Assignment 2: Operations Decision
Due Week 6 and worth 300 points
Using the regression results and the other computations from Assignment 1, determine the market
structure in which the low-calorie frozen, microwavable food company operates.
Use the Internet to research two (2) of the leading competitors in the low-calorie frozen, microwavable
food industry, and take note of their pricing strategies, profitability, and their relationships within the
industry (worldwide).
Write a six to eight (6-8) page paper in which you:
1. Outline a plan that will assess the effectiveness of the market structure for the company’s
operations. Note: In Assignment 1, the assumption was that the market structure [or selling
environment] was perfectly competitive and that the equilibrium price was to be determined by
setting QD equal to QS. You are now aware of recent changes in the selling environment that
suggest an imperfectly competitive market where your firm now has substantial market power in
setting its own “optimal” price.
2. Given that business operations have changed from the market structure specified in the original
scenario in Assignment 1, determine two (2) likely factors that might have caused the change.
Predict the primary manner in which this change would likely impact business operations in the
new market environment.
3. Analyze the major short run and long cost functions for the low-calorie, frozen microwaveable
food company given the cost functions below. Suggest substantive ways in which the low-calorie
food company may use this information in order to make decisions in both the short-run and the
long-run.
TC = 160,000,000 + 100Q + 0.0063212Q2
VC = 100Q + 0.0063212Q2
MC= 100 + 0.0126424Q
4. Determine the possible circumstances under which the company should discontinue operations.
Suggest key actions that management should take in order to confront these circumstances.
Provide a rationale for your response. (Hint: Your firm’s price must cover average variable costs
in the short run and average total costs in the long run to continue operations.)
5. Suggest one (1) pricing policy that will enable your low-calorie, frozen microwavable food
company to maximize profits. Provide a rationale for your suggestion.
(Hints:
• In Assignment 1, you determined your firm’s market demand equation. Now you need to
find the inverse demand equation. Having found that, find the Total Revenue function for
your firm (TR is P x Q). From your firm’s Total Revenue function, then find your Marginal
Revenue (MR) function.
• Use the profit maximization rule MR = MC to determine your optimal price and optimal
output level now that you have market power. Compare these values with the values you
generated in Assignment 1. Determine whether your price higher is or lower.)
6. Outline a plan, based on the information provided in the scenario, which the company could use
in order to evaluate its financial performance. Consider all the key drivers of performance, such
as company profit or loss for both the short term and long term, and the fundamental manner in
which each factor influences managerial decisions.
(Hints:
ECO 550 – Assignments and Rubrics
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ECO 550 Student Version 1144 (1041 3-27-2014) Final
Page 6 of 15
• Calculate profit in the short run by using the price and output levels you generated in part
5. Optional: You may want to compare this to what profit would have been in Assignment
1 using the cost function provided here.
• Calculate profit in the long run by using the output level you generated in part 5 and cost
data in part 3 and assuming that the selling environment will likely be very competitive.
Determine why this would be a valid assumption.)
7. Recommend two (2) actions that the company could take in order to improve its profitability and
deliver more value to its stakeholders. Outline, in brief, a plan to implement your
recommendations.
8. Use at least five (5) quality academic resources in this assignment. Note: Wikipedia does not
qualify as an academic resource.
Your assignment must follow these formatting requirements:
• Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all
sides; citations and references must follow APA or school-specific format. Check with your
professor for any additional instructions.
• Include a cover page containing the title of the assignment, the student’s name, the professor’s
name, the course title, and the date. The cover page and the reference page are not included in
the required assignment page length.
The specific course learning outcomes associated with this assignment are:
• Analyze short-run and long-run production and cost functions.
• Apply macroeconomic concepts to changes in global and national economies and how they affect
economic growth, inflation, interest rates, and wage rates.
• Evaluate the profit-maximizing price and output level for given operating costs for monopolies and
firms in competitive industries.
• Use technology and information resources to research issues in managerial economics and
globalization.
• Write clearly and concisely about managerial economics
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