Short-Run and Long-Run Production Decisions for Frozen Food

Introduction

Busy, weight-conscious consumers are increasingly searching for easy-to-prepare, low-calorie alternatives, and it is not surprising that this industry has experienced sustained growth in recent years (Myers, 2016). Gaining and sustaining a competitive advantage in this industry, however, requires careful attention to demand levels and competitors' pricing strategies. This paper outlines a plan that can be used to assess the effectiveness of the market structure for a low-calorie frozen microwavable food company, discusses two factors that could account for changes in that market structure, and analyzes the major short-run and long-run cost functions for this company. It also suggests substantive ways in which the company may use this information to make decisions in both the short-run and the long-run. In addition, the paper examines possible circumstances under which the company should discontinue operations and suggests key actions that management should take to confront those circumstances. Finally, a recommended pricing policy aimed at maximizing profits is presented, along with a plan the company could use to evaluate its financial performance and improve its profitability to deliver more value to its stakeholders.

Assessing the Market Structure

The market structure in which low-calorie frozen food companies compete encompasses both the companies' organizational structure and the salient characteristics of the market itself. In this regard, Riley (2016) advises that "market structure is best defined as the organizational and other characteristics of a market" (p. 3). Assessing the effectiveness of the market structure in which companies compete therefore requires an analytical framework in which demand levels and trends can be estimated (Swann & Gill, 1999). The primary aspects of market structure that should be used in the assessment include the following:

One overarching factor that might have caused a change in the original market structure is the fact that demand for low-calorie frozen foods is seasonal. Many consumers elect to eat what they prefer during the holiday season. For instance, Wood (2009) reports that "the winter holidays cover a good six weeks—beginning at the end of November and not ending until after New Year's. Avoiding extra calories requires you to plan ahead, and certainly this is a time when it is particularly difficult not to overindulge" (p. 7).

Factors Causing Market Change

Another factor that could be involved in this change is the level of consumer demand for healthy, easy-to-prepare meal alternatives, which is being addressed by the proliferation of companies such as Blue Apron that provide all of the ingredients needed for a complete home-cooked meal delivered directly to consumers' homes (About us, 2017). The growth of this industry can reasonably be expected to reduce the company's market share, especially given recent trends in consumer preferences for fresh rather than frozen foods. In this regard, Mason (2009) reports that "consumers have less time and less inclination to spend hours preparing meals. But they also like the idea of freshly prepared food" (p. 17). Moreover, the significance of these trends has not been lost on major actors in the frozen food market, such as the marketers at Bird's Eye, who report that "we are targeting the young, money-rich and time-poor, which is most of the nation; people who know what quality is and are not prepared to compromise" (as cited in Mason, 2009, p. 17).