Long-Term Investment Decisions
Dr. Xiaodong Wu
March 9, 2014
One of the most important long term decisions for any business relates to investment. Investment is the purchase or creation of assets with the objective of making gains in the future. Typically investment involves using financial resources to purchase a machine/building or other asset, which will then yield returns to an organization over a period of time. Planning investments involves thinking about a range of issues that have a bearing on where you ultimately decide to put your money. These issues will vary according to your particular age, ...view middle of the document...
Inelasticity basically implies that the product is a necessity to the consumer, so even if the price goes up, consumer will not respond with an equi-proportionate decrease in quantity demanded. In this case we have found out that the price elasticity is -0.61 which means a 1% increase in price of the product causes quantity demanded to drop by 0.61%. So, the demand of the product is relatively inelastic. However, from a long run perspective, it is important for the managers to ensure that inelasticity remains for the benefit of the company.
So the first strategy will be to identify the segment of the customer for which low calorie microwavable product is necessary and focus on offering services and benefits to these segments which tie them to the product for a long time. The managers need to make sure that their competitors cannot lure the customers with benefits and services that will offer substitutes to the customers, as one of the ways to make a product inelastic is having less number of alternatives. Reducing the cost will also help the company by which they can pass on the benefit of cost reducing by keeping the price low and thereby maintaining the customer base. Innovation, variety and reaching out to a wide customer base will also help in long run to keep the product inelastic.
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.
As a business manager it is very important to understand the impact of government policies on the business. In an economy, policies from several levels can affect the business. Federal, state, and local governments are involved in the regulation of business enterprises. At Federal level we have Federal Trade Commission and Antitrust Division of the including many other agencies that regulate business decisions. State regulations comprise of regulation of public utility companies and licensing of various businesses, such as health care facilities, and numerous professions, such as law and accounting. Similarly, Local governments frequently set and enforce zoning laws and building codes. Regulatory constraints can be imposed in non-discriminatory ways on any set of similar business. These constraints can affect a firm’s operating costs (both fixed and variable), capital costs, and revenues. So, when the firms cost is increased due to some form government regulation, that might lead to decreased production and hence less number of hiring.
In this case of the microwavable food, there are several firms who are producing food which are slightly different from each other, a situation that can be characterized as product differentiation. This is a classic example of a monopolistically competitive market. Now according to FDA, it is required that the reference amount for an imitation or substitute food or altered food, such as a low calorie version, should be the same for the food for which it...