Theconcept of low calorie foods is a new one in the market currently. Assuch, it is a growing trend due to the increase in the number ofhealth enthusiasts. The idea is growing at a very fast rate henceproviding an opportunity for substantial capital investments in themarket due to the promising high levels of return. However, themarket faces stiff competition which increases on a daily basis.Based on the most recent trends characterized by a rise in rawmaterial prices, the resulting impact is the possible decline inprofitability of the involved companies due to the surge inproduction costs.
Withthe aim of keeping the prices of the commodities at an attractivelevel of the consumer base, the company has to consider the pricingstrategy of its competitors. This is because such a market is pricesensitive and by charging a higher price for the commodities,customers are likely to change the place where they shop. To maintainthe inelastic demand for the product, the situation implies that thecompany’s pricing strategy does not necessarily require imparting aperception on the public to preserve its customer base and mostlikely increase sales. The pricing strategy of businesses in suchmarkets depends on rivals’ characteristics as they also sellsimilar products with ease. It is essential to consider the prices ofsimilar products from competitors [ CITATION Que16 l 1033 ].
Toattain price inelasticity in demand, typical products underconsideration need to be from a single source hence a monopolisticmarket. Such an exchange occurs when the outputs of the entireindustry are produced and sold by a single company. Such a corporateis termed as a monopolist. As a pure monopolist, there is a soleprovider of the goods. Moreover, the products being sold need to beessential to consumers, in other words, they have to be basic ornecessary commodities. However, since many companies do theproduction and sale of the low-calorie microwavable food with a broadtarget of potential buyers, the market is not a monopolistic one.However, it can be deemed to be a monopolistic competition.
Withthe aim of increasing the price of the microwavable low-caloriefoodstuffs, the presence of many selling firms and consumers in themarket makes the various competing companies ignore the reactions ofits rivals. This happening is common, especially when making therelevant price and output decisions. Since the items produced aresimilar, the best way to charge a higher price is by differentiation.This can be done by alteration of the physical make-up of the productboth in quality and design. Also, the use of a famous brand name,aggressive advertising of the product in the offing, giving out extraservices such as guarantees and after sales services can be done.
Thesesteps are likely to retain and even attract new customers as they getvalue for their money. By carrying out product differentiation, themerchandise is likely to be unique and cannot be easily substitutedby another commodity. As such, the firm can increase its pricewithout losing its client base thus ensuring long-term profitabilityand survival. The company can also employ a strategy of bulkpurchasing of its expensive input. By practicing wholesaleacquisitions, the cost of raw materials is significantly reduced. Thecompany can also develop a new product and patent it, restricting theproduction of a similar product. This step will allow for priceadjustments by the firm since they are the only source of suchproducts [ CITATION Ste12 l 1033 ].
Companiesalso need to develop and adopt new production techniques that arelikely to be less costly but highly efficient to lower productionexpenses which directly translate to better pricing methods beingadopted. In this case, the aim is maintaining and adequatelysatisfying customers.
Distributionalso plays a pivotal role in the pricing strategy of the company.Apparently, the longer the channel of distribution, the moreexpensive the products. By having effective marketing strategies suchas market segmentation, products for different segments are likely tobe developed. This move based on the different characteristics andprovide an opportunity for the firm to have an efficient pricingstrategy for all its segments. The company should also take intoconsideration the previous reactions by the customers on pricechanges on its products. This will indicate the amount of money theclients are willing to spend on the product [ CITATION Que16 l 1033 ].
Effectof Government Policy on Production and Employment
Governmentpolicies do have an impact on production of goods and services. Thislargely depends on the implications of the product to the generalpublic with significant disadvantages going to those products thatseem to be disadvantageous to the public. The government regularlypromotes those companies that produce goods that have a positiveinfluence on society. This stimulation can be done through governmentinitiatives such as subsidies, tax holidays, reliefs on capitalexpenditures incurred in production. With favorable governmentpolicies on such production, employment opportunities are likely togrow since companies can run favorably and make profits. Thelong-term effect is that the companies will be willing to increasethe capacity of their production, hence hiring more employees to meettheir targets (Irons & Shapiro, 2011).
Incase harmful products are being produced, the government is morelikely to introduce policies that aim at reducing the manufacturelevels of these goods or services. The long-term effect isunemployment as the production levels decline and companies will layoff many workers to operate at reasonable profits or at large.Alternatively, the companies may shut down leading to mass loss ofemployment.
Thelow-calorie microwavable foods are consumed by many individuals whodo not know the actual quality of the products being offered by thedifferent competing firms in the industry on their own. Thissentiment is true unless the government intervenes to ensure thatstandard products are manufactured and released to the market forconsumption. Without government involvement in the invention of theseconsumables, the companies producing such goods will increasetremendously. Given that the input material required for themanufacture of the low-calorie microwavable foodstuff is high,societies are likely to compromise on quality while focusing on theirquantity of output which will yield them high profits regardless ofthe risk that their customers are exposed to.
Assuch, with the government intervention in place, necessaryregulations for setting up such companies are likely to exist andlimit the number of producers while also basic standards of thequality of the output are likely to be set. Eventually, the processworks towards ensuring the release of harmless products to the marketfor consumption. With such government contribution in the industry,the employment levels are likely to be reduced since companies arenot left on their own to dictate production levels. Therefore, thequality standards need to be met thus limiting the job opportunitiesavailable. The primary aim of government participation is to regulatebusinesses to operate in a greater good for the society whileoffering goods and services essential to the public [ CITATION Acc12 l 1033 ].
GovernmentInvolvement in Market Economies
Withthe aim of improving and increasing the efficiency of the economy,the government often makes interventions in the market economies. Asmuch as it is the duty of the government to ensure that the qualitystandards of goods and services being offered by the producers aremet, the government is also tasked with the responsibility to makesure that the manufacturers and sellers do not exploit the consumers.This is achieved by making sure that the products and services arecorrectly priced.
Manufacturersand sellers of the various goods and services in the market if leftalone would exploit the public with the aim of charging high pricesto earn super-normal profits and as such, it makes it essential forthe government to get involved in the market. With involvement in themarket, the government ensures that the public has perfectinformation with regards to both the public and private goods attheir disposal for consumption and individuals can become empoweredto make the right choices.
Thegovernment is also tasked with the responsibility of ensuring thatall necessary products are availed in the market and can go a stepfurther in funding for the production of some essential goods andservices which if left in the hands of producers, such goods andservices would not be adequately provided. Moreover, companies wouldaim at creating mergers or even forceful takeovers to createmonopolies whereby substandard products and high pricing would be thenorm. Without government interventions, patent creation would be easywhich often result in the exploitation of the public. However, due tothe rule envelopment in the economy, monopoly is regulated, and themergers and acquisitions between firms are well monitored with thegoal of safeguarding the public (Irons & Shapiro, 2011).
Theprimary aim of a market economy is to attain optimal capacity inrespect to production, which is an unlikely event in the presence ofmonopoly. Without the government involvement, price stability in themarket is improbable to be achieved since the constant competitionleads to the consistent decline in prices hence the priceinstability. With a drop in price, it is an indicator of the declinein quality and justifies the need for government involvement.Evidence that points directly to the need to regulate the market wasmanifested when Dennis Kozloski was charged after looting Tyco of 600million dollars [ CITATION Ste12 l 1033 ].
Constructivegovernment intervention comes up where companies emit toxic gassesfrom their manufacturing processes to the atmosphere. This situationpromotes environmental pollution, and it is most likely to affect thecommunity where the corporation operates and causes harm. Thegovernment as such has to make interventions to protect the publicand the environment at large by putting up policies to curb suchreleases. Otherwise, if the emissions are harmless, the governmentwould not need to intervene since there is no harm caused to thepublic and the environment. China is well known to have smog which isharmful causing the citizens always to put on face masks to be safe.Furthermore, for their own good, they have been told to stay indoorsfor as long as possible [ CITATION Acc12 l 1033 ].
Complexitiesthat Arise under Expansion via Capital Projects
Capitalbudgeting decisions are difficult judgments to make and require muchevaluation before undertaking them as they involve huge sums of moneyfor investment and frequently entail investment for the long term.Companies need to evaluate the project and predict whether theexpected outcome is worth the resolution. For example, when selectinga merger or acquisition as an investment, the benefits likely toarise have to be considered, and matters such as risks and costs areto be deliberated. Another challenge is the source of finance ascapital investments are resource intensive, and such decisions bringconflict between shareholders, management, and directors of companies[ CITATION Las12 l 1033 ].
Whensourcing for money, various factors need to be considered, and theyinclude, the cost of capital, expected returns and also, the ease ofobtaining such capital. These factors are likely to make theshareholders and management to clash as most shareholders want toprotect their already invested funds. Therefore, by taking capitalinvestment decisions, management is likely to undertake projects thatare highly risky with a high probability of failure hence conflict.Managers are well known to have controlling interests in the affairsof the company while the shareholders are interested in earningdividends from their investments but have limited control over themanagers’ decisions despite being the owners of the enterprise.
Theagency conflict thus arises when managers seek to fulfill theirinterest rather than that of the shareholders of whom they act astheir agents. At times, management would demand higher salaries whenundertaking projects, and this often does not go well withshareholders and are likely to base manager income with theprofitability of the company. By aligning executives’ salaries tothe enterprise performance, administrators are likely to engage increative accounting to earn high sums of money which in itself isunethical conduct likely to cause conflict with shareholders. Also,managers may make decisions which are just to give them power andself-esteem, and this often rubs off with shareholders leading toconflicts [ CITATION Bou16 l 1033 ].
Irons,J. & Shapiro, I. . (2011). Regulation,employment, and the economy.Washington, D.C.: Economic Policy Institute.
Accenture.(2012). AchievingEffective Delivery of Capital Projects.Accenture.
BoundlessFinance. (2016, May 26). ConflictsBetween Managers and Shareholders.Retrieved from Boundless:https://www.boundless.com/finance/textbooks/boundless-finance-textbook/introduction-to-the-field-and-goals-of-financial-management-1/agency-and-conflicts-of-interest-28/conflicts-between-managers-and-shareholders-167-3833/
Culp,S. (2012, May 29). ManagingCapital Projects in a High-Risk World.Retrieved from Forbes:http://www.forbes.com/sites/steveculp/2012/05/29/managing-capital-projects-in-a-high-risk-world/#6dee1f161527
QueenslandGovernment. (2016, June 8). Pricingstrategies.Retrieved from Queensland Government:https://www.business.qld.gov.au/business/running/marketing/pricing-products-services/pricing-strategies
Wijesekera,L. (2012, August 3). Agencyrelationship and conflicts between business managers andshareholders.Retrieved from Hub Pages:http://hubpages.com/business/Agency-relationship-and-conflicts-between-managers-and-shareholders