High Calorie, Frozen, And Food Company

1293 Words6 Pages
Our low-calorie, frozen, microwavable food company now wants to expand, so we must make some long-term capital budgeting decisions. Recently we have had a increase in costs for some of our major ingredients, so our profit margins have gone down. In order to make up for the increased price in our major ingredients we are outlining a plan to raise our prices. Since, our costs are going up we must respond with a complimentary pricing strategy that makes up for the lost margin. A good strategy in making a pricing plan is to analyze price elasticity. The more elastic the demand is the greater response to our raising the price will result in a greater decrease in demand. “When demand is elastic—that is Ed >;1—a given percentage increase…show more content…
So, by differentiating our product from our competitors we will make our price elasticity of demand less elastic and there won’t be as big of a drop in demand when we raise our prices. Also, in terms of long term pricing decisions we could look at potential options of buying out some of our competitors. This would give the consumer less options to choose from and therefore make our price elasticity of demand less elastic, since there would be less alternatives. “The more distant the substitutes outside the relevant market, the less price responsive will be demand, and the larger will be the optimal markups and profit margins” (McGuigan, Moyer, and Harris, 2014). This is where we must determine if the government would step in and block the buyout of some of our competitors or not. Government policies will have an impact on our operation. One of the effects that the government could have in the near future is that they could raise the price of minimum wage. Depending on how much the raise minimum wage could determine how much our variable costs could go up. If this were to happen we might have to raise prices once again or look for alternatives to keep costs down, such as the use of technology. Minimum wage increases are necessary in the course of a countries or state government’s economy to make up for inflation.
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