Assignment 3 Long-Term Investment Decisions Techniques

 

 LONG-TERM INVESTMENT DECISIONS

Outline a plan that managers in the low-calorie, frozen microwaveable food company couldfollow 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.

3 $o4 a$orie or hea$th! o5tion )ood is a )resh one5t 4hih has gained a $ot o) interest in toda!6s times& Restaurants0 shoo$s0 and even 5risons are )eeding hea$thier& More 5eo5$e 4ant to ,e hea$th! and $ive hea$thier $i)est!$es& This 5a5er 4i$$ out$ine a 5$an )or managers antii5atingrising 5ries0 e7amine the ma8or e))ets the government have on 5rodution and em5$o!ment0 determine 4hether government regu$ations ensure )airness0 e7amine the ma8or om5$e7ities under e75ansion via a5ita$ 5ro8ets0 and $ast$! suggest ho4 a om5an! ou$d reate onvergene ,et4een the interests o) sto9 ho$ders and managers&The Com5an! aims to 9ee5 the 5ries o) its 5roduts as ine$asti as 5ossi,$e& This means that the 5riing strateg! shou$d have no im5at on the 4a! the onsumers 5ereive and ,u! suh  5roduts De)inition o) Ine$asti0 n&d&;;& Genera$$! 4e see suh demand on$! in situations in 4hih the good or servies are indis5ensa,$e and the onsumers annot do 4ithout the 5rodut& This is not the ase )or miro4ava,$e )ood 5roduts&The demand )untion )or $o4 a$orie miro4ava,$e )oods $arge$! de5ends on the 5rie o) the merhandise0 its re$ative su,stitute; 5rodut0 advertisement overheads and $ast ,ut not the $east on the inome o) the onsumer&<rom the demand )untion and the e$astiit! onsidered0 it is esta,$ished that the mar9et )or the $o4 a$orie miro4ava,$e )oods )it into a mar9et o) mono5o$istia$$! om5etitive t!5e& 3 mono5o$isti om5etitive is distinguished ,! a reasona,$e num,er o) ,u!ers and se$$ers& 3s a resu$t 5eo5$e an hange to another ,rand i) a s5ei)i ,rand harges a soaring 5rie& =o4ever0 mono5o$isti om5etitive su55$iers arr! out 5rodut di))erentiation and onse'uent$! ,ringing

1 Elasticity of Demand The demand of any product depends on the pricing strategy being followed by the company along with some other factors like nature of product i.e. necessity or luxury, availability of substitutes, switching cost etc. If the product is a necessity usually it has inelastic demand. Inelastic demand refers to the situation where one unit increase or decrease in the product’s price cause less than one dollar change in the units demanded of that product ( Kreps, D. M. 1990). If product is a luxurious, its demand is usually elastic in nature. Elastic demand means when one unit change in the price of a product cause more than one unit change in its quantity demanded. E.g. the automobiles and mobiles have elastic demand while salt and sugar have inelastic demand. The product under consideration is low calorie microwavable food items whose price elasticity as was provided in previous assignment was: Own price elasticity (e p ) = ∂Q ∂ P × P Q ∂Q ∂ P = -10, P = 8000, Q = 131000 Own Price elasticity (e p ) = - 10 × 8000 131000 = - 0.61 (approx.) As the 1 unit change in price cause less than 1 unit change in quantity demanded of low calorie microwavable food, thus their demand is inelastic in nature. Thus changes in prices don’t cause huge change in their quantity demanded. Though currently its demand is inelastic in nature but one of the most important factors that need to be considered here is availability of substitutes. As from the last assignment we came to know that large number of sellers of low calorie microwavable food items exist in the industry offering some differentiated features. This shows that substitutes can easily be available and company lies in monopolistic competition industry. In monopolistic competition there exist a large number of suppliers each offering some differentiated feature in their product and thus can change the price to some extent. Thus

Leave a Comment

(0 Comments)

Your email address will not be published. Required fields are marked *