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Professional Essay

1311 words - 6 pages

Analysis of Regression Results: Low-Calorie Microwavable Food Company

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Analysis of Regression Results: Low-Calorie Microwavable Food Company
An organization engages with a primary aim of achieving better and improved results from operations on a daily basis in many activities. The market is one place in which the organization can realize either success or failure depending on how it carries its activities (Slack & Lewis, 2003). The previously discussed regression identifies that the low-calorie microwavable food firm operates in a monopolistic market structure. This implies a competitive market with a large number of firms, each ...view middle of the document...

The firm will then increase its cost of operations, with notable increases affecting elements such as labor and advertisement costs. The equation below shows variables constituting quantity demanded; QD = -5200 – (42×5) + (20×6) + (5.2×5500) + (0.20×10000) + (0.25×5000)
= 2656
Additionally, the above change may require the organization to upgrade its operations and embrace the use of modern technology in operations (Bragg, 2012). The change in modes of operation may then require lying off some workers in the process. The production function, in this case, will involve an analysis of main inputs in production against a number f outputs. With an increase in the market share, the firm focuses attention on increasing production inputs so that the outputs can be in required amount. Similarly, cost per unit of production is bound to increase with an increase in market served. The organization in turn maintains higher inventory hence increasing operation cost. The above situation, however, is offset by higher profit margins (Wheeler, 2009).
Furthermore, the previous regression analysis identifies that the company cannot increase prices beyond certain levels as shown in the equation below; Own Price elasticity (ep) = - 42× [pic] = - 0.008 (approx.), and [pic] = 20, Px = 6, Q = 26560, therefore, cross price elasticity (exy) = 20 × [pic] = 0.005. Further, it shows that price increases will reduce demand and the company incurs losses. Success and continued operations of the company depends on whether the company makes profits or losses, and the latter leads to closure (Slack & Lewis, 2003). When competitors raise prices, the company has to keep track of such changes and adjust its prices in equal measures. However, this lowers demand for products, also reducing profits. On the other hand, competitors can also reduce prices to a level that the company ends up making losses in its sales since cost of production will exceed revenues realized. Management can play an active role in dealing with such situations. For instance, the management can put in place efficient market research personnel and always be in the frontline when dealing with market prices (Stokes, 2008). In this way, unexpected changes in price do not upset the company.
The position of the company implies that it can adopt a variety of pricing policies. However, the most appropriate strategy in pricing involves absorption pricing. In this strategy, the company’s first aim is recovering all costs incurred in operation. The idea of cost recovery means the company cannot set prices below the cost it incurred whatsoever (Stokes, 2008). Moreover, the price of products here will include variable cost of all items plus proportionate amount of fixed costs, which qualifies the above strategy as a cost-plus pricing. In this way, the company largely focuses on its operations rather than on what competitors do. Absorption pricing will ensure that the company achieves break even in...

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