Assignment 3: Long Term Investment Decisions
ECO 550
Professor Sumadi
June 3, 2015
Long Term Investment Decisions
When operating any business, there are many important decisions that managers are faced with. One of these decisions could be whether or not they should expand the business. In order to expand, there are many long-term budgeting decisions that need to be made. In this scenario, a company that makes and sells low-calorie frozen, microwavable meals wants to expand. However, the company is facing increases in the costs of some of their major ingredients. This will play a major in role in the decisions that management will need to make in order to decide if the expansion is a good idea.
Companies usually strive to make the prices of their products as inelastic as they can be. This means that when one factor changes, other factors do not respond by changing dramatically as well. If this is the case, even if the company raised their prices, demand would not change much. However, this is not usually the case for frozen meals. These are not a necessity, so if the price rises too much, consumers will decide that they can do without. The demand for these meals depends on many factors such as the price, the price of substitutes, and the income of the consumers. There are many competitors in the frozen food industry. Because of this, the best pricing strategy for this company is going to be to find ways to make their products stand out compared to others. They may need to increase their advertising and marketing, or even just change up how they are advertising. This strategy would make it possible for them to raise their prices in response to the rise in the prices of their ingredients, but still keep their product name in consumer’s minds.
One more factor that all businesses have to take into account is government policies. These policies can have either a positive or negative effect on a business. When the government...