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Long-Term Investment Decision - Essay Example

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The company manufactures and sells low calorie frozen food that can be micro-waved for eating. According to the management, the company is delivering food services…
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Long-Term Investment Decision
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Download file to see previous pages The following sections provide an outline of ways to meets the price problem and other issues such as, government intervention in the industry.
Price elasticity of demand assesses sensitivity of quantity demanded with respect to change in price. Price elasticity is being considered in decision-making process of the company because with rise in price of food ingredients (raw material), it is naturally assumed that price of the final product will also increase. In this situation, managers need to analyze the impact of price change on product demand. The demand can be either elastic or inelastic. Elastic demand will alter with the price change, while inelastic demand tends to be static with price change. The demand of necessity product is usually inelastic in nature (Fibich, Gavious & Lowengart, 2005). For example, if the company is operating in a location where individuals are extremely busy, have no time to cook at home and are highly healthy conscious, then demand of the products of Fitness Food will be inelastic, unless the price change is unreasonably high. On the contrary, areas where fresh food is easily available and individuals have access to home-made food and fresh fruits, the demand will be negatively elastic in case of price change (Senauer, 2001).
Keeping in view the problem that management is facing, application of a customized pricing strategy is essential to resolve problems related to price elasticity. Optimal pricing policy is otherwise known as perfect price discrimination; implementation of this policy would mean that Fitness Food will have to segment its consumer market in different groups and have to research the amount that consumers are willing to pay for packaged food. The company has to determine optimal price and volume, which is also referred as the price and volume of the product that will maximize its profit. Fitness Food has to determine preference of its consumers and their price sensitiveness with the help of distributors and ...Download file to see next pagesRead More
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