Edit this essay
only $12.90/page

Managerial Economics Essay Sample

Managerial Economics Pages
Pages: Word count: Rewriting Possibility: % ()

Despite outstanding technological advancements in the industry, the quality of manufactured food products has become a major concern of the time when seen from the health and wellness perspective. In the 21st century higher income, urbanization, other demographic shifts, improved transportation, and consumer perceptions regarding quality and safety are changing the global food consumption patterns. Even though the consumption of such food products is ever increasing due to the rising population growth in the world, thanks to the advancement of information technology people has now become more and more concerned about their health and well being especially in the developed world. Some Low-fat,low-calorie food products have been there for decadesbut have gained greater acceptance when their nutritional virtues are being Recognized (Altschul). The growing social awareness and initiative regarding health and wellness is also gaining traction among food manufacturers around the world that many of them are changing their business models to satisfy the growing demand. Foods with low calories and low fat have gained vast popularity in the past few years.

The companies that have emerged as the vital competitors in this line of businessare Healthy Choice and Lean Cuisine. These companies contain a very glorious history and have a very decent market grip as well as customer base.Lean Cuisine was created in 1981 to provide a healthier alternative to Stouffer’s frozen mealsIn the U.S, Canada and Australian market. It began with ten items and has expanded to include 100+ different meals. The fact that it is owned by Nestle, a market leader in the food industry worldwide, has added great credibility to the company and its growing number of products. Taking a look at the other rival, Healthy Choice, the same thing can be observed. This company is a subsidiary to ConAgra, which is also a very well established organization in the industry. Market competition with such giants in the industry requires a lot of intelligence and hard work for small companies. The trend, which lies in low calorie food market, is fixed by psychographic and behavioral variables, which are shown by the company’s regression model and industrial analysis. The behavioral variables are gained from market trends which are formed by purchasing style of customers.

It is quite obvious that the market of the particular product and its behavior are the things on which behavioral variable depends on. The amount of units which are sold in a limited amount of time indicates the demand of that particular product in the market. The environmental conditions which are affecting the market are seen by it as well. From these calculations, the sales volumes are determined then. On the other hand the psychographic variables mean the linkage between customer personality and purchase made by that customer. The personality and the product choices of the customers mainly depend on the lifestyles on which the customers are familiar with. Now days the customers product preferences can easily be gathered from their style of shopping. 1.Before starting the analysis for the market structure of low calorie foods, first a study has to be made on a target audience for the products.

The demands and needs of the target market are considered to be major factors to drive the company sales.The companies will surely fail if they don’t give proper importance on audience analysis.Moreover, the growth trend of the target market should be analyzed too. If the company can predict the market trends, then it will become quite easier for that company to decide what type of products they should be serving on a global or domestic level. The structures are quite changeable and differ from one situation to another. The company we are talking about should take such a market structure which suits it best and help its effort to be better competitor in the food industry. Thus the structure can be formulated and can be made more customer oriented. Moreover investigations on employment as well as inflation trends must be considered as well. Having a price strategy which is customer friendly is also another big matter which must be looked at. (Perloff, 2004) 2.The most vital factors which caused change in market structure are the changes in customer tastes and customer income. These two factors are solely related with the demand and needs.

When the customers start earning more, they will have a tendency to purchase more and expensive products. Their buying ability is increased in such a situation. On the other hand, when the income of the customers is not that high, they will not have that much interest on purchasing the expensive products or purchasing products in large amounts. That means the size of sales revenue for a particular company is totally dependent on the customers purchasing abilities. The other factor, the customer taste, is something that should be considered as well. If the customers like a particular product, they are more likely to purchase that particular product even if that product is a bit expensive. On the other hand they will not be interested to purchase something which they don’t like even if that product is quite cheap.

The first factor can’t be controlled by the company. The second one can slightly be controlled. The company should design the products and make its pricing strategy by considering these two factors if they want to make a customer oriented business. (Best, 2000) 3. In order to analyze short run and long run cost functions, calculation of TC, VC, AVC, ATC is needed that is provided below. Equations as provided

TC = 160,000,000 + 100Q + 0.0063212Q2
VC = 100Q + 0.0063212Q2
MC= 100 + 0.0126424Q
Quantity demanded(Qd)= Quantity Supplied(Qs)
26770 – 42P = -7909.89 + 79.0989P
Pe = -34679.89(Asderived from Assignment 1)
121.0989
Pe = 286.37 cents (Asderived from Assignment 1)
Q = -7909.89 + 79.0989(286.37)
= 14741.66 (Asderived from Assignment 1)
VC = 100Q + 0.0063212Q^2
= 100*14741.66 + 0.0063212*14741.66^2
=148790301.3
MC= 100 + 0.0126424Q
=100 + 0.012642*14741.66
=286.3640
TC = 160,000,000 + 100Q + 0.0063212Q2
= 160,000,000 + 100*14741.66 + 0.0063212*14741.66^2
=308790301.3
ATC = 308790301.3/14741.66 =20946.779
AVC = 148790301.3/14741.66 =10093.185
Surplus= 0.5 x 286.37 x 14741.66
= 2110784.587

Short run equilibrium long run equilibriulm
Here, the quantity is kept equal to price which gives equilibrium amount of all areas and this is shown in the above calculations. But the equilibrium calculations are not constant. Rather they can be changed due to various factors such as raw material cost, customer income, customer preferences and also price of the competitor products. Because of these things the equilibrium quantities can be pushed up or down. The company can use this information for realizing the price which is being changed is the optimum price or not. If the price is not the optimum price, then the company should take necessary steps. They can reduce the price of their products to make them more customers friendly. In the long run the company can expect sales increase if they setup their prices intelligently. 4.A business may choose to terminate the operations of a facility or a division of the company due to a number of factors. The products produced at a given facility may become obsolete or lose their appeal to the buying public.

If the equipment at the facility cannot be adapted to manufacture other products that still represent a saleable product, the decision may be made to close the facility and sell off the assets related to the operation before any more loss takes place (WiseGEEK).In this regard if the company can no longer able to compete in the market due to decline of demand for its products in relation to demographic changes or the introduction of other competitive products with unbeatable prices it will then be time to consider discontinuing operations.Before discontinuing operations though, the company should seek after other possible solutions such as changing a different product line to maintain operations. If the facilities used to produce the discontinued product canbe adapted to manufacture a different product then the company should consider this as an alternative solution. Otherwise in order to minimize related fixed and variable costs it could incur over a long term it is better to discontinue its operations and dispose of related facilities.

5.Considerable data are available on price elasticity of demand for certain foods. We found mean price elasticity estimates ranging from 0.27 to 0.81 (absolute values), with the highest price elasticity for food away from home, soft drinks, juice, meats, and fruit and the most inelastic demand for eggsHigher elasticity estimates suggest greater changes in population purchases as prices shift (Am J Public Health).To compete in this highly competitive market the company needs to seriously review the price elasticity of its products against those of competitor products and the general market. By gathering and analyzing data regarding the social status, income disparity and other exogenous factors about its niche market, and adjusting its prices accordingly the company can maximize its profit and stay competitive. Apart from that through studying the social dynamics of the society and make its products more and more appealing in terms of convenience and healthiness in congruence with the changing life style of people it can further maximize its market share and profit margin.

6.As mentioned above in order to improve its profitability this company can implement pricing strategies that are synonymous with its customer’s income level and other economic factors. However this can only have an impact in dire economic situations because in the case of favorable economic environment the demand shift is usually not related with price. Therefore the company needs to take various actions other than pricing strategy to improve its profitability. For instance:- Continuously Upgrading of Quality: through investing on research and development to improve the quality of its products in a visible manner can have a lasting impact on its products popularity and reliability. In today’s society where health and wellness are being given paramount importance I believe an ongoing quality improvement of products is indeed an important part of the competition.

This can be realized by making research for alternative cost effective and healthier choice of inputs of production. Effective Advertising:- as we know the food industry market competition is highly invigorated via various forms of advertising. Looking for a more subtle means of advertising channels in addition to the conventional media outlets can have a positive impact for this company. This can be achieved by researching for the possible unseen channels and opportunities such as, public parks (for billboard), Exercise books (for kids) …etc.

References
Adelman, I. (1961). Theories of economic growth and development (1st ed.). Stanford, Calif.: Stanford University Press. Best, R. (2000).Market-based management (1st ed.). Upper Saddle River, N.J.: Prentice Hall. Yoshie Saito (2011) Managerial Decisions to Discontinue Operations and Future Firm Performance Daly, J. (2002). Pricing for profitability (1st ed.). New York: Wiley. Forstater, M. (2007).Economics (1st ed.). Chicago: Chicago Review Press. Perloff, J. (2004). Microeconomics (1st ed.). Boston: Pearson Addison Wesley. Low Calorie Foods Hand Book:- Aron M. Altschul

http://www.wisegeek.com/what-are-discontinued-operations.htm#didyouknowout Am J Public Health. 2010 February :-The Impact of Food Prices on Consumption: A Systematic Review of Research on the Price Elasticity of Demand for Food

Search For The related topics

  • food