Low-Calorie Frozen Microwavable Food Companies - Assignment Example

Low-Calorie Frozen Microwavable Food Companies Introduction From the regression model, price elasticity of the firm is -0.44 which translates that for every 1% increase in price change, there is decrease in demand of the product by 44% and for every price increase by the firm, there is subsequent decrease in quantity demanded. However the changes in quantity demanded are smaller since prices are inelastic. This can be explained by the fact that goods in the market are differentiated but can serve similar purpose for the consumer. Consumers thus find it relatively easy to shift to other products if one firm increases its price and still satisfy their needs. Hence, without any fear of contradiction, the firm was operating in a monopolistic market structure. This can however still be illustrated from another perspective. First, from the model, cross elasticity of price is 0.17 showing that if a competitor raises its price by 1%, then the quantity demanded of the firm will increase subsequently by 17%. In a monopolistic competition, firms would rather compete in non-price competitions such as advertising and from the model, 1% increase expenditure in advertisement will lead to a 21% increase in quantity demanded. Furthermore, equilibrium market conditions are determined through supply and demand equations which are the conditions of monopolistic market structures. Operations Decisions Leading Low-calorie Frozen Microwavable Food Companies In the current world many people are seeking healthy and cheaper lifestyles. This has been made it possible for many people due to the rise of incomes for the people that enable them to afford microwaves and the large variety of healthy frozen food products in the market. Low calorie foods are foods that have adequate amount of protein, a maximum of 600 milligrams of sodium and fiber that does not go below four grams. Most people prefer such meals that are cheap and healthy[Cze04]. It is for this reason that there are so many companies producing low-calorie frozen food products today. The leading companies in the low-calorie frozen microwavable food industry are the Lean Cuisine Company which is owned by Nestle and Healthy Choice which is run by ConAgra Foods. Pricing Strategies by these Companies Pricing strategy involves considering the market segments, competitors’ activities, market conditions, and costs of inputs used and other costs incurred by the companies in the industry. Products are bought in terms of volumes and frequencies, through the channels of distribution on which the product are anticipated to the audience after determining the market gap[Bar00]. The product however is more influenced by socio-economic factors influenced by the way of life of the consumer. This results into different pricing policies by low-calorie frozen food Company. High quality products are charged on premium prices so that to maintain customer status, promotional pricing where other products prices are maintained and providing prices that are loyal to customers. Effectiveness of the Market Structure The market structure has moved from perfectly competitive to imperfectly competitive where the prices are to be determined by our firms. The effectiveness of this new structure is dependent on the demand of our products. An increase in demand results into more revenue but since demand is inelastic, when prices are increased there is small change in demand representing it is a luxury good( Basu,2013). Short Run and Long Run Cost Functions The costs that a firm incurs in running its business can be broken down into the short run costs which are incurred in just a short period and the long run costs which are taken care of for a long period of time. There are some fixed factors considered in the short run costs that influence the production of the organization. In the case of the long run costs there are no constant variables[Moo13]. Low-calorie frozen food companies have long run costs such as the financing of the machines to be used in the production process and the cost of acquiring the space to carry out the manufacturing activities. The short term costs of production are majorly the variable costs and other expenses catered for in a short time. These are those variables that affect the food prices, their marketing to the anticipated customers and their transportation to the potential consumers. Examples of these short terms costs include taxes, advertising costs and other expenses[Wag00]. Short run analysis MC ATC Profits P AR= short run demand curve ATC MR=MC MR Low calorie Food Company operates like a monopoly in the short run since it can determine its price. Hence the firm operates in inefficient market maximizing profits where MR=MC as indicated in the diagram above and MR is less than the price. Low food calorie will receive positive economic profits since the time is too small for other firms to enter into the market. Circumstances Under which the Company ought to stop Operations 1) ATC>P>AVC, the revenues that are generated by low calorie food is more than the cost of operations. This will lead to economic loss for the company. However, the prices that will be charged for the product exceeds the variable costs. Thus the firm makes profits that can recover some of the fixed costs while fully recovering the variable cost. This translates to the fact that loss from production is less than the loss from not producing at all (Mason, 2014). Thus at this point, low calorie food company should continue its operations 2) P Read More