Managerial Economics: Applications, Strategies and Tactics - Assignment Example

Operations Decision Business Assignment 2 Q1. Outline a plan that will assess the effectiveness of market structure for the company’s operation. The viability of our business sector structure is reliant upon our increment sought after and in this manner the deals income produced through them. The initial quantity demand of low-calorie microwavable food was 57475units by 26 markets. Due to the change in price the quantity demand lowered down to 57275units which means that demand for the low-calorie microwavable food is inelastic in nature (n=0.003); which suggests that an increment in the cost of the nourishment prompts the fall of the amount requested by short of what proportionate sum. The income elasticity (YED) of the items is adaptable and accordingly we can say that it is an extravagance product. In this way commercial arrangement additionally has a key part to play on the effect of the offers of the item (Nicholson, 2011). In accordance with the solution of assignment 1, for this firm the components that will have the best effect on solidified sustenance operations are specialists, greatest yields, work time, and variable expenses. At present, the overseeing advisor will work with unique consideration in the negligible expense to outline the monetary model (Michaels, 2011). The altered expense is a steady consumption that won’t change over the time. Variable expenses incorporate all of inputs such crude materials used to deliver the units, work, area, yet it will change if the creation expand or diminish. Overseeing expert will assess distinctive situations in the inside of the monetary model that will help the settling on choice methodology. Overseeing expert will esteem outer variables, for example, supply and interest, requirements (physical, time, and monetary demands), regulating matters of trade and profit, rivalry, inclination, effectiveness, and diverse markets (Michaels, 2011). At last, overseeing specialist is an expert that looks to expand the organization’s benefit with the generation capacity, survey to modify the inputs, and to create yields at most reduced expense (short- run generation or long run) (Michaels, 2011). Administration’s choice to proceed on the other hand stop operations depend of the financial hypothesis that secure in the short run that if an organization can cover in any event its aggregate variable expenses at some level of creation, it will keep on operating. Fixed expenses are disconnected in the short-run in light of the fact that they are gone consumptions (Michaels, 2011). Q 2: Determine 2 likely factors that might have caused the change. Predict the primary manner in which this change would like impact business operation in new market environment. The factors determining the change in business operations in new market environment would be that if the expense of microwaves is lowered, then more shoppers will request healthy nourishment. Thus, the price of relative items likewise assumes an essential part in the business structure of the goods. Moreover, there are a few items which go about as substitute; the ascent in cost of an item, and different conditions staying consistent likewise has an effect on the interest for substitute items. For example, we can utilize the sample of crisp vegetables, if the price of new vegetables goes up, individuals will consequently switch to prepared to-consume frozen items in light of the fact that it is more savvy to purchase, notwithstanding being not difficult to cook (Amosweb, n.d.). Q3: Analyze the short-run and long-run cost functions for the low-calorie, frozen microwavable food company given the cost functions below. Suggest the substantive ways in which the company may use the information in order to make decisions in both short-run and long-run. Performance of the Company Using Key Drivers of Performance for Both the Short Term and Long Managing specialist can incorporate inputs and yields under a utilitarian relationship (creation capacity) to decide (Taylor III, 2011). Overseeing the management can acquire extra data about company’s performance by looking at its short-run and long-run costs. There are certain fixed costs in the short–run as all the resources are not available. Decisions must therefore be taken for the short-run within the restriction of having some fixed resources. However, in the long-run, most of the costs are variable and therefore the decisions to change the quantity of input variable which is fixed in the short-run will involve a change in the scale of production. Hence, Average fixed cost (AFC), Average variable cost (AVC) and the Average total cost (ATC) are the paramount markers when it comes to analysis of short-run production. And that the fixed cost is not what we need in short-run as it is the expense which is not recoverable. The firm’s production function refers to the desire of the business firm that its factors of production are managed in such a manner that a given output can be produced at a lowest minimum cost in time period specified. The firm inspects the relative prices of various factors of production, their production capacity, the state of technical knowledge, the scale of production, etc. and then it selects the combination of factors which is the most feasible. Thus, the relation that exists between the output of a good and the quantities of inputs or FOP is called production function which can be expressed be X= f(A,B,C..N) The cost function is the capacity of input costs and yield amount. Its worth is the cost of making that yield given those input costs. Average Fixed Cost (AFC) is the cost per unit. Average variable cost (AVC) = total variable cost/units of output per day. Average total Cost (ATC) AFC + AVC From the given cost function: TC= 164887649, TVC=4887649.2, FC=160,000,000 MC= 365.4904, AVC=232.7452 Average Cost (AC) changes as output increases. It starts by falling, reaches a lowest level, and then starts to rise again. Moreover, Cost of Production is the expense that the firm brings about on assembling an item. Production expenses incorporate material expenses and in addition the expense of work. It incorporates long run and also the fleeting costs brought about. Long- run cost for low calorie microwavable nourishment incorporates the expense of hardware and area for setting up the assembling unit. The transient expense of generation incorporates the variable expenses and the expenses that are brought about for a brief time of time (Mcguigan, 2014). Short terms expenses incorporate the expenses are focused around a delineation of the medium-term steadily acting macroeconomic variables that influence sustenance costs, and additionally information of their power and the timing of their transmission. This examination is formalized by an incomplete single-mathematical statement model of nourishment value swelling, and the model methodology is further supplemented and secured by method for other data and master judgment. Transient expense incorporates charges and different costs that are variable or caused once or short term. Any cost caused towards publicizing the item is transient expense (Czech National Bank, 2004) (Mcguigan, 2014). Q4. Determine the possible circumstances under which the company should discontinue operations. Suggest key actions that management should take in order to confront these circumstances. The number of factors which force the company to discontinue or cease to continue its operations. The manufactured goods produced by the company lose its demand in the market and the company fails to cover the average variable cost for producing a product and the total variable cost. Then in order to accumulate more losses the company is forced to discontinue a particular operation and sell the equipments which are involved in the manufacturing of a Product in order to raise Funds. The company is also obliged to terminate its operation due to geographical issues like heavy transportation cost which proliferate the total variable cost of a product and eventually forces the Company to cease its operations. Furthermore, The firm should end its operations in circumstances where the cost curve helps to overseeing advisor to settle on a choice when a firm ought to close down operations (Michaels, 2011). On the off chance that if price is equivalent to AC, then the firm simply is making back the break-even Q5. Suggest one pricing policy that will enable your low-calorie, frozen microwavable food company to maximize profit. A fundamental element for staying in the business is pricing. Despite the fact that, there is no particular technique for exactness to focus evaluating method, there are a few angles, for example, the production cost, item demanded, market position and rivalry that help focus the costs (Mcguigan J. M., 2014). So as to boost benefits these firms ought to concentrate on pricing policy. An optimum cost by definition is the cost at which the customer is eager to buy the item. Focused valuing is likewise done by keeping in view the costs of comparable associations in the business (Basu, n.d.). The interest for low-calorie microwavable food is inelastic in nature; thus, we can make the inference that a cost increment in sustenance costs prompts the diminishing of amount requested by short of what proportionate sums. In this way this item is viewed as an extravagance decent so its publicizing flexibility likewise impacts its deals. The association ought to take after the valuing perceived in the wake of breaking down the generation costs and contenders’ business costs. Hierarchical objectives with respect to benefit boost are likewise to be considered while deciding the ideal arrangement for valuing. Q6. Outline a plan, based on the information provided in the scenario, which company could use in order to evaluate its financial performance. Consider all the key drivers of performance, such as company’s profit or loss for both short-term and long-term, and the fundamental manner in which each factor influences managerial decisions. Assessing the financial performance of a firm means having subjective measure of how well a firm makes utilization of its advantages from its essential mode of business and in addition creates incomes. This outflow is likewise utilized as a general assessment of a companys general budgetary well being over a given time of time, and can be utilized to hope to measure up related firms over the same business or to think about commercial enterprises or parts in conglomeration. While assessing performance of the organizations we can take help of the financial ratios too. (ehow, n.d.). Barron expresses that the performance of a business endeavor is affected by its techniques and operations in business sector and non-showcase situations (Baron, 2000). Financial indicators also known as ratios are a paramount component in deciding the performance of an organization. The analysis of it is ought to be investigated by an expert bookkeeper. Keeping in mind the end goal to stay with a record of the financial well being, proportion dissection is utilized as an apparatus. Degree investigation decides and translates how effectively an organization is working as far as its funds. Degree dissection exhibits a straightforward and fathomable understanding of the bookkeeping variables. It is a viable instrument for comprehension a business achievement as far as budgetary undertaking and execution (Reference for Business Encyclopedia of Business, n.d.). There are numerous sorts of degrees which are arranged as indicated by their strategy for reckoning notwithstanding their qualities. For the most part, proportions can be portrayed as remainders that reflect position of the organization to face their commitment. There are those that reflect the relationship between net benefits and consumption, the proportions depicting connection between terrible profits and costs and ultimately the ones that reflect the segment of one variable to other. One could name these degrees as scope proportions, return degrees, turnovers proportions and part rates (Reference for Business Encyclopedia of Business, n.d.) Some of ratios take are as follows: 1. Activity ratios 2. Liquidity ratios 3. Profitability ratios 4. Shareholders ratios Hence, it can be reasoned that through ratio we can assess the financial performance of the business. The financial data must be accurate so that the computation and examination of information is exact. "All in all, Ratio analysis can be a vital apparatus for little entrepreneurs and supervisors to measure their advancement to arriving at organization objectives, and also to rivaling bigger organizations inside an industry. At the point when performed frequently about whether, financial examination can likewise help little organizations perceive and adjust to patterns influencing their operations. It is likewise essential for little entrepreneurs to comprehend and use money related dissection on the grounds that it gives one of the principle measures of an organizations prosperity from the point of view of financiers, speculators, and outside investigators" (Reference for Business Encyclopedia of Business, n.d.). Q7. Steps that the company needs to take in order to earn more profits and deliver more value to stakeholders. For the purpose of achieving more profitability and ultimately announcing more values for the stakeholders the company will need to pay attention towards many factors. One of these factors is offering discounts to early paying and regular customers, discounts on bulk purchases and different economy packages for the company’s customers as well as for the new ones. For example, in order to improve net cash flows, the company may offer that customers who pay before the due date of payment or those who purchase more than a specified limit shall receive a certain percentage of discounts. Similarly, customers may be attracted towards the company’s products if the company introduces some packages offering free items with purchases up to certain amounts or units of items. Another of these factors may include those steps needed to be taken by the company to bring its costs to a minimum level. To achieve this objective, the company should have a keen look at its investment costs on inventories (interest expenses), its holding costs, carrying costs and other costs related to inventory. A very important concept used for this purpose is known as “economic order quantity”. This concept implies a mathematical method used to ensure that the annual inventory costs are minimized. Hence with a minimum cost, the company, keeping its sale prices constant, can make high profits and announce higher dividends. Reference: Market segmentation. (n.d.). Retrieved from NetMBA Business Knowledge Center Web site: http://www.netmba.com/marketing/market/segmentation/ McGuigan, J. M. (2014). Pricing techniques and analysis. In J. M. McGuigan, Managerial economics: Applications, strategies and tactics (p. 500:531). Mason: Cengage Learning. McGuigan, J. R. (2014). Production economics. In J. R. McGuigan, Managerial economics: Applications, strategies and tactics (13 ed.) (p. 234:264). Mason: Cengage Learning. McGuigan, J. M. (2014). Applications of cost theory. In J. M. McGuigan, Managerial economics: Applications, strategies and tactics (13th ed.) (p. 311:314). Mason: Cengage Learning. Nestle. (n.d.). FAQs. Retrieved from Lean Cuisine Web site: http://www.leancuisine.com/index/FAQ.aspx Nicholson, W. &. (2011). Microeconomic theory: Basic principles and extensions. (11th ed.). USA: Cengage Learning. Reference for Business Encyclopedia of Business. (n.d.). Financial analysis. Retrieved from Reference for Business Encyclopedia of Business (2nd. ed.): http://www.referenceforbusiness.com/small/Eq-Inc/Financial-Analysis.html Baron, D. P. (2000). Business and its environment 3rd Edition. NJ: Prentice Hall. Basu, C. (n.d.). Price elasticity & optimal pricing policy. 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