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Managerial Economics and Globalization - Assignment Example

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The following assignment "Managerial Economics and Globalization" dwells on the challenges of the modern for price management. It is stated that increasing prices at times to manage costs is a natural and commonly adopted phenomenon that every entrepreneur or manager would prefer to go for…
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Managerial Economics and Globalization
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Long-Term Investment Decisions Managerial Economics and Globalization November 16, Q1. 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 less elastic. Provide a rationale for your response. Increasing prices at times to manage costs is a natural and commonly adopted phenomenon that every entrepreneur or manager would prefer to go for but what would it cost the company in the long run is the real question. Surely businesses and companies can never predict that how customer A or customer B will react to price change but still pricing and pricing strategy of any company holds considerable amount of anticipated outcomes. So, pricing and specially price optimization of any product should not be made in the dark otherwise the price explosion will shatter market demand for the product. In this regard, theoretical framework of price elasticity can provide a company with numerous pricing strategies to cope up with the increasing the costs (Morris and Morris). Now if we move onto the low calories, frozen microwaveable food products, it is important for the managers to know if their product is a necessity or a luxury. Managers of low calorie, frozen microwaveable food company will be required to conduct some world class marketing of their products because until the customers consider their frozen microwaveable products as their necessity, there is no hope to achieve inelastic demand irrespective of the price. Such analysis of product necessity can be acquired through customer segmentation. Universally if the prices of a necessity suppose oil is raised, people will protest at first but later on will adjust to the scene whereas in case of a tourism trip to suppose Malaysia, if the prices go high the next plane to Malaysia will lose half of its passengers. So, managers must know from where their revenue comes (B2B or B2C) and from where it might dried up if prices are raised. Secondly what affects demand of any product the most is cheap substitute, if I’m a customer and prices of frozen microwaveable products have increased, I might look for a substitute instead of rotting my money on brand loyalty. Managers must consider if there exist a lot of competition or hardly any competitor, only then increasing prices should be considered an option. Given the circumstances customer loss, product differentiation can also be appreciated. Managers must understand that variety of products while fulfilling the demand of customers and providing what competitors lack will take low calorie, frozen microwaveable products off even if the prices are higher. Thirdly even prices of low calorie products matter irrespective of competitors’ prices; what company is charging customer defines demand. If someone wants to buy a car even the cheapest will cost enough but increase of train fares from $1 to $2 won’t be noticeable if compared with increase in car prices from $30,000 to $35,000. So, managers will also require to take notice of how much the product actually cost? Finally, when we look increased prices in the longer run, all prices and goods become elastic because with time customers find a suitable substitute which in the short run was not an opportunity. Demand of oil is almost inelastic but in longer run, people will switch to hybrids or alternate energy sources so, what managers of low calorie, frozen microwaveable product company need to plan is the time period that for how long will the price change last (Schindler). So, price elasticity and marketing should be the most considerate and though provoking decision of the low calorie, frozen microwaveable food company‘s pricing strategy. Q 2: Examine the major effects that government policies have on production and employment. Predict the potential effects that government policies could have on your company. Government regulations and policies have always faced contradictory opinions from different economic school of thoughts. Some consider it a necessity that government role in the market corrects market failures while other negate stating that government involvement handicaps industry and hinder growth, innovation, production and employment opportunities (Epstein). No doubt well-crafted, sound and purposeful regulations can trigger economic growth, prevent market & financial failures but on the other hand one cannot neglect the cost of implementing regulations to the economy and especially to the employment scenario of any country. Now if we evaluate regulations on production, supply and delivery of food industry surely regulations are the dire need of time otherwise the cost of unregulated food production and supply will be unconceivable. In the absence of regulations public health and security is at stake whereas by implementing regulations, companies are faced with extra cost of compliance. This additional cost of compliance lead to increased prices for frozen products and in turn effects demand of low calorie goods and consequently lower revenue from sales will force company to downsize and hire fewer workers. Being a company that provides low calorie and frozen microwaveable products, extra cost will be disastrous in long run since the products of this company are not even a necessity till now. Secondly profit surplus encourages companies to innovate new technologies and vary their production but in the presence of government regulation, companies are bound to comply with the regulations. Whilst complying with regulations doesn’t come freely, it requires resources and cost. The cost in case of regulations affects profitability, productivity and employment at any company. Q3: Determine whether or not government regulation to ensure fairness in the low-calorie, 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. Strong, sound and well-crafted regulations always benefit public and are made in favor of general public’s internet. What is the main purpose of government regulations? One can only evaluate the need of regulations by understanding that what is the actual purpose of government intervention (Crew and Spiegel). Now, look at the great depression of 1928, Economic crisis of 1980 and the recent one of 2007; what was common among all crisis was deregulated economy. Remember the health crisis caused by poisonous food in Europe especially in United Kingdom in 1950s was also due to unregulated food industry. So, there is need of government intervention for better market performance because an open market has its failures to serve the interests of public. Companies may produce and deliver substandard, unhealthy goods to the customer at a very higher price, two or more than two conglomerates may join each other into merger to create monopoly which in turn constructs avenues for consumer exploitation. In such scenarios government play a vital role of a watchdog and oversee the whole economy for healthy production and supply of low calorie, frozen microwaveable food products. In a deregulated economy, product quality, fair and instable prices cannot be ensured. The first example of government involvement in the form of regulations can be quoted from Environment Protection Agency of United States of America (USA) which operates through The Resource Conservation and Recovery Act (RCRA) providing guidelines and instructions for the management of hazardous waste. The hazardous waste program through RCRA overlooks and controls the disposal of hazardous waste from its generation till the death of toxic material. In this regard EPA is authorized to enforce and implement the law and regulations. EPA has been very active and efficient in encouraging states to realize responsibility for execution of hazardous waste management program at all levels from national to local and from regulation adoption to authorization to implementation and enforcement of the law. RCRA hazardous waste management program standardizes commercial businesses either they are federal state companies or local government facilities which generate, transport, store, treat and ultimately dispose of their hazardous waste. Second illustration of government regulations and intervention is monitored through the U.S. Food and Drug Administration (FDA) and U.S. Department of Agriculture (USDA). Food and Drug Administration authority is bound to inspect food processing plants and provide guidelines for food codes. On the other hand USDA is responsible for quality assurance of meat, dairy, poultry, fruits, eggs and vegetable products. FDA and USDA regulatory authorities administer matters at three levels federal, state, and local. These authorities examine food production unit for minimum food safety standards, minimum sanitation, uncontaminated food supply and compliance to Food Safety Modernization Act (FSMA). Q4: 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. Merger and Acquisitions usually mark expansion of any company which involve numerous complex issues that must be sorted out before going into expansion either vertical or horizontal (Faulkner, Teerikangas and Joseph). Complexities surround every business but early awakening make them easy to resolve so, it is important to understand reasons for expansion that usually constitute market expansion and profits as cost and benefits are worth involving. The most common challenge faced during expansion is to establish a source of capital then there arises a tug of war between shareholders and managers who look after their vested interests. Managers attempts to raise company capital by shareholders reserves which is not an easy process. Later capital evaluation, asset valuation, return on capital and cost of capital are also some complex issues that need eagle’s eye and in case of lack of due diligence the company can end up with an excess baggage of liabilities. Lastly if the company proceeds with self-expansion then its fine with the workers but in case of expansion through mergers there arises lack of confidence and uncertainty among workers (Frankel). They fear about their jobs and lose performance if they are communicated properly about the fate and on-going situation in the company. Companies usually fail to perform thorough analysis of Take-over Company which ultimately turn out to be a liability which should be taken care of properly. Profits and returns is a matter of performance but if the company is self-expands through capital projects then risks are higher as new market is alien to the company whereas mergers are more a suited option because in that case company will only need to improve performance while the market presence is already in hand. Q5: Suggest the substantive manner in which the company could create a convergence between the interests of stockholders and managers. Indicate the most likely impact to profitability of such a convergence. Provide two (2) examples of instances that support your response Convergence by capital projects requires consent and willingness three parties which are managers, directors and the shareholders. In most of the instances corporate managers and shareholders find themselves in conflicts due to their vested interests while the main cause is money (Baker and Kiymaz). In a profitable company managers will require the money as a bonus whilst shareholder will assume upcoming dividends which creates a clash. Managers cash out their managerial abilities and leadership skills which brought company to this point and on the other hand shareholders brag about their finances that ensured growth. In some cases situation also worsens when manager is also a shareholder. Excluding both parties may also result in crisis as managers may lose performance or even resign if not paid significantly. Shareholders may take their money if not paid with dividends leaving company worth nothing (Aretz and Bartram). No doubt managers have more control company’s performance so, it will be better if managers’ bonuses and benefits are associated with their performance and ability to raise higher profits. This practice will benefit both managers and shareholders as managers will perform to receive higher benefits while higher profits will in turn provide shareholder with higher dividends too (OSullivan and Sheffrin). Secondly to ripe up higher profits company must ensure provision of internal revenue and finances in the hands of managers whereas the practice of financial statements should be regularized (Lowe and Leiringer). This way managers will have resources in hand fulfilling their need to enhance performance and profits for themselves and for the company too. Besides financial statements will ensure transparency and interests of stakeholders. References Aretz, K. and S. M. Bartram. "CORPORATE HEDGING AND SHAREHOLDER VALUE." Journal of Financial Research 33.4 (2011): 317-371. Baker, H. K. and H. Kiymaz. The art of capital restructuring: Creating shareholder value through mergers and acquisitions. Hoboken: N.J: Wiley, 2011. Crew, M. A. and M. Spiegel. Obtaining the best from regulation and competition. New York: Kluwer Academic Publishers, 2005. Epstein, M. J. Making sustainability work: Best practices in managing and measuring corporate social, environmental and economic impacts. Sheffield, UK: Greenleaf Publications, 2008. Faulkner, D., S. Teerikangas and R. J. Joseph. The handbook of mergers and acquisitions. Oxford: Oxford University Press, 2012. Frankel, M. E. Mergers and acquisitions basics: The key steps of acquisitions, divestitures, and investments. Hoboken: Wiley & Sons, 2005. Lowe, D. and R. Leiringer. Commercial management of projects: Defining the discipline. Oxford: Blackwell Publications, 2006. Morris, M. H. and G. Morris. Market-oriented pricing: Strategies for management. New York: Quorum Books, 1990. OSullivan, A. and S. M. Sheffrin. Macroeconomics: Principles and tools. Upper Saddle River: Pearson Prentice Hall, 2006. Schindler, R. Pricing strategies: A marketing approach. California: Sage Publications, 2012. 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