Description

Operational decisions entail short-term choices by business as opposed to long-term strategies at the period when the firm’s assets get acquired. Therefore, it includes the day-to-day company’s operations, and hence requires an address before making any grand arrangement of the issues. The objective is to use the regression results and several other computations such as elasticity to establish the market structure of the firm in the low-calorie frozen microwave food industry. That will as well include the assessment of the market structure effectiveness that leads to enhanced company’s operations. Again, it will as well determine factors contributing to the experienced changes in business operations predicting the manner in which it impacts the firm’s processes within the new market environment (Sedniev, 2016). Besides, it will also comprise of the analysis of the short- and long-run cost functions for the company, and establish substantive means through which the business utilizes the information to make decisions. Moreover, it will also determine situations under which the low-calorie food company may continue its activities. In addition, it will also suggest the appropriate pricing policy enabling the firm to maximize profits as well as create a plan for the appraisal of its financial performance. Finally, it will explore the measures the company may adopt in the enhancement of its profitability and increase of its shares’ value.

 
 

Market Structure Assessment Plan

The strategies employed to the evaluation of a rightful market structure commences with the determination of the number of both the sellers and buyers present. Such information is critical for the determination of the impact they have on the commodity prices (Schwartz, and Francioni, 2004) In situations where the number of both of them is high, none is able to influence the set commodity prices, leaving it to the forces of demand and supply. However, in an imperfect market where a seller has huge market share, they have the opportunity to influence the cost of goods. The second step is to understand the nature of the products being sold. In the case of this company, the goods being sold are not strictly homogenous (Bodek, and Dolgopolov, 2015). That means they are not fully identical, and as such, it reserves the right to alter the prices to align them with those of the firm.

Thirdly, the assessment plan will also include freedom of movement by other businesses within the industry. That will entail the recognition of the entry and exit nature of other companies. If firms freely enter and leave the market, then the expectations are such that the price remains stable (Sedniev, 2016). However, the imperfect market notion may lead to challenges of entry and exit of firms due to the huge control share that makes it difficult for the small firms to stick to prices set by forces of demand and supply (Schwartz, and Francioni, 2004). The other key aspect to be evaluated is the mobility of factors of production and goods. If free movement of the two exists, the possibility of a uniform market prices thrives.

However, that may be influenced by various factors that may result in immobility hence creating an imperfect market such as in the case of the Low-calorie Frozen, Microwave Food company. The final step will entail the analyses of market conditions knowledge. That will have an impact if both the sellers and the buyers gains access to adequate information on the operations of the market. Despite that, the case of low-calorie frozen microwave food presents an imperfect market where only the supplier has enough knowledge on the effectiveness of the market (Bodek, and Dolgopolov, 2015). As such, it gives low-calorie frozen microwave food an undue advantage over the buyers, hence providing them with the opportunity to decide on prices independently.

Factors That Contributed to Change

The market structure has been transformed from perfect to monopolistic competition. The core contributor to such a situation could be the increasing consumer demands and the enhancement of the product quality. Another key factor is the entry of more competitors in the market. When consumers’ wants or appeals to a product increase that boosts its demand of the product in the market. In this case, the customers decided they want healthier choices, thus forcing Low-calorie Frozen, Microwave Food Company to change its product and techniques. That eventually contributed to increased product differentiation, meaning that the various goods existing in the same market were not the perfect substitute for one another (Mankiw, 2014). As such, the market would no longer be considered as operating in a perfect competition but slowly shifting towards a monopolistic one.

Therefore, the customers were attracted more to the particular product than any other in the market. The changes in the quality of the product also depicted a similar outcome. On the other hand, when more firms enter the competitive market, some companies get displaced from it as the new entrants attempt to attract more consumers. In the process, most customers may not get comfortable with the new products, thus opting for choices from Low-calorie Frozen, Microwave Food Company. Further, that change in the market structure will eventually contribute to increased product differentiation (Mankiw, 2014). In the end, the goods become not only prominent but also a core determinant in the establishment of customer loyalty. In essence, that allegiance becomes the source of imperfection shifting the operations of the firm from perfect market to imperfection, and hence monopolistic competition.

Short-Run and Long-Run

The determination of the pricing policy that maximizes profits will entail first establishing the cost functions. As such, the cost equations applicable in this case include TC = 160,000,000 + 100Q + 0.0063212Q2, VC = 100Q + 0.0063212Q2, and MC= 100 + 0.0126424Q. Where TC is the total cost, VC the variable cost, MC the marginal cost, Q the quantity. In the long-run, all inputs were found to vary (Perloff, 2008). On the other hand, it was quite different for the short-run where only the variable inputs differed while the rest remained fixed. Therefore, the total cost for the long-run was thus found to have become higher than that of the short-run. Besides, it was also established that in the short-run the rise or fall depended on variable costs and the production rate (Perloff, 2008). As such, it was defined to have been effective in establishing the potentiality of the firm in reaching the long-term goals. Again, it could also assist in the determination of future salaries for the workers as well as the expected profits from the operations of the firm.

When to Discontinue Operations

Sometimes it happens that the variable costs in the short-run are quite higher than the revenue generated from the sales. When that happens, it means the company may experience losses, and hence not meet the firm’s objectives which are aimed to ultimately generate profits. As such, it becomes advisable that certain operations are discontinued to decrease the excessive costs that may be contributing to the scenario. For such a case, the management will focus on the reduction of the specific variable costs that may be adding little value to the quality of the entire product. Again, it may also reduce costs for storage which may increase with the time taken while the products and raw materials are in the stores. That means they may be transporting products for sale after manufacturing, and utilizing raw materials immediately after acquiring them. On the other hand, for the long-run to reduce the average total cost, it happens when it became clear that the persistent business of a firm in operations in the industry do not change the loss making nature of the company. As such, it becomes advisable that the management begins to plan for the possibility of exiting the industry altogether if those conditions do not change to profit making.

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Pricing Policy

Establishing the right pricing policy that maximizes profits will require that the demand equation becomes inversed. The demand equation applicable for this purpose will still be QD = - 5200 - 42P + 20PX + 5.2I + 0.20A + 0.25M. As such, the determination of the inverse will be solving the equation. QD = - 5,200 – 42*500 + 20*600 + 5.2*5500 + 0.20*10000 + 0.25*5000 = - 5200 – 21000 + 12000 + 28600 + 2000 + 1250 = 17,650 units. As such, the maximization of profits will mean that marginal costs (MC) = Marginal Revenue (MR). The combination of the two equations and derivation would result into Q being 17,650 units. That is the indication that profit maximization will happen when the company makes a production of about 17,650 units. Enhancing profitability needs focusing on money and productivity operations of the company. As such, pushing the production to maximum will guarantee the flow of money as the consumer willingness to buy increases.

Evaluating Financial Performance

The process of analyzing Low-calorie Frozen, Microwave Food Company financial performance will entail use of financial ratios. As such, it will be required that proper and accurate financial statements are prepared. The first area of evaluation will be the cash flow statement, and in particular the operations of the firm. That is the core as the cash finances operations as well as meets other general expenses incurred by the company in its obligations. The firm should have enough cash for its operations (Edgett, Stroud, and Partida, 2014). The second measure is the profitability ratio. That comprises of measures such as the Return on Assets (RoA) and Return on Equity (RoE) as well as net and gross profit. Thirdly, the leverage ratio, which indicates the degree a company, leverages its equity in relation to debt to creditors or company volume. The ratio comprises of debt to equity (D/E) and revenue to equity (R/E). The final measure would include the liquidity ratios that measure ability to settle short-term obligation by the firm (Edgett, Stroud, and Partida, 2014). Thus, the ratios include Current Ratio, Working Capital Turnover, and Quick Ratio.

Recommendations

A business may use several strategies to raise its profitability to the targeted levels. One way of meeting this goal would be the elimination of unprofitable services and products. In the case of Low-calorie Frozen, Microwave Food Company, elimination of unnecessary variable expense will lead to an increase in marginal revenue that also precipitates better profits for the company. The other approach should include diversification, marketing, and quality improvement. Those strategies are meant to increase the demand in the market while attracting clients to the goods produced by the company. That will eventually increase the market share of Low-calorie Frozen, Microwave Food Company making it a major market shareholder. Being in a monopolistic competition could have some advantages for the company including being in position to set suitable market prices that would increase profits. Again, rising sales means increasing revenues that leads to high profits.

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