There comes a time when the business environment becomes more competitive and the firm may fail to remain competitive and should decide to terminate its operation. One possible circumstance that can lead to the company to discontinue its operation is the inability to compete with its rivals. The rivals may be offering quality products and at relatively low prices as compared to it. This means that the competitor is more likely to win more customers thus making the operation of the market so difficult (Peters, 2009). Another factor is the lack of profitability due to various factors such as poor management or mismanagement of funds by our company. The company may be failing to make the profit. Profitability is the source of income for the company daily operations and if these operations are not being funded, then we may settle on exiting the market. For our company to fight for survival in this market, we will keep pace with the competitor innovation and pricing. Our company should also make sure that there is adequate capital in order to finance its operation during that period that it will not be making the profit (Peters, 2009).
The pricing strategy we will adopt is marginal cost pricing. Our practice of coming up with the prices of our product is the same as an additional charge of coming up with an added item output. When setting our prices near the marginal cost, the company will be able to survive during the poor sales period. We will charge for every product unit that we sell and at the same time, we consider the total cost of manufacturing that product unit. I will make sure that the prices a more than the average total cost at the highest level of output. We will carry out the following calculations in order to that our profit will be maximized by the pricing policy.
In assignment one QD equal to QS
QS=5200 x 45P
P= 5200/45 + Q/45
QD= 211000 -10P
TR= ( PxQ ) = 21,000Q- 0.10Q2
MR ( dTR/dQ) =21,100-0.20Q
For profit maximization MR=MC
21,100 -0.20Q = 115.56 + 0.02222Q
21,215.56 = 0.22222Q
P=21,100 0.10Q = 11552.90
This means that when the output of the company are around 11552.90 units the profit would be maximize. Now that we know what Q equals, we can now solve for p in order to find the price that maximizes profit.
With the profit maximization for output, we can now conclude that this is will be the best pricing policy.
When a firm is operating in a monopolistic market, it has control over the market price and it manipulates prices and thus more competitors will come in order to offer an alternative pricing. This means that the company will depend on advertisement in order to maintain the monopolistic position. As the company will be struggling with remaining dominant, other competitors will be exploiting the market with alternative products and consumers will shift to them as they will want to have a taste on what others are offering. This means that there will be an increase in the quantity supplied and thus the prices will reduce. In the long run, the company will not be able to maintain the previous profit while in the short run; the company can depend on strategies such as marketing mix and intense advertisement thus making the market more efficient. Using the cost function provided here. We can be able to calculate profit in the long run (Dhingra& Morrow, 2012).
TR = 21,000Q 0.10Q2
TC= 1600,000,000 115.56Q + 0.01111Q2
PS = TR TVC
VC = -115.56Q + 0.01111Q22
Q ( 21215.56 0.11111Q )= 0
Profits = 190941.95-160,000,000
In a monopolistic competitive market the demand curve of a company always shifts in order the company to maximize its profit in the long run. This makes it hard for the company to make profit.
Recommendations to Improve Profitability
One way of improving profitability is reducing the cost of operations. This is especially in purchasing of items such as raw materials. The company should make sure it has so many suppliers in order to get better deals at lower prices. The company should also focus on minimizing waste in order as a way of reducing costs. Secondly, the company should focus on customer care management. customer are key drivers when it comes to the profitability and the company should make sure that it attracts as many as possible and at the same time, it retains the existing ones.
In order to make sure that these steps are followed, I will hold a meeting with all staff members and inform them of the new changes that we wish to implement. I will inform everyone that they should all focus on the customer in terms of fulfilling their tastes and preferences. The marketing department should make sure that it interacts professionally with the customers during product promotion. Additionally, I will inform the production department in collaboration with marketing department to keep an eye on the changes in the customers needs. To reduce the cost of operation, the company will assess the current market prices of various products in the market and compare with the suppliers in order to ascertain if the prices of suppliers are fair. The company will also check on the current production plant to see if it meets the required cost saving mechanism.
The current business world still remains so competitive but regardless of the market structure, companies should focus more on the customer for them to a better competitive edge. Firms should also pay attention to the competitors in terms of pricing, if the competitor is pricing low and the quality of the product is almost similar, you should check on your costs of production and other related costs.
Allen, G. J., & Albala, K. (2007). The Business of Food: Encyclopedia of the Food and Drink
Belu, M., & Caragin, A. R. (2008). Strategies of Entering New Markets. The Romanian
Economic Journal, Year: XI, (27), 83.
Dhingra, S., & Morrow, J. (2012). Monopolistic competition and optimum product diversity
under firm heterogeneity. London School of Economics, mimeograph.
Hildebrand, D. (2009). The Role of Economic...
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