ECO 550 - Managerial Economics
Assignment 2: Operations Decision
Use the Internet to research two (2) of the leading competitors in the low-calorie frozen, microwavable food industry, and take note of their pricing strategies, profitability, and their relationships within the industry (worldwide).
Write a six to eight (6-8) page paper in which you:
1. Outline a plan that will identify and assess the market structure for the company's operations. Note: In Assignment 1, the assumption was that the market structure [or selling environment] was perfectly competitive and that the equilibrium price could be determined by setting QD equal to QS. You are now aware of significant changes in the selling environment that suggest your firm is operating in an imperfectly competitive market where it has substantial market power and can set its own "optimal" price.
2. Given that the market environment has changed from the one specified in Assignment 1, determine two (2) likely factors that might have caused the change. Predict the primary manner in which this change would likely impact business operations in the new market environment.
3. Analyze the short run and long cost functions below for the low-calorie, frozen microwaveable food company. How might the company use this information to make output and price decisions in the short-run and the long-run?
TC = 160,000,000 + 100Q + 0.0063212Q2
VC = 100Q + 0.0063212Q2
MC= 100 + 0.0126424Q
(Where TC is total cost, VC is total variable cost, MC is marginal cost, and Q is quantity.)
4. Under what possible circumstances should the company discontinue operations? Suggest key actions that management should take in order to confront these circumstances. Provide a rationale for your response. (Hint: Your firm's price must cover average variable costs in the short run and average total costs in the long run to continue operations).
5. Assume now that the demand equation that you derived in Assignment 1 under the assumption of perfect competition has been replaced by the new "firm specific" demand curve below which indicates a significant increase in demand for this product.
- Qd = 350,000 -100 P (where Qd is quantity demanded and P is price)
The above firm specific demand curve generates the following Marginal Revenue Function (MR):
- MR = 3,500-0.02 Q (where MR is marginal revenue and Q is quantity demanded)
Suggest one (1) pricing policy that will enable your low-calorie, frozen microwavable food company to maximize profits. Provide a rationale for your suggestion.
(Hint: Use the profit maximization rule MR = MC to determine your optimal price and optimal output level now that you have market power. Compare these values with the values you generated in Assignment 1. Determine whether your price and output are higher or lower.)
6. Outline a plan to evaluate the company's financial performance. Consider all the key drivers of performance, such as the company's profit or loss in both the short run and long run.
(Hints: Calculate profit in the short run by using the price and output levels you generated in Part 5 to compute total revenue. Then find the cost of this output level in the short run using the functions in Part 3. Next, consider what profit in the long run might be assuming that the selling environment is likely to be very competitive. Why might this be a valid assumption?)
7. Recommend two (2) actions that the company could take in order to improve or maintain its profitability in the long run, and deliver more value to its stakeholders. Outline, in brief, a plan to implement your recommendations.
8. Use at least five (5) quality academic resources in this assignment. Note: Wikipedia does not qualify as an academic resource.
your assignment must follow these formatting requirements:
• Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions.
• Include a cover page containing the title of the assignment, the student's name, the professor's name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.
Min Pages: 6
Max Pages: 8