the market to control the conduct of buyers and sellers (Lin, 2004). Every market requires Government regulations to ensure that things are done orderly but if not it can be denounced useless when it cannot do certain things perfect than the private sector. The government has a significant role than private sector such as dealing with externalities, enforcing contracts and even building public amenities. It does all these things because it is a Government with a mandate of providing public goods.
It is important to understand the role of the Government and what they are limited to do. For a simple question, would someone be better off when there is no Government? The Government is expected to control every economic activity taking place in a country. Therefore the Government should actively be involved in the affairs of the market economy because it is one of the economic activities which should be in check (Kleinschmidt, 2008). The Government should create rules and regulations used in the exchange of goods and services in the market. It must also involve in the enforcement of those rules to ensure that other traders or firms do not violate the rights of other traders or market players. The Government also should ensure that there is no economic uncertainty for less fortunate people as a result of a poor health condition, unemployment. It must ensure that the market economy has plenty of opportunities for such people without discrimination and unfair treatment.
Determine whether or not government regulation to ensure fairness in the low-calorie, the frozen microwavable food industry is needed. Cite the major reasons for government involvement in a market economy. Provide two (2) examples of government involvement in a similar market economy to support your response.
The main aim of Government involvement to the market is the use the use of civic and personal goods, defective information and in cases where people do not have the perfect judgment of their interest and cannot predict what can provide benefit to them. It is, therefore, the role of the Government to finance economic activities that meet the best needs of the society. In the market economy, there must be a government intervention to make it efficient. Market players such as monopoly usually want to exploit consumers by producing products of low quality and sell them at high prices (McGuigan, Moyer, & Harris, 2011). The Government, therefore, ensures that there is no exploitation of consumers by ensuring that monopolist produces quality products and offer their products for sale at a fair price. The fundamental nature of the market economy is to accomplish best production capacity which may not be available in a situation where a monopoly exists in the market. Government interventions, therefore, ensure that there is price stability and this is influenced by the existence of free competition which lowers product prices when demand is low. When there are no Government regulations, low-quality products are easily supplied in the market to reflect products which are sold at lower prices in the market.
Examine the major complexities that would arise under expansion via capital projects. Propose key actions that the company could take in order to prevent or address these complexities.
The company can only expand its operations once it has developed a good reason for entering into this capital budgeting decision. The company enters into a merger when it is ready to bear the cost burden, the risk associated with the merger and able to generate high investment returns from it. The business only has a problem of raising sufficient finance to support the investment decision (Lin, 2004). For the sake of this business, there is a high likelihood that there could be a difference between the stakeholders and managers. This is because the simplest way to raise capital is to take a portion of the shareholder's reserve which reduces the payout dividend ratio (Thottan, 2004). For the company to raise capital there are some issues that need to be assessed and such issues include the cost of capital, expected a return on investment and how quickly the capital can be obtained to finance the investment.
The current position of this company is that the movie rental industry has concluded that they should go on with the merger or have self-expansion through the use of the capital project. When it proceeds with self-expansion it will not be easy for it to get the benefits which it could have gained when the merger had been allowed to take place (McGuigan, Moyer, & Harris, 2011). The merger could have allowed sharing of the available resources and technology to increase the maximization of profits. In the contrary, it will be impossible to enjoy much profit without merger because the company will not have sufficient resources and technology to increase its profit margin (O'Sullivan, & Sheffrin, 2006). Therefore it is appropriate for the company to go on with the merger instead of self-expansion using long-term capital projects.
Suggest the substantive manner in which the company could create a convergence between the interests of stockholders and managers. Indicate the most likely impact on the profitability of such a convergence. Provide two (2) examples of instances that support your response.
In the market, there are only three forces that develop a strong relationship between the interest of managers and shareholders. They include tactical decisions makers, financial commitment and company integration. Managers have the responsibility of controlling interest in all the affairs of the company while the stakeholders have a limited control of the operations of the company even though they have the absolute right to the company resources (Thottan, 2004). There is the only conflict of interest when each one of these teams wants to maximize their personal gains but ignores the interest of other stakeholders. Shareholders will only be focused on enjoying huge profits from the company while managers will seek to receive huge salaries at the expense of the company growth. Because of that managers will not require the company to merge with another one because amalgamation threatens their job security (Lin, 2004). Shareholders will also not be ready for a merger because it will reduce the risk of holding an interest in various business organizations. It is therefore appropriate when the remuneration of managers is vested in the profit gained from the company as this will ensure that they only get huge salaries when they have generated huge profits for the company. This strategy will ensure that shareholders get huge profits because their income depends on profit earned from the company (O'Sullivan, & Sheffrin, 2006).
Currently, businesses of all kinds have a vision of experiencing economic growth but such growth only declined when managers have the intention of maximizing their personal interest instead of meeting the needs of the customers and other stakeholders such as employees. The financial obligation that managers have is to have sufficient control of all the internal affairs of the company and other external affairs such as external sources of finances. Through that shareholders will not have any problem with the management concerning the information they receive from the financial statements (Xi...
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