Operations Decision for Short-Run and Long-Run Production and Cost Functions
Busy weight-conscious consumers are increasingly searching for easy-to-prepare low-calorie alternatives, and it is not surprising that this industry has experienced sustained growth in recent years (Myers, 2016). In order to gain and sustain a competitive advantage in this industry, however, requires careful attention to demand levels and competitors’ pricing strategies. This paper outlines a plan that can be used to assess the effectiveness of the market structure for a low-calorie frozen, microwavable food company, a discussion concerning two factors that could account for changes, an analysis concerning the major short run and long cost functions for this company as well as suggestions about substantive ways in which the company may use this information in order to make decisions in both the short-run and the long-run. In addition, an examination of the possible circumstances under which the company should discontinue operations is followed by suggested key actions that management should take in order to confront these circumstances with supporting rationale. Finally, a suggested pricing policy that will enable this company to maximize profits is followed by a plan that the company could use in order to evaluate its financial performance and recommended actions that the company could take in order to improve its profitability and deliver more value to its stakeholders.
Outline a plan that will assess the effectiveness of the market structure for the company’s operation
The market structure in which low-calorie frozen food companies compete includes the companies’ organizational structure as well as salient characteristics of the market itself. In this regard, Riley (2016) advises that, “Market structure is best defined as the organizational and other characteristics of a market” (p. 3). Assessing the effectiveness of the market structure in which companies compete therefore requires an analytical framework in which demand levels and trends can be estimated (Swann & Gill, 1999). The primary aspects of market structure that should be used in the assessment include the following:
· The number of firms (including the scale and extent of foreign competition);
· The market share of the largest firms;
· The nature of costs (including the potential for firms to exploit economies of scale and also the presence of sunk costs which affects market contestability in the long term);
· The degree to which the industry is vertically integrated;
· The extent of product differentiation (which affects cross-price elasticity of demand);
· The structure of buyers in the industry (including the possibility of monopsony power); and,
· The turnover of customers (e.g.,...
how many customers are prepared to switch their supplier over a given time period when market conditions change -- the rate of customer churn is affected by the degree of consumer or brand loyalty and the influence of persuasive advertising and marketing (Riley, 2016, p. 4).
Given that business operations have changed from the market structure specified in the original scenario 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
One overarching factor that might have caused the change is the fact that the demand for low-calorie frozen foods is seasonal, and many consumers elect to eat what they prefer during the holiday season. For instance, Wood (2009) reports that, “The winter holidays cover a good six weeks--beginning at the end of November and not ending until after New Year's. Avoiding extra calories requires you to plan ahead, and certainly [this] is a time when it is particularly difficult not to overindulge” (p. 7).
Another factor that could be involved in this change is the level of consumer demand for healthy, easy-to-prepare meal alternatives which is being addressed by the proliferation of companies such as Blue Apron that provide all of the ingredients needed for a complete home-cooked meal delivered to consumers’ homes (About us, 2017). The growth in this industry can be reasonably expected to reduce the company’s market share, especially given recent trends in consumer preferences for fresh rather than frozen foods. In this regard, Mason (2009) reports that, “Consumers have less time and less inclination to spend hours preparing meals. But they also like the idea of freshly prepared food” (p. 17). Moreover, the significance of trends has not been lost on the major actors in the frozen food market such as the marketers at Bird’s Eye who report that, “We are targeting the young, money-rich and time-poor, which is most of the nation; people who know what quality is and are not prepared to compromise” (as cited in Mason, 2009, p. 17).
Analyze the major short run and long cost functions for the low-calorie, frozen microwaveable food company given the cost functions below. Suggest substantive ways in which the low-calorie food company may use this information in order to make decisions in both the short-run and the long-run
Accurately forecasting demand in a highly competitive market represents a challenging enterprise, but there are some valuable data that can be discerned from the calculated costs functions that can help inform the decision-making process. For example, according to one source, companies competing in markets in which there are numerous companies selling comparable products,…
