Assignment 3 ECO

Topics: Economics, Supply and demand, Investment Pages: 10 (2345 words) Published: June 16, 2015


Cheryl Thomas Strayer University
Assignment 3/Long-Term Investment Decisions
Dr. Camille Castorina
August 30, 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, circumstances and attitude to risk, and thinking about them carefully before you start making commitments will help you avoid some potentially costly mistakes. 1. Outline a plan that managers in the low-calorie microwaveable food company could follow when selecting pricing strategies for making their products as inelastic as possible. Provide a rationale for your response. Pricing the product to reach out the current and potential customers is crucial for the managers. It is their understanding and decisions that are going to determine the success of any business. A major strategy that ensures that customers are retained with the product is to make the product inelastic employing pricing and other strategies. However, before we explain the strategies to make low-calorie microwavable food inelastic, we must understand the meaning of elasticity. Elasticity or price elasticity is a measure of quantity demand responded when price is changed, that is, it a measure of responsiveness of the consumer due to price change. It is measured as the ratio of the percentage change in the quantity demanded and percentage change in price. If the elasticity of demand is greater than one, we say that demand is elastics, if it is less than one, we say that demand is inelastic, if equal to one, we say demand is unit elastic. 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...

References: Mankiw, G. N., (2012). Principles of Microeconomics (6th ed.) . Cengage Learning
McGuigan, J. R., Moyer, R. C., & Harris, F. H. deB. (2014). Managerial economics:
applications, strategies and tactics (13th ed.). Stamford, CT: Cengage Learning
Nicholson, W. (2012). Microeconomic Theory: Basic Principles and Extensions (11th ed.).
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Samuelson F. W. & Marks, G.S. (2012). Managerial Economics (7th ed.). Wiley
Varian, H. R. (2011). Intermediate Microeconomics: A Modern Approach (8th ed.). NY: Norton
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