Long-Term Investment Decisions - Essay Example

Long Term Investment Decisions Date Introduction Pricing strategies is the most important part for any organization if they are to make profits and compete in the industry. This is so because consumers are much sensitive to any small changes in price of the commodity (Samuelson & Nordhaus, 2010). However goods which are of necessity do have slight change in demand with a corresponding increase or decrease of the prices since they will have to consume them. Such is the case of low calorie, frozen microwaveable food company. Pricing strategy Raising prices in the low calorie, frozen microwaveable food company will not affect the consumers so much since the prices are less elastic. The consumer will have to consume the commodity as normal even if the prices are increased. The managers thus should consider the reactions from the competitors before raising prices. Since consumption of the food is maintained, increasing prices may lead to rival firms to sell more units than the firm. This will reduce its sales and market share and hence loses a lot to the competitors. Consumers usually have believed that high prices are associated with high quality. If the firm wants to attract more sales, they should consider increasing quality or rebrand the product as this would change the consumer’s perception of the product in a positive way. They would thus increase their purchasing power making the firms to have high sales. Managers should also have a good timing as to when to increase the prices. During low seasons of the business, they can keep the prices low so that they keep with the increased customers demand however little it may be. These losses can then be recovered in off seasons through producing more units at high prices. For example, during festive seasons and holidays, consumers spend more than expected. Effects of government policies on production and employment The government usually enters into the production process majorly by providing incentives and changes in taxation. Providing subsidies lowers the production cost of the company. The company is able to produce more and increase the market supply (Tisdell & Hartley, 2008). To increase production, they will hire extra labor leading to employment in the economy. As supply increases, demand is relatively constant leading to low prices to the consumers. However, if the government does not provide subsidies, the company operations cost will be high and hence reduce output and will lay off workers leading to unemployment in the economy. This decreases supply and since demand is high, prices will increase leading to inflations in the economy. The government can decide to use tax policies in the production process. Tax free productions lower cost of productions and the company would produce more and hire more workers. Increased supplies will make the company to charge low prices to the consumers. On the other hand, imposing high taxes on the production activities will result into high productions cost that will reduce supplies into the market. The company will thus render a majority jobless causing unemployment and increased prices to the consumers (Tisdell & Hartley, 2008). The following diagram can be used to explain various government policies on the production capacity and employment of the firm Production of the firm employment by the firm. D S1 Changes in employment P1 E1 S2 P2 E2 Q1 Q2 R1 R2 From the diagram, E1 is the original equilibrium of output of the company with corresponding P1 and Q1 price and quantity produced respectively and R1 the employment level. Suppose the government policy is to increase subsidies to the firm or say reduce taxes in the production, the company will relatively lower costs of production. This will increase the output produced in the company and will increase from Q1 to Q2. To produce more, the firm will have to hire more labors making the employment to increase from R1 to R2. Since the market is inelastic, demand is still relatively constant; prices will be reduced from P1 to P2. Hence the government policy of subsidizing costs and reduction in taxes will make the company to hire more workers and increase output produced. Determine whether government regulation is needed or not. Low calorie, frozen microwavable food company operates in inelastic market. Demand is less responsive in prices. This means the consumers will have to consume the commodity even if prices are increased. Companies thus would take advantage of the inelasticity of prices to exploit the consumers and make more profits (Samuelson & Nordhaus, 2010). They can control production and charge high prices since the consumers will have to consume the commodity. The government thus should be involved in regulation of the markets so that consumer prices are kept relatively low. If the government does not enter in market regulation, increased prices may generate inflationary measures in the economy since consumers will be forced to reduce its spending on other goods so as to consume the food. This may lead to collapse of other industries in the economy resulting to massive economic crisis. The government involves in the regulation in the market so as to protect the consumers and regulate the economy (Dwivedi, 2001). For instance by providing incentives in production and decreased taxes, prices are greatly reduced protecting the consumers of having to spend more to acquire the product. They can also do so to control levels of inflation to manageable levels. Complexities that arises as a result of expansion via capital projects. The company’s expansion via capital projects comes with a lot of problem. These projects are new and do require high amounts of funds for them to be carried out. The company thus will have to source for the excess finance if they are to oversee it through (Dwivedi, 2001). This proves to be a difficult challenge especially if the company does not have financial reserves. The company will also have to recruit more staffs since it does involve an extra work in the company. These persons will have to be well trained and experienced concerning the particular projects. The company will have to part with more funds as salaries to the new workers which will increase the cost of production that may result to increased prices hence affecting sales. However, the company can strategize internally to solve the problems. They can diversify its market so as to increase its sales and market share in the economy. This increases the company sales of output that generates more funds to the company. The excess funds can thus be used to undertake the projects at ease and even if it is not enough, the firm can access loan at reduced risks that do not affects the company funds. The company can also train its internal workers concerning the project. This will make the company not to hire excess workers or recruits only a few and complements with the internal staffs. This will make the company to reduce its cost of undertaking the project and will more funds which can be used for other expansionary measures. Convergence of stockholders and managers Convergence is actually the process where the management and stockholders to have common interests to the benefit of the company. Managers are designated to oversee the company operations while the stockholders are the owners of the company by contributing in shares that provides capital that the company uses in operations. The company should provide a clear structure on how the company goals will be achieved to the stockholders. This would include defining the management roles and duties, key products that the company will be dealing in and how they plan to grow into the future. This will create confidence into the company and stockholders will contribute more capital to the company so they can successfully complete their objectives (McEachern, 2013). The company should create autonomy in operations so that the stockholders and managers do not collide. Managers will hence concentrate on the company and implements their decisions with ease. This will greatly increase the company profits since they can invest more and have a good management system. Conclusion Low calorie, froze microwavable company operates in a relative good business environment. Its market is ensured and can make a lot of sales. This if complemented with good decision within the firm, can lead to high profits in the company. References Cordes, J. J., Ebel, R. D., Gravelle, J., & Urban Institute. (2005). The encyclopedia of taxation & tax policy. Washington, D.C: Urban Institute Press. Dwivedi, D. N. (2001). Macroeconomics: Theory and policy. New Delhi: Tata McGraw-Hill. McEachern, W. A. (2013). Contemporary economics. Mason, Ohio: South-Western Cengage Learning. Samuelson, P. A., & Nordhaus, W. D. (2010). Economics. New Delhi: Tata McGraw Hill. Tisdell, C. A., & Hartley, K. (2008). Microeconomic policy: A new perspective. Cheltenham, UK: Edward Elgar. . Read More