The decision of long term investment

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The low-calorie frozen, microwavable food industry must weigh different economic factors, including pricing, while making long-term capital budgeting decisions. Low-calorie food items are gaining popularity in many cultures today, especially in the United States of America (USA). People are taking the requisite steps to live healthier lives, and institutions such as schools, restaurants, and jails are promoting safe eating habits. As a result of this, food producers, including low-calorie and microwavable food companies, are feeling the benefits of increased demand in their products. The corporation anticipates that the costs of its key products will rise. Also, the government intervention affects the company’s employment and production. An analysis of whether the government regulations ensure fairness is crucial and so the company’s expansion plan will rely on various long-term investment decisions.

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 priceless elastic. Provide a rationale for your response.

The company needs to select the right pricing strategies that could make their product respond to the current changes in the price. In doing so, the company might want to make the prices of its products inelastic as possible. Therefore, the pricing method used must not affect the way the customers buy and perceive such products. Other companies rely on the fact that their goods and services are indispensable, which means that the consumers cannot do without the product. Microwavable Food Company relies on the price factor (Nagle et al., 2016). The price of the merchandise will determine whether the consumer’s satisfaction will lead to their continued purchasing in the company or seek for substitute product in another firm. The other factors that these food products depend on are the income of the consumers and the advertisement overheads. Therefore, the pricing strategies must consider the consumer's income and the overheads (Nagle et al., 2016). If the overheads are expensive then the effect will be in the price of the product.

The plan the management should use must be based on the demand function. The market for low-calories microwavable foods can suit a monopolistically competitive market. Such a plan will consider the number of buyers and sellers since people tend to change their options once specific brand price begins to soar. On the other hand, the monopolistic competitive suppliers will perform product differentiation to attract the consumers. A formula that describes the plan is “Profit (NP) =Total Revenue (TR) Total Cost (TC) =PQ TC” (Nagle et al., 2016). According to the formula of profit maximization a “( -) is produced since (p) is not fixed =MR MC = 0 and so MR = MC” (Nagle, Hogan & Zale, 2016). The demand function expressed shows that the demand for low-calorie frozen, microwavable food is not that elastic. However, the company wants to keep the products completely inelastic. For this reason, they will have to apply a different plan, which is to differentiate the merchandise from the products of other companies. By making their product unique and dissimilar from those of the other firms in the same industry they will make it difficult for the customers to find a substitute of the product in a different company (Nagle et al., 2016). Therefore, the firm will have to rely on product differentiation to attain the market power.

Examine the major effects that government policies have on production and employment. Predict the potential effects that government policies could have on your company. Examine (3) major effects that government policies have on production and employment.

The market must be regulated by the government to some extent. It means that not all the time and all the markets are regulated by the regime. However, government policies are always advisable since some of the economic factors cannot be left in the hands of the private sector. Activities including, providing public goods, supplying a medium of exchange, handling externalities and enforcing contracts are among the things that the state can do better than the private industry. The government policies can have potential effects on the company. They can affect the prices and supply of food products in different ways (Baker, Bloom & Davis, 2016). Therefore, the low-calorie microwavable company might suffer from government policies in its expansion process.

In the USA the FDA policies are in place to ensure the safety and nutritional composition of the food products. The other effect will come from the fact that the government will disclose all the policies relating to the products to the consumers. For instance, FDA often informs that public of the nutritional factors to consider in a food product. Such an act will influence the choices of the consumers since they will have to be more courteous in their diets. This will affect the market and eventually the income of the company (Baker et al., 2016).

The major effects of government policies on the company’s production and employment include the decline or rise on the cost of producing commodities, the cost of production will, in turn, affect the final prices of the products and the price effects are transferred to the consumers who are keen on the price changes. In case the policies make the cost of production to raise the final price will go higher and the consumers will try to look for substitute products in another firm. The firm will have lost the customers meaning there will be low profits and low production rate (Baker et al., 2016). As a result, there will be no need for the usual number of staff of the company and so they will have to downsize the number leading to unemployment.

Determine whether or not government regulation to ensure fairness in the low-calorie, frozen microwavable food industry is needed. Cite (3) 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.

The government regulations are always presumed to ensure fairness in the market. However, this can be argued in the case of the low-calories food industry. In various economies especially in the USA, there is a possibility of monopoly in various markets, especially the low calories industry. Therefore, it is believed that government regulations need to be in place in any case. The first, reason for the government involvement is to protect the public from extortion (Underriner, 2012). The government is believed to support things that are in the best interest of the people. Without the state, the markets will be operating without sufficient economic strategies. The mergers and monopolies in any economy create more room for the exploitation of the consumers and so government interventions will be required to ensure their illegal acts such as offering goods at high prices and selling substandard products are prevented. Therefore, in this case, the state ensures that essence of the market economy is maintained. Generally, government regulations will be required in every type of market to protect the businesses and consumers (Underriner, 2012). Therefore, the government regulations will be required in the economy and they will ensure fairness.

Without state involvement, the price stability will not be attained in the market since the competition will lead to low and high prices at times leading to price instability. Also, there will be low-quality products. Therefore, the major reasons for government involvement include improving information, institutional infrastructure, and market infrastructure. An example of government intervention can be a case where a company is producing negative externalities such as smog that causes harm to the people (Gao, 2011). The externality might not cause any harm to the company and so the management will never see the need to stop it. In China, there is smog that is so thick that the citizens are always wearing mask minimize the effects. Most of the goods produced in China are exported to the US where the policies to protect the people from such effects are stricter. The second example is the need to regulate the natural monopolies and the banking sector. The US government enforced the laws that protect the rights of the public from unfair business operations. Such laws were the ones applied while prosecuting Kozloski, the man who looted 600 million dollars from Tyco (Gao, 2011).

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.

Expansion in any company must consider various options before settling on capital budgeting choice. The company can as well consider a merger decision, which will ensure the risks and benefits of any investment are worth venturing. On the other hand, capital budgeting decision has different challenges, for instance, there will be the need to raise capital. For this reason, there is need to find a source of capital (Rolstadås et al., 2011). In coming up with the decisions there might be two opposing groups, for instance, the shareholders and managers might not have different ideas on how to raise the capital. Major complexities in the process will surround three main factors; the ease that the capital can be obtained, the cost of the capital and the expected return on capital. Self-expansion will require capital projects to be induced in a sufficient manner. It will as well not guarantee the stakeholders and company as a whole of the benefits that they might experience. However, with the merger, there is an easy way to expand since the company will get to share various resources including technology (Rolstadås et al., 2011). The merger is quite safe since the company is guaranteed of higher profits.

Suggest the substantive manner in which the company could create a convergence between the interests of stockholders and managers. Indicate the most likely impact on the profitability of such a convergence. Provide two (2) examples of instances that support your response.

The convergence between the interest of managers and stakeholders requires strategic decision making. The management including directors has the overall control of the organization. Stakeholders have limited control over the company operations. The stakeholders want to maximize the benefit while the management wants to attain higher incomes. The managers will not agree to anything that put their security at risk. However, the stakeholders will as well not agree to anything that puts their wealth into risk. Therefore, it means that managers will not agree to merger since it affects their positions (Jun, 2010). On the other hand, stakeholders will try to minimize their risk by holding interests in many business ventures.

Managers must have the ability to raise higher profits since this will increase their pay package. The stakeholders will as well benefit from the high profits since their dividend payments on the shares they held will increase. Today both the private and public businesses growth has gone down unlike what was envisioned by their owners. In certain cases, the manager put in place satisfy their personal interests instead of meeting the needs of the workers and customers. The managers are expected to have the knowledge and control of the internal revenue and the outside finances. The stakeholders, on the other hand, will have base their judgment on the financial records of the organization (Jun, 2010).


Baker, S. R., Bloom, N., & Davis, S. J. (2016). Measuring economic policy uncertainty. The Quarterly Journal of Economics, 131(4), 1593-1636.

Gao, Y. (2011). Government intervention, perceived benefit, and bribery of firms in transitional China. Journal of Business Ethics, 104(2), 175-184.

Jun, X. I. E. (2010). Board governance and managerial short-term incentives. Management Science and Engineering, 4(1), 1.

Nagle, T. T., Hogan, J., & Zale, J. (2016). The Strategy and Tactics of Pricing: New International Edition. Routledge.

Rolstadås, A., Hetland, P. W., Jergeas, G. F., & Westney, R. E. (2011). Risk navigation strategies for major capital projects: Beyond the myth of predictability. Springer Science & Business Media.

Underriner, E. W. (Ed.). (2012). Handbook of industrial seasonings. Springer Science & Business Media.

November 09, 2022

Economics Business

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Budgeting Decision Company

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