Assignment 2: Operations Decision Factors that c...

Using the regression results and the other computations from Assignment 1, 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).

Write a six to eight (6-8) page paper in which you:

1.Outline a plan that will assess the effectiveness of the market structure for the company’s operations.
2.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.
3.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.
4.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.
5.Suggest one (1) pricing policy that will enable your low-calorie microwavable food company to maximize profits. Provide a rationale for your suggestion.
6.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.
7.Recommend two (2) actions that the company could take in order to improve its profitability and deliver more value to its stakeholders. Outline, in brief, a plan to implement your recommendations.
8.Use at least five (5) quality academic resources in this assignment. Note: Wikipedia does not qualify as an academic resource.
Your assignment must follow these formatting requirements:

•Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions.
•Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.
The specific course learning outcomes associated with this assignment are:

•Analyze short-run and long-run production and cost functions.
•Apply macroeconomic concepts to changes in global and national economies and how they affect economic growth, inflation, interest rates, and wage rates.
•Evaluate the profit-maximizing price and output level for given operating costs for monopolies and firms in competitive industries.
•Use technology and information resources to research issues in managerial economics and globalization.
•Write clearly and concisely about managerial economics and globalization using proper writing mechanics.
Click here to view the grading rubric.

Assignment 1
Managerial Economics
QD = – 5200 – 42P + 20PX + 5.2I + .20A + .25M
(2.002) (17.5) (6.2) (2.5) (0.09) (0.21)
R2 = 0.55 n = 26 F = 4.88 where
• Q = quantity sold by month
• P= price of the product=500
• Px=price of a leading competitor ‘s product=600
• I =per capita income of the standard metropolitan statistical area where the supermarkets are located =5,500
• A=monthly advertising expenditures= 10,000
• M=number of microwave ovens sold in the SMSA in which the super markets is located =5,000
i. Elasticity for the variables (Samuelson & Marks, 2006).
∆Q/∆variable = variable coefficient
Therefore, Price Elasticity of Demand = variable coefficient x variable initial value/Q
PEDP = -42X500/Q
Q= -5200-42 x 500+20 x 600+5.2 x 5500 + 0.2 x 10000 + 0.25 x 5000
= -5200 – 21000 + 12000 + 28600 + 2000 + 1250 = 17650
PEDP = -42 x 500/17650 = -1.19
PEDPX = 20 x 600/17650 = 0.68
PEDI= 5.2 x 5500/17650 = 1.62
PEDA= 0.2 x 10000/17650 = .11
PEDM= 0.25 x 5000/17650 = .07
ii. Impact of a recession on company’s sales
Given that the income elasticity of demand PEDI is 1.62, it implies that demand would decrease by 62% for every unit decrease in income in the event of a recession since a recession has direct effect on the per capita income. The company’s sales would therefore fall drastically in case of a recession in the economy (Samuelson & Marks, 2006).
iii. Should the company cut its price to increase market share?
The company’s price elasticity of demand is at 1.19. This is greater than one implying that if the company cuts its prices, it would increase the demand for the company’s products. It is therefore advisable for the company to cut its prices and increase its product sales (Palmatier & Crum, 2003).
iv. Given that all the factors affecting demand in this model remain the same, but that the price changes through 100, 200, 300, 400, 500, 600 dollars.
1. For the demand curve QD = – 5200 – 42P + 20PX + 5.2I + .20A + .25M, values of Q would be 34450, 30250, 26050, 21850, 17650, 13450.
2. The corresponding supply curve Q = 5200 + 45P, values of Q would be 9700, 14200, 18700, 23200, 27700, 32200.
3. The equilibrium price and quantity are the price and quantity at the point of intersection of the supply and demand curves plotted against the values above (Palmatier & Crum, 2003).
Q = 5200 + 45P = 38650-42P
P= 385, Q= 22503
Significant factors that could cause changes in supply and demand for the product
Factors that are known to precipitate changes in the demand of a certain product are referred to as demand factors and they constitute the number of buyers in a given market, their average disposable income, the prices of substitute and complimentary products, consumer preferences, and their expectations about future prices and incomes (Conlon & Mortimer, 2008). When considering each factor, it is assumed that all other factors are kept constant.
An increase in consumers of a certain product results in an increase in demand of that product both in the short run and in the long run. An increase in the disposable incomes of buyers allows them to buy more units of a given product and therefore an increase in demand in the short run. A persistent increase in the incomes of buyers may result in a decreased demand if the consumers find another product that they consider more superior in the long run.
The price of a substitute is directly related to the demand of a product while the price of the product’s compliments is inversely related to its demand. That is to say that the demands of a product falls with every fall in the price of its substitutes while that product’s demand falls with every increase in the price of its compliments. When consumer preferences no longer favor a product, like in fashion, the demand for that product falls. Consumer preferences affect demand heavily in the short run and can be influenced through advertising in the long run. Consumer expectations of prices to fall or their incomes to increase reduce their demand for products as they expect their buying power to improve in future (Conlon & Mortimer, 2008). They hold their money to buy in the projected future.
Supply factors on the other hand include the number of producers, prices of inputs, technology state, the prices of related products, and producer expectations. An increase in the number of producers increases the supply of the product to the market while an increase in the cost of production inputs reduces the amount of product supplied and vice versa. Technology enhances production and hence making production cheaper and easier. Advancement in technology increases the product supplied to the market both in the short and the long run.
Assignment 2: Operations Decision

Factors that cause shifts of the demand and supply curves
A significant change in the supply or demand curve takes place when a good’s quantity supplied or demanded changes even as price remains the constant. A shift in the demand curve implies that the original demand relationship has changed, and therefore the quantity demand is affected by another factor and not price (Ladenburg, 2011). Changes due to price show a movement along the curve and not a shift of the curve.
A rightward shift of the demand curve is caused by an increase in the disposable incomes of buyers (this is specific to normal goods), complimentary goods falling in price, an increase in the prices of substitutes, when buyers prefer that particular product over others, or when buyers perceive the value of that product to be higher at present than later (Ladenburg, 2011). A leftward shift on the other hand is caused by a reduction in incomes of buyers, complementary goods increasing in price, a reduction in the price of substitutes, change of preference, or when buyers expect prices to go down in future.
Just like a shift in the demand curve, a shift in the supply curve indicates a change in the original supply curve, and this means that the quantity supplied has been affected by a factor besides price. A significant shift in the supply curve might occur if, for example, a natural disaster occurs and causes massive shortage of raw materials.
A rightward shift in the supply curve is caused by a reduction in the cost of production inputs, advancement in technology employed in production, an increase in the cost of producing substitutes or a rise in the expectations of the producer. A leftward shift on the other hand is caused by an increase in the cost of inputs, a fall in the cost of producing substitutes or a fall in producer expectations (Ladenburg, 2011).

Price 100 200 300 400 500 600
Quantity d 34,450 30,250 26,050 21,850 17,650 13,450

Quantity s 9700 14,200 18,700 23,200 27,700 32,200

References
Conlon, C. T., & Mortimer, J. H. (2008). Demand estimation under incomplete product availability. Cambridge, Mass.: National Bureau of Economic Research.
Ladenburg, T. (2011). Basic economic concepts. Culver City, Calif.: Social Studies School Service.
Palmatier, G. E., & Crum, C. (2003). Enterprise sales and operations planning synchronizing demand, supply and resources for peak performance. Boca Raton, Fla.: J. Ross Pub. :.
Samuelson, W., & Marks, S. G. (2006). Managerial economics (5th ed.). Hoboken, NJ: John Wiley and Sons.

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