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Major Effects of Government Policies on Markets - Paper Example

2021-08-25 19:50:41
7 pages
1857 words
University/College: 
Wesleyan University
Type of paper: 
Research paper
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Price elasticity is the measure of the extent to which the quantity of a good demanded changes to changes in the price of the product (Khan, 2018). The low-calorie microwavable food company is in a monopolistic competitive market. This means that the market structure has many buyers and sellers and the different sellers set their own prices. One of the major factors that separates the different products in this type of market is product differentiation. Each seller makes use of various product differentiation techniques in a bid to stand out and remain competitive as well as retain and increase market share.

With the increased costs of major ingredients, the low-calorie microwavable food company will need to raise its prices to remain profitable. The marginal revenue of the company should be equal to the marginal costs for maximum profits. Therefore, the company needs to come up with measures that will make sure that it still retains its customers and attracts new ones with the increased prices. Low-calorie microwavable food is a concept that is very important in this day and age. This is because there are very many people who are suffering from different lifestyle-related diseases such as obesity and diabetes. These people need to consume nutritious foods to manage their conditions and to become healthy. Other people who are in good health also need to consume nutritious foods to ensure that they remain healthy. However, though it is a great business concept, there is stiff competition in this field, and there is a need for the company to find ways to stand out and still retain its customers with the increased prices to ensure that they do not go to other sellers.

The primary way in which the low-calorie microwavable company can ensure that its demand is inelastic, meaning that increases in price levels will result in a low change in quantity demanded, is through extensive product differentiation (Khan, 2018). First, the company can market itself widely and consistently to increase its brand awareness and reinforce its brand. This will differentiate it from other less known brands, and customers will trust it more and thus purchase from them despite the higher prices. Additionally, the company can come up with more foods to ensure that there is a variety for their customers to choose from. The company should also maintain high levels of hygiene and quality in their food products to be able to retain their existing customers and attract new ones. Therefore, the company should ensure that its products are well differentiated in different ways to increase its market share and increase profitability.

Major Effects of Government Policies on Markets

In the majority of cases, governments do not directly influence the activities of different businesses, but they let the market forces control the demand and supply of different products. Even in instances where the government does not directly impact demand and supply of products, it is essential for it to put policies in place that will ensure that businesses run properly.

In the food industry, it is crucial for the government to provide regulations to ensure quality and health standards are withheld. Incidentally, some policies have been provided by the FDA to ensure that the food is safe for consumption. Additionally, the FDA ensures that the food is nutritious since that is the reason why this type of food is provided. It also makes sure that the information that the companies provide about their products is true to prevent them from misleading the public (Manier, 2010). The government also puts regulations in place that directly or indirectly affects the prices of the products which consequently affects demand and supply.

The government gets involved in the market for different reasons. First, it does so to ensure that people who are not financially stable or healthy do not face economic uncertainties. Second, the rules that the government sets, regarding standards that must be met, ensures that businesses provide high quality and safe products for their consumers (Manier, 2010).

Government involvement has both positive and negative effects for both the consumers and the sellers. If the government puts policies that increase the prices of the products, or certain standards that must be met, this may lead to an increase in the costs of production. The increased production costs may cause the businesses to earn lower profits which may, in turn, cause the businesses to lay off some employees to be able to remain profitable (Khan, 2018). These high prices may also lead to reduced purchases and loss of loyal customers. Therefore, government policies are both good and bad for the low-calorie microwavable food industry.

Importance of Government Regulation in the Low-Calorie Frozen Microwavable Food Industry

Government intervention is very important in any market economy. The government intervenes in the market for various reasons. It gets involved to; get rid of the imperfect information that exists in different market structures such as the monopolistic and oligopolistic market structures, to influence the use of public and private goods, and to assist the people who may not know which products they need or which ones may best benefit them who may end up being manipulated by different firms to buying foods they do not need (Manier, 2010).

In many countries, the market economy is free enterprise. This means that without government intervention, different firms may end up becoming monopolies which will then extort the public since they are the only sellers of a given commodity (Salop, 2007). It is therefore extremely important for the government to intervene in the market to minimize inefficiencies in the market in terms of economic and managerial strategies.

Mergers and monopolies may be created if the government failed to intervene in the markets. These may then provide sub-standard products to consumers at exorbitant prices. The government thus has the duty of reducing the creation of monopolies by using different strategies such as minimization of mergers and acquisitions. In monopoly markets, the market economy operates below its optimum capacity (Manier, 2010). This is because the production levels and utilization of resources is not very efficient since the company has no competition challenging it to use resources optimally.

If government intervention does not take place, there can also be extreme competition in the production of a certain good or service. Consequently, this could lead to extremely low prices being charged for the products in an attempt for the businesses to remain competitive. This could thus lead to price instability and on a macro scale this could adversely affect the countrys economy (Salop, 2007). When the market does not have government regulations, the suppliers will also provide low-quality products that correspond to the low prices. This is because the low prices charged will not be enough to cater for the costs of production.

The government also gets involved in market structures to ensure fair dealings between buyers and sellers, to improve market infrastructure, and to improve the infrastructure of different institutions. The government carries out all these activities to protect both the buyers and sellers as well as ensure that the activities going on in the markets positively affect the national economy (Kjellstrom et al., 2010).

The government has gotten involved in the markets in different ways to directly influence the demand and supplies of goods and services. The government has the role of ensuring that there is fair competition and that firms do not collude and create cartels or perform as monopolies. This is because these firms will end up being unfair to the customers and other firms will not have the opportunity to enter the new markets thus leading to low economic growth and increased unemployment. One instance where the government influenced business operations to prevent monopolies was when it accused Microsoft of using its substantial market share in the computer business to maintain itself as a monopoly and to avoid competition (Manier, 2010). The government hence put in changes in the market to give other companies the opportunity to remain competitive alongside Microsoft.

The government has the responsibility of ensuring that firms do not directly pollute the environment. Pollution is an externality that is not acceptable because it adversely affects the environment and the people around where the pollution takes place. One case where the government got involved in business operations to reduce environmental pollution was when the government set up a Superfund program to investigate the companies that were polluting the environment and take action against them as well as to clean up the polluted areas of the environment (Kjellstrom et al., 2010).

Complexities that Would Arise Under Expansions Through Capital Projects and Key Actions to Address these Complexities

Companies can expand both internally or externally. Internal expansion involves opening of new businesses or expanding the existing business to serve more customers using money plowed back from the business. Conversely, external expansion occurs through mergers and acquisitions. Before a business expands, it is vital to outline its reasons for expansion. These could be to tap new markets and increase market share, to increase convenience for its customers by opening businesses in their locations, or just to increase profits.

Businesses merge with other firms in a bid to reduce their risks, share costs, and enjoy the benefits that will arise from the synergy of the merge. To be able to expand, businesses have to find ways to raise capital for the expansion process. This process of raising capital may bring about conflicts between the firms management and the shareholders. This is because the resources to carry to the expansion may mean lower dividends being earned by the shareholders. Thus, the management has the role of illustrating to the shareholders how the merge will increase revenue and consequently increase their dividends or capital appreciation. Thus before expansion, the management needs to look at how the capital needed will be raised, calculate the cost of capital as well as estimate the expected return on capital.

The low calorie frozen microwavable food company should thus conduct the evaluation to determine the advantages associated with the expansion and determine if the benefits outweigh the risks and costs. The company should then decide if it will expand internally or externally.

It the company expands internally, it may not be able to reap maximum benefits from the expansion because it will not enjoy synergies of merging with another business and its operations will remain the same (Salop, 2007). This hence means that the business will not change its operations for the better since the negative business operations carried out initially will persist in the new businesses.

Conversely, if the business merges or acquires another business, it is going to enjoy different benefits from the other business organization. Incidentally, it will share the technological resources of the other business as well as other resources from the business which will lead to increased profits. The two businesses will also bring their customers together and thus increase their market share. Cross-selling can also occur in the business if the two merged businesses sell different products consequently increasing the profits. Therefore, external expansion will end up bringing more benefits to the low calorie frozen microwavable food and improved efficiencies as compared to internal expansion as opposed to expansion through capital projects.

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