eco 550 7

 

1. Outline a plan that will assess the effectiveness of the market structure for the company’s operations.
Weight: 10%

 

Question 1

 

Outline a plan that will assess the effectiveness of 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 was to be determined by setting QD equal to QS. You are now aware of recent changes in the selling environment that suggest an imperfectly competitive market where your firm now has substantial market power in setting its own “optimal” price.

 

• Since the company has control over the price, it has to decide how much to charge and how much to produce to maximize profit. 

• The profit maximizing/loss minimizing quantity and price can be determined by setting the MR = MC. This involves the following.

  • Find the total revenue: TR = P x Q

  • Find the marginal revenue by calculating the derivative of the total revenue function.

  • Set MR equal to the provided MC function and solve for Q, and then for P.

• Based on the results, the company should make a decision to continue producing or shut down.

 

 

 

2. 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.
Weight: 10%

 

Question 2

 

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.

 

• Consider the change in the degree of competition.

• Review the sections “Industry Performance” and “Competitive Landscape” in the IBISWorld report provided.

 

 

 

3. 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.
Weight: 10%

 

Question 3

 

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.

 

TC = 160,000,000 + 100Q + 0.0063212Q²
VC = 100Q + 0.0063212Q²
MC= 100 + 0.0126424Q

 

• Using the provided cost data for the firm, determine whether the firm is making a profit or a loss by charging the equilibrium price determined in Assignment 1.

  • Calculate the total revenue.

  • Calculate the total cost.

  • Find the difference between TR and TC, which is the profit or the loss. 

  • Review the section “Cost Structure Benchmarks” (p. 22) in the IBISWorld report.

 

 

 

4. Determine the possible circumstances under which the company should discontinue operations. Suggest key actions that management should take in order to confront these circumstances. Provide a rationale for your response.
Weight: 15%

 

Question 4

 

Determine the possible circumstances under which the company should 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.)

 

• Determine if the company is making a loss.

• Determine whether the loss if higher or lower than the fixed cost.

 

 

 

 

 

5. Suggest one (1) pricing policy that will enable your low calorie, frozen microwavable food company to maximize profits. Provide a rationale for your suggestion.
Weight: 10%

 

Questions 5

 

Suggest one (1) pricing policy that will enable your low calorie, frozen microwavable food company to maximize profits. Provide a rationale for your suggestion.

 

(Hints:

 

• In Assignment 1, you determined your firm’s market demand equation. Now you need to find the inverse demand equation. Having found that, find the Total Revenue function for your firm (TR is P x Q). From your firm’s Total Revenue function, then find your Marginal Revenue (MR) function.
• 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 higher is or lower.)

 

• Use the profit maximizing rule MC = MR to find the price and quantity that maximize profit.

 

 

 

6. Outline a plan, based on the information provided in the scenario, that the company could use in order to evaluate its financial performance. Consider all the key drivers of performance, such as company profit or loss for both the short term and long term, and the fundamental manner in which each factor influences managerial decisions.
Weight: 10%

 

Question 6

 

Outline a plan, based on the information provided in the scenario, which the company could use in order to evaluate its financial performance. Consider all the key drivers of performance, such as company profit or loss for both the short term and long term, and the fundamental manner in which each factor influences managerial decisions.

 

(Hints:

 

• Calculate profit in the short run by using the price and output levels you generated in part 5. Optional: You may want to compare this to what profit would have been in Assignment 1 using the cost function provided here.
• Calculate profit in the long run by using the output level you generated in part 5 and cost data in part 3 and assuming that the selling environment will likely be very competitive. Determine why this would be a valid assumption.)

 

• Review the section “Key Statistics” on p. 38 of the IBISWorld report.

 

 

 

7. Recommend two (2) actions that the company could take in order to improve its profitability and deliver more value to its stakeholders. Outline, in brief, a plan to implement your recommendations.
Weight: 10%

 

Question 7

 

Recommend two (2) actions that the company could take in order to improve its profitability and deliver more value to its stakeholders. Outline, in brief, a plan to implement your recommendations.

 

• Review the sections “Industry Performance” and “Products and Markets” in the IBISWorld report.