Monthly Archives: March 2016

Assume that the low-calorie frozen, microwavable food company from Assignments 1 and 2 wants to expand and has to make some long-term capital budgeting decisions. The company is currently facing increases in the costs of major ingredients.

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Use the Internet and Strayer databases to research government policies and regulation.

Write a six to eight (6-8) page paper in which you:

  1. Outline a plan that managers in the low-calorie, frozen microwaveable food company could follow in anticipation of raising prices when selecting pricing strategies for making their products response to a change in price less elastic. Provide a rationale for your response.
  2. Examine the major effects that government policies have on production and employment. Predict the potential effects that government policies could have on your company.
  3. Determine whether or not government regulation to ensure fairness in the low-calorie, frozen microwavable food industry is needed. Cite the major reasons for government involvement in a market economy. Provide two (2) examples of government involvement in a similar market economy to support your response.
  4. Examine the major complexities that would arise under expansion via capital projects. Propose key actions that the company could take in order to prevent or address these complexities.
  5. Suggest the substantive manner in which the company could create a convergence between the interests of stockholders and managers. Indicate the most likely impact to profitability of such a convergence. Provide two (2) examples of instances that support your response.
  6. Use at least five (5) quality academic resources in this assignment. Note: Wikipedia does not qualify as an academic resource

Possible Solution:

The food industry is notably one of the most elastic industries in the market due to the existence of close substitutes and alternatives. When planning to change the prices of products, the company has to understand and put into consideration how sensitive their products are to fluctuations in prices and the immediacy and extent of this response.

In our case, the low-calorie frozen, microwavable food products may not be considered essential and coupling with the existence of close substitutes, require a careful plan to ensure the products remain relatively inelastic to the price changes. To achieve inelasticity, the company needs to differentiate their product by making our food products unique and provide sustainable value for customers compared to the other competing products.

The demand function for our food product is derived from the price of raw materials, the price of related products, marketing and advertisement costs as well as the consumer income. The product is uniquely designed and well differentiated in the market as there are no other low-caloric microwavable foods which make this a monopolistic market. This means that as long as consumers perceive the value of the product to be worth the price, they do not have other options but to pay the increased price and, therefore, retain the inelasticity.

Thus, the best pricing strategy, in this case, is to price the products at a premium as they are unique products. The company will create a value perception by marketing the food products as healthy and create awareness of the benefits of consuming low-calorie foods  in relation to their health. De-Magistris and Lopéz-Galán (2016) found out increased that the promotion of food products as healthier choices increased the perceived value to the customer consequently increasing their willingness to pay the premium price for the product…..

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