Operations Decisions

Operations decisions

Name

Institution

Introduction

The objective of any firm is to maximise profits and increase shareholders’ wealth. This objective can only be attained if the market structure is favourable for the operations of the firm. The market for low-calorie microwavable food has changed from perfect to imperfect competition. This paper discusses the effectiveness of the new market structure to the operations of the company. It also assesses the profitability of the firm based on the cost functions and the demand function from assignment. In addition, the paper explores was in which the company can improve its profitability as well as the circumstances under which it should discontinue its operations.

1. Assessing the effectiveness of the market

The market for low-calorie microwavable food was originally monopolistically competitive as indicated by the high value of price elasticity of demand. The price elasticity of demand for the low-calorie frozen, microwavable food was 1.19 indicating that a 1% change in price would cause a 1.19% change in quantity demanded. Firms in the industry include Nestle SA, Kellogg Company, Birds Eye Foods, among other firms.

The change from perfect competition to imperfect competition gives freedom to the existing firms to control the pricing of their products. This is because imperfect competitive markets are characterised by price inelastic demand hence a firm can increase its price without experiencing a substantial loss in sales (Tucker, 2011). In addition, an imperfect market will favour product differentiation, among other non-price competitive measures.

2. Possible causes of change in market structure

i) Product differentiation: Many firms in the market may have engaged in extensive product differentiation. The effect of product differentiation is that it reduces price-based competition as consumers begin to base their buying decisions on factors other than price. This in turn causes a...