Question Details

ECO 550 ASSIGNMENT 2 Operations Decision
Determine the market structure in which the low-calorie food company operates. Use the Internet to research two (2) of the leading competitors in the low-calorie microwavable food industry, and take note of their pricing strategies, profitability, and their relationships within the industry (worldwide). Worldwide, many people are taking the advantage of using a microwave instead of the traditional cooking methods. It has become a way of life being that this is a “need it now” world where people have very busy schedules and many times choose convenience when deciding on what brands of food to buy. There are many low calorie microwavable food options available in the market today that allows people to maintain a life of convenience. Health-conscious individuals are able to enjoy a lifestyle of convenience as well due to a wide range of low calorie microwavable food options available in today- market with two of them being Lean Cuisine and Healthy Choice. They are amongst the top competitors of the frozen food market that delivers product expectations of great taste and low calories. Lean Cuisine is owned by Nestle. This company started in 1981 and offers a variety of frozen foods and is a leading choice for low calorie food. It has grown its market in the US, Canada and Australia (Altschul, 1993). Healthy Choice products are manufactured by ConAgra and are a major competitor to Lean Cuisine (healthychoice.com, n.d.). Marketing managers should decide on various criteria to create their target market. Some of the criteria that are decided upon are Behavioral, Psychographic and Profile variables. Behavioral variables are derived from product searches and buying patterns as in frequency and volume of purchases (Onsi, 1973). Psychographic variables are used when purchasing behavior correlates with the personality or lifestyle of consumers. Consumers’ choices are determined by their economic and social standing. They are considered to have varied personalities along with lifestyle trends that drive them towards becoming prejudice towards certain products. Market Segmentation is what attracts people and should be able to keep a company competitive ( McCurrach & Timm, 2008). Companies should decide upon product differentiation and the exhibition of these channels. When deciding on what audience to target, profile variables such as socio-economic group or geographic locations are useful. This also helps in the aid of deciding the market structure. A market structure is the relationship between individual firms and the relevant market as a whole (McGuigan, Moyer, & Harris, 2014). A clear study of the economic growth of the whole food industry is very important. The company also needs to keep the strategic business plan in mind as a motive, goals, and objectives for growth of the company should continue. The scale of operation needs to be decided upon as to whether the company is going to cater to the local market, national or global market. The population growth of the nation is about 1 percent. The growth of the food industry in US is determined by this number which means an increase in population may have an impact on sales in the food industry. When determining the market for frozen food a company can also relate it to the sale of microwaves as microwaves are directly linked to the rise in per capita income and the rise in increase of working class people. The health-conscious consumers are able to have healthier microwavable food options as well. Consumer behavior is dependent upon the gender, age, educational, social and economic background of the people. Industries should study on how to target their customers to gain profit. The buying and purchasing power of the consumer should be the focus of the study. The sale of microwaves ovens should be a part of the product differentiation that the food industry has to over to help boost their profit and competition. When more people use microwaves, the demand for frozen foods will continue to rise. The educational background of consumers will raise awareness of the healthy eating habits, which would then bring a focus onto the taste of the products to really provide health-conscious consumers with quality products that are healthy and taste good to keep demand on the rise.
Outline a plan that will assess the effectiveness of the market structure for the company- operations. The effectiveness of the food industry- market structure is dependent upon an increase in demand. Increased demand will increase sales revenue. The demand for the low-calorie microwavable food is inelastic in nature because an increase in the price of the food leads to the fall of the quantity demanded by less than the proportionate amount. The income elasticity of the products is flexible, which is considered a luxury good. The company should also advertise as advertising is always at the top of a customer- mind (Pearce, 2008). Cross price elasticity is the ratio of the percentage change in the quantity demanded of Good A to the percentage change in the price of Good B, assuming that all other factors influencing demand remain unchanged (McGuigan, Moyer, & Harris, 2014). An example of this would be if the price of fresh fruit increases, however, if all other market conditions remain the same, the quantity demanded for frozen foods will increase as it is a consumer- alternative to high priced fresh fruit that is elastic.
Suppose the business operations have now changed from the market structure specified in the scenario. Determine two (2) likely factors that might have caused the change. Predict the primary manner in which this change would likely impact business operations in the new market environment. Reducing the cost of microwaves will increase the demand for frozen foods. This leads to the cost of relative products also playing an important role in the market structure of goods. Product substitution comes into effect being that a rise in price of a product, and other conditions remaining constant also has an impact on the demand for substitute products. The previous example of fresh fruit, if the cost of fresh fruit increases, people will automatically switch to ready to eat frozen food because it is more cost effective as well as easy to cook.
Analyze the major short-run and long-run production and cost functions for the low-calorie microwaveable food company. Suggest substantive ways in which the low-calorie food company may use this information in order to make decisions in both the short-run and the long-run. Production function relates the maximum quantity of output that can be produced from given amounts of various inputs for a given technology (McGuigan, Moyer, & Harris, 2014). Manufacturing a product is associated with costs of raw materials, as well as the cost of labor. It includes long run as well as the short term expenses incurred. Long run costs have no fixed factors of production, while short run costs have fixed factors and variables that impact production. Efficient long run costs are persistent after the combination of outputs with the purpose of a business producing results in the preferred extent of the goods at the lowest possible cost. An example of this would be a business may grow by adding extra labor and capital to the production process and introducing new technology into their operations. Long run production cost for low calorie microwavable food includes the cost of machinery and land for setting up the manufacturing unit. The short term cost of production includes the variable costs and the costs that are only incurred for a short period of time. It also includes taxes and other expenses that are variable or incurred once or short term. Any expense incurred towards advertising the product is considered short term cost. Short terms costs include the costs that are based upon a depiction of the medium-term stably-acting macroeconomic variables that affect food prices, as well as knowledge of their intensity and the timing of their transmission. This analysis is formalized by a partial single-equation model of food price inflation, and the model approach is further supplemented and established by means of other information and expert judgment (CNB, 2004). Determine the possible circumstances under which the company should discontinue operations. Suggest key actions that management should take in order to confront these circumstances. Provide a rationale for your response. In most cases, a discontinuation of business occurs when a business fails and does not generate enough revenue to execute its business operations. When the demand for products lessens then there is less revenue, which means a company suffers losses. A list of reasons a business may be discontinued may be because unexpected growth as in a business expanding beyond the capacity of the management and operations, inadequate capital to continue a business enterprise, improper inventory management as inventory is necessary to maintain equilibrium in between demand and supply, not being able to compete with other companies of the same industry (Cook & Nixson, n.d.). A combination of competition, managers not being able to perform duties, financial difficulties, low sales, and not enough advertisement are reasons a business would shut down operations. Suggest one (1) pricing policy that will enable your low-calorie microwavable food company to maximize profits. Provide a rationale for your suggestion. Maximizing profits through Pricing is what keeps companies competitive. Since the pricing strategy does not contain an accurate method, other factors as in production cost, demand of product, market position and the competition that allows companies to determine prices. Optimum pricing helps with this process. A production process can be defined as one in which the inputs are combined in fixed proportion to obtain the output (McGuigan, Moyer, & Harris, 2014). An optimum price is the price at which the consumer is willing to purchase the product. Studying the prices of other businesses of the same industry help keeps a company competitive. An increase in the price of the food leads to the fall of the quantity demanded by less than proportionate amount being that the demand for low-calorie microwavable food is inelastic as it is a luxury good. Sales are also influenced by a company- advertising elasticity. Pricing strategy decisions should align with the business strategy regarding maximizing profits and should occur after analyzing the cost of production and the market prices of competitors. Outline a plan, based on the information provided in the scenario, that the company could use in order to evaluate its financial performance. Consider all the key drivers of performance, such as company profit or loss for both the short term and long term, and the fundamental manner in which each factor influences managerial decisions.
A company- financial performance should be evaluated by subjective measures of how well a firm makes use of its assets from its primary mode of business, as well as generates revenues. A company- overall financial health can be expressed by a general evaluation over a given period of time to compare related companies across the same industry or to compare industries or sectors in aggregation. Financial ratios can be used as they are an important element in determining the performance of a business. A ratio analysis is used as a tool to determine and interprets how efficiently a company is working in terms of its finances. Ratio analysis presents a simple and comprehensible understanding of the accounting variables. It is an effective tool for understanding a business- success in terms of financial, undertaking, and per

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