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Business Operations Decision
This paper aims at presenting low-calorie microwavable foods to support the firm’s continuous operational decisions. The paper will assess the results of supply chain since it demonstrates the existing market structure while putting into consideration the expected changes to sell environment and some of the factors that may lead to such a change. Also, the paper will assess the main short run as well as long-term production and cost functionalities as used to new cost information to establish whether there are conditions that can result in discontinuation of business operations decision.
Because there are changes in the market structure, it is important to examine the pricing structure to increase profits. In the end, the paper will present two strategies the firm should implement to enhance profitability while maximizing shareholder value.
- Market Structure and Its Effectiveness for the Company
Each firm in a competitive market is the plays an important role in determining the price while the equilibrium cost as well as productivity in the industry are due to supply and demand. Low-calorie microwavable food market demonstrates the way in which demand and supply produced in perfect competition; regulate total productivity and the cost clients are ready to part with. In this case, the equilibrium cost and quantity are 407.65 and 24,335 respectively.
QD = 65,100 -100P
Qs = -7909.89 +79.0989P.
Companies in the purely competitive market have no power regarding the cost of their goods. Nevertheless, it may determine the quantity supplied to the market. Success or failure relies mainly on a pure competitive selling environment and the manner in which the firm identifies production expenses and depicts its products. The capacity of productivity revolves around the revenue the company will generate by producing goods (McGuigan, Moyer & Harris, 2014).
The company should implement strategies of conducting operations to make sure that it increases profits and output in the long run. An effective strategy is necessary when it comes to defining the efficacy of selling environment the firm operates. Furthermore, a proper plan will mainly highlight the availability of products, some enterprises participating, pricing patterns and powerful methods of brand promotion.
Business Operations Decision
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2. Changes in market structure and reasons that have caused changes from the market structure specified in Assignment 1.
Market survey shows that variations in the market structure are based on perfect and the imperfect market systems (Bragg, 2012). In an imperfect competitive oligopoly environment, the organization has the power to determine the price of its products. Information on competing organization demonstrated that there about 15 firms competing for low-calorie microwavable foods’ market share, out of which three companies control 75% of the market.
When it comes to sells, the firm is position 2 with approximately 77% of low-calorie microwavable foods, which reflects market concentration share, which is simply a measure of total market main players in the sector possess. For that reason, it may be necessary to assume that the firm is currently operating in the oligopolistic market, which is a competitive selling environment with relatively a few firms offering comparable brands as well as services (Routledge, 2008). The primary cause of such market is the withdrawal of rivals or increases or declines in the product costs (Bragg, 2012).
These changes mostly impact the operations of the company in different ways. To start with, there is likely to be significant output because the market share grows due to increases operation expenses influencing advertisement and labor costs. It is clear that labor costs may decline in the long run since the companies are controlling new firms are solidifying while redundant positions are eliminated (McGuigan, Moyer & Harris, 2014). Moreover, these changes can make an organization to modify its operations and adopt modern technologies in the operations.
Business Operations Decision
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3. Short and long-run production and cost functions for the frozen, low-calorie microwavable food company.
TC = 160,000,000 + 100Q + 0.0063212Q2
VC = 100Q + 0.0063212Q2
MC= 100 + 0.0126424Q
From assignment 1 QD = 350,000 -100 P
QS = -7909.89 + 79.0989P
ATC = TC/Q
= (160,000,000/Q) + (100Q + 0.0063212Q2)/Q
= (160,000,000/Q) + 100 + 0.0063212Q
AFC = 160, 000, 000/Q
AVC = 100 + 0.0063212Q
To determine production level for minimizing average total price, it is necessary to compute the average total cost to minimum cost.
ATC = MC
(160,000,000/Q) + 100 + 0.0063212Q = 100 + 0.0126424Q
160,000,000/Q = 0.0063212Q
160,000,000 = 0.0063212Q2
159,096.35 = Q
This to say; the cost of Q =159,096.35 exemplifies production level, which reduces the average total cost. Meanwhile, when production level = 159.096.36, it is easier to fabricate optimum average collective price.
To determine the time it takes manufacturing at the lowest average total cost (ATC):-
ATC = (160,000,000/Q) + 100 + 0.0063212Q
= (160,000,000/159,096.35) + 100 + 0.0063212(159,096.35)
= 1,005.68 + 100 + 1,005.68
= 2,111.36 = $21.11
This presents per-unit price of production, especially the proficient echelon. In the long-run, if the market varies, a company is forced to generate at the lowest total average price.
Business Operations Decision
4. Circumstances under which a firm should cease operations.
The association between ATC, average variable cost (AVC), and minimal costs (MC) can be illustrated well using a graph. The MC curvature transects the ATC and AVC curves at their lowermost points. Subsequently, price plummets with MC beneath AVC; however, price rises when the MC is above the average cost. While MC represents price of fabricating the last production unit, MC curve escalates with the measure of production, as such, the MC curve intersects ATC and AVC curves underneath their lowest points and increases.
The form of Minimal Cost curve is informed by the Rule of Shrinking Earnings. Shrinking proceeds in the fundamental logic come about in the event that marginal product flows an increasing measure of a parameter with a corresponding input is smeared to a fixed one (McGuigan, Moyer & Harris, 2014).
In this regard, the closure point is where the minimum AVC overlaps the MC. The firm can contemplate shutting down operations, when the cost plummets below the lowest point b as indicated on the graph. Implicitly by closing down the business can avoid running into more losses. It is only prudent for the organization to close down operations instead of accruing losses.
Business Operations Decision
However, the company can only go about with services by putting in place contingency measures and a strategy that allows it to change tactic and curtail losses (McGuigan, Moyer & Harris, 2014). This may be realized by changing production to a different SRATC curve through several capital alternatives.
When it comes to the breakeven point, the MC transects the ATC. Nonetheless, if the market price falls beneath $21.11, represented by point C on the chart, and above point b, the business may proceed with activities in the short-term. Largely, this may be because the price at the lowest point takes care of variable and fixed cost. Nonetheless, in the long-term under competitive setting, the firm has to quit the industry. As recapped by Stokes, the company’s administration has to play an integral role when it comes to market issues, putting market research individuals and being at the forefront dealing with market costs (Stokes, 2008).
Business Operations Decision
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5. The pricing policy that will allow frozen, low-calorie microwavable food company to capitalize on profits.
With regards to increasing profitability, I suggest cost profit maximization method, whereby the marginal revenue is equal to marginal cost. In this procedure, the firms examine the suitable output with the price levels with the goal of increasing returns. Quantity q* is illustrated by the convergence of MR and MC curves. The price that matches the amount is obtained by increasing q* with the demand curve to find p*.
There is another useful price rule that will be effective at a high rate will reduce the sales below q* while a lower price is likely to increase sales above q*. With the demand function, QD=350,000- 100P, inverse demand function can easily be calculated;-100P =350,000-Q.
P= (350,000/100) – Q/100
= 3,500 – 0.01Q
Total Revenue (TR) = P*Q
= (3,500 – 0.01Q)*Q
= 3,500Q – 0.01 Q2
MR = TR/Q
= 3500-0.02Q
Therefore, to increase earnings, marginal revenue should be compared to marginal cost.
MR = MC
3,500 – 0.02 Q = 100 + 0.0126424 Q
3,400 = 0.0326424Q
104,159.01 = Q
Q denotes return optimizing production that is beneath the output at the lowest average total yield. Therefore, realizing the actual cost for the fabricated unit, to enhance profit, the quantity in the profit is substituted as follows:-
P = 3,500 – 0.01Q
= 3,500 – 0.01Q (104,159.01)
= 2,458.41 = $ 24.58
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Business Operations Decision
6. To evaluate its financial performance.
Based on this computation, production permutation of 104, 159.01 units and with $24.58 as the retailing price puts us at the apex of our profit activity. Owing to our market power, the amalgamation puts the company in the changeable position of the demand curve. Any increase in the price will culminate in the loss of market share and a price fall that lead to higher profit realization. The computation below evaluates the fiscal performance with a fabrication quantity of 104,159.01 units
ATC = (160,000,000/Q) + 100 + 0.0063212Q
160,000,000/104,159.01+ 100+ 0.0063212 (104,159.01)
2,294.52 = $22.95
Products retailing at $24.58 and nevertheless, it take $22.95 to manufacture, generating earnings to the tune of $1.63 per unit. This is a monetary profit.
In this case, short-range earnings would be computed as; T R – TC
Where; TR = P *Q
Therefore; $24.58 * 104,159.01
= $2,560,228.47
TC = ATC * Q
$22.95 * 104,159.01
$2,390,449.28
Profit = $2,560,228.47 – $2,390,449.28
$169,779.19
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Business Operations Decision
7. Two (2) ways the firm can improve profitability and deliver more value to its stakeholders.
The significant costs to the firm are increasing energy costs, and raw material. Much as the organization has broadened the operations through brand innovations; the fixed as well as variable costs keep on increasing. The organization should search for strategies of reducing fuel, raw material and packaging expenses (Bragg, 2012). With regards to reducing fuel costs, the firm can use a direct delivery structure regarding scheduled sales and online orders by each client. Consequently, the company may put into consideration other external delivery channels.
Because the firm handles individual client orders, it should it account the use of direct to customer sales as a campaign to fund learning institutions or other entities. Again, the company needs to consider the techniques of minimizing packaging expenses by either converting the material to cryogenic freezing or suitable packaging methods (Routledge, 2008). By and large, the organization should allow employee participation, especially in the identification of reducible expenses and strategies of conducting such identifications.
References
Bragg, M. S., (2012). Financial Analysis: A Controller’s Guide. (2nd Ed.). John Wiley & Sons.
McGuigan, J., Moyer, R. & Harris, F. (2014). Managerial Economics: Applications, Strategies, and Tactics (13th Ed.). Cengage Learning. Mason, Ohio.
Routledge. S., D. (2008). Principles and Practice of Variable Pressure/Environmental Scanning Electron Microscopy. John Wiley and Sons
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