Operations Decision

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OPERATIONS DECISION 11

OperationsDecision

Thecompanies that emerge as important competitors in the low-caloriefrozen, microwavable food industry, are Lean Cuisine and HealthyChoice (Lundahl, 2012). The two entities have a magnificent history,decent market grip, and a well-established customer base. LeanCuisine became incorporated in 1981with a goal of providing ahealthier alternative to Stouffer’s frozen meals in the Canada,U.S, as well as the Australian market. The company commenced withonly ten food items but has now expanded to more than 100 differentmeals. The credibility of this entity in providing quality productshas been facilitated by the fact that it is owned by Nestle, which amarket leader globally (Lundahl, 2012). The business is veryprofitable globally and uses price differentiation strategy.Alternatively, Healthy Choice is an entity owned by ConAgra Foods asa subsidiary. Just like Lean Cuisine, the organization is wellrecognized in providing quality meals emanating from theacknowledgment of ConAgra in the industry. The pricing strategy ofHealthy Choice follows that of ConAgra which focuses on pricedifferentiation. The subsidiary is profitable and this can beborrowed from the financial performance of ConAgra globally (Lundahl,2012). The two rivals have become very triumphant in the industry andrelate well with other firms in the industry.

Part1

Theeffectiveness of the market structure for the company’s operationscan be evaluated through first carrying out a study on the targetaudience for the commodities. The needs as well as the demands ofcustomers, in the target market, can be considered as importantfactors that would work towards driving the sales of the business(Mahadevan, 2009). The entity is likely to fail in case it does notgive proper attention to audience analysis. Also, the growth trend ofthe target market should be analyzed. Furthermore, it would becritical to assess the employment and inflation trends. The companywould require providing an emphasis on its price strategy since thiswould be an important factor in the operations.

Part2

Importantfactors that led to the change in the market structure would need tobe considered since they can affect the company in the newenvironment. The two factors that can be stressed here are thechanges in customer income and buyer tastes. In case the consumersstart earning more income, they are likely to purchase more andexpensive commodities (Mahadevan, 2009). In such a situation, theacquisition ability would be increased. Alternatively, when thecustomers’ income is not that high, they will decrease the buyingtendency and will obtain less expensive commodities. This would havean impact on the revenues of the company. On the other hand, thetaste of buyers would be critical, but can be controlled by thebusiness. In case customers like a certain product, they are likelyto obtain the commodity even if it is slightly expensive. Thus,their taste has to be tamed by the company since they can influencethe revenues that the organization would make. Through carryingadequate research on the customers’ tastes, the firm would be in aposition to provide commodities in line with the tastes of shoppers,thus controlling its revenues.

Part3

Inanalyzing the short and long run cost functions, the calculation oftotal cost, variable cost, average variable cost, as well as theaverage total cost will be required. The equations provided are asfollows

TC= 160,000,000 + 100 Q + 0.0063212 Q2

VC= 100 Q + 0.0063212 Q2

MC= 100 + 0.0126424 Q

Quantitydemanded = Quantity supplied

FromAssignment 1, this can be equated as 26770 – 42 P = -7909.89 +79.0989P

121.1P= 34679.89

EquilibriumP = 286.37 (as derived from assignment 1)

Substitutingthe value of P Q = -7909.89 + 79.1(286.37)

Q= 14741.98 (as derived from assignment 1)

Therefore,VC = 100 Q + 0.0063212 Q2

=100 (14741.98) + 0.0063212 (14741.98)2

1474198+ 1373760.95

VC= 2847958.95

AVC= 2847958.95/14741.98

=193.19

MC= 100 + 0.0126424 Q

=100 + 0.0126424 (14741.98)

=100 + 186.37

MC= 286.37

TC= 160,000,000 + 100 Q + 0.0063212 Q2

=160,000,000 + 100 (14741.98) + 0.0063212 (14741.98)2

=160,000,000 + 1474198 + 1373760.95

TC= 162847958.95

ATC= TC/Q

ATC= 162847958.95 / 14741.98

=11046.55

Shortrun equilibrium

Longrun equilibrium

Inthe cases above, the company will use the equilibrium price andquantity in establishing whether the price would be optimum or not.Therefore, the firm can use this information in adjusting itsequilibrium points in case there is a change in other factors. Whenit realizes that the price is not most favorable, it can take thenecessary steps to change it. For instance, the firm can mitigate thefee of its commodities so as to make customers buy more of themerchandise. Indeed, the company can project to increase its sales ifit sets prices craftily (Hinterhuber &amp Liozu, 2013). Therefore,the organization can utilize the information to its advantage in theshort and long run.

Part4

Differentaspects can make the company discontinue its operations. One of thefactors may be due to the commodities being produced becomingobsolete or losing their appeal to the consumers. For instance, theremay be a case where the products of the company may not attractbuyers even at a cheaper rate. This may be due to an emergence ofrival commodities that go along with customers’ tastes, which maybe provided at a lower price compared to the existing product. Insuch a scenario, the solution would be to conduct sufficient researchso as to establish whether the equipment used in producing thecommodity, whose products are being discontinued, can be utilized ingenerating other goods that can be sold by the company. In case, theequipment is also not relevant in the manufacture of othercommodities then it is advisable to discontinue the operations ofthe firm. Also, another circumstance that may prompt the firm toclose undertakings is an increase in cost leading to continuouslosses. The organization may come across a situation where the costsof production are on the increase, but prices cannot be increased dueto the rivalry in the market. In this case, the organization may beforced to shut down its functions emanating from a prolonged time oflosses. The firm may fight this problem by changing its productiontactics so as to remain aggressive in the market. For example, theentity may decrease the size of its products so as to reflect adecrease in price, but ensure that it would benefit from the ratethat it attaches to its new commodities (Hinterhuber &amp Liozu,2013).

Part5

Fromassignment 1, the demand equation was Q = 26770 – 42 P this can berewritten as

42P = 26770 – Q

P= 637.38 – Q

Fromthis equation, then the TR equation would be obtained by P*Q to getthe following

TR= PQ = 637.38 Q – Q2

MR= 637.38 – 2Q

MC= 100 + 0.0126424 Q

Toget the optimal price MC should be equated to MR

Thiswould give 637.38 – 2Q = 100 + 0.0126424 Q

537.38= 2.0126424 Q

Q= 267

But,P = 637.38 – Q

P= 637.38 – 267

P= 370.38

Optimalprice that would maximize profits is $ 370.38

Comparingthis optimal price with the one obtained in assignment 1 (286.37),the profit maximizing price is higher. The company can consider usingthe pricing policy, where it would utilize elasticity of demand forits commodities. When using this criterion to set its prices, itwould be capable of changing the price based on the elasticity of theproducts that it produces. Through the policy, the company would bein a position to adjust prices at its advantage.

Part6

Thecompany can use different key performance indicators to assess itsposition in business. In the case of the business underconsideration, the data available can only be used to evaluate theprofitability of the firm since the cost and revenue function arepresent as well as the optimal values of price and quantity. Theprofitability of the organization can influence managerial decisionsince the managers can use the information in evaluating thestrategies they can utilize in enhancing the prosperity of theentity. The use of productivity measure can be a valid assumption ofthe ability of the company to continue its operations since profitfigures are critical in determining whether the expectations of theorganization are met.

Profitin the short run

Profit= TR – TC

TR= PQ = 637.38 Q – Q2

TC= 100 Q + 0.0126424 Q2

Profit= 637.38 Q – Q2– 100 Q – 0.0126424 Q2

=537.38 Q – 1.0126424 Q2

=537.38 (267) – 1.0126424 (267)2

=143480.46 – 72190.26

Profitin the short run = $71290.2

Profitin the Long run

MC= 286.37

MR= 637.38 – 2Q

=637.38 – 2(267)

MR= 103.38

Marginalloss = 103.38 – 286.37

=182.99

Therefore,in the long run, the company would make a loss of 182.99 (267) =48858.33

Part7

Thecompany may consider taking different actions to improve itsprofitability in an attempt to enhance the value to its stakeholders.One of the actions would entail implementing pricing strategies thatfocus on the incomes of the consumers (Fifer, 2011). This impliesthat customers would be in a position to buy the commoditiesregardless of their income levels. Another action concerns upgradingthe quality of the company’s products continuously this would makethe goods reliable and appealing to the customers (Fifer, 2011).Continuous upgrading of the goods would also give the firm an upperhand in the market. Another important action that would help thecompany in improving its profitability is focusing on advertisements.Effective advertisement would help people to know about the productsof the company and persuade them to purchase (Daly, 2002). Thus, thisaction would aid in enhancing the sales and proceeds of the company.

References

Daly,J. L. (2002). Pricingfor profitability: Activity-based pricing for competitive advantage.New York: Wiley.

Fifer,R. M. (2011). Doubleyour profits in 6 months or less.New York: HarperBusiness.

Hinterhuber,A., &amp Liozu, S. (2013). Innovationin pricing: Contemporary theories and best practices.London: Routledge.

Lundahl,D. S. (2012). Breakthroughfood production innovation through emotions research.London: Elsevier/Academic Press.

Mahadevan,B. (2009). Operationsmanagement: Theory and practice.New Delhi: Published by Dorling Kindersley (India.

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