Assignment 1: Operations Decisions
ECO 550- Managerial Economics and Globalization
1. Briefly describe the details of the fictitious business that you created for this assignment.
There are currently 100 workers being utilized that work for 20 days per month at a wage of $70 per day. The workers produce 6,000 units of output per month with variable costs of $2,000 per day. The fixed costs are not disclosed and we are told they are "high enough" so the total costs exceed the firms total revenue. The price of the firm's output is $32 and the marginal cost of the last unit is $30.
2. Access the current environmental scan factors. Determine the factors that will have the ...view middle of the document...
"Access to capital is a major problem for start up businesses.." (Access to Capital). Due to this information most businesses have higher fixed costs due to the capital needed for the land, building, or services from labor to produce a good or service to sell.
Production costs are the last main topic of environmental scan factors that have the greatest impact on Company ABC. Production costs are one of the main factors used to determine if a company even opens. Simply put a firm cannot continue to operate in the long run if the costs of production are more than the total revenue earned from selling the item at the market price or TR= or >TC. It is possible for firms to minimize loss in the short run where there are fixed costs versus not producing at all, which will be discussed in more detail as it relates to Company ABC.
The competition the firm faces is one of the most important factors for a firms survival for many reasons. There are various forms of competition and at the two extremes there are perfect competition and monopolies. These are extremes used as models for firms because the facts in where they exist are so hard to match to an actual firm that it is a better building block model. Certain conditions fall close to these two models and for that reason they are used as a comparison as usual assumptions are placed with more realistic assumptions (Michaels,R.J.). The major reason for our reasoning has to do largely to the fact that if we assume perfect competition then our firm may not survive the long run all things equal and if our firm is a monopoly it would be able to set the price where it is profitable without worrying about controlling the buyers from re-selling the product (Martinka, R.). Even if the firm was a monopoly the main factor left out is that the consumers have a choice if they should buy the product or live without it, so it is not a true price setter. In a current day environmental scan would show that there are many firms in society for most products which makes it possible that no one firm can influence market price and many firms can coexist.
Elasticity of demand is next relevant environmental factor because it shows how price effects demand on certain products and services for a buyer. Items that have a high elasticity of demand, such as luxury vehicles and expensive designer items, are very likely to experience that as prices rise there is a decrease in demand (Webster's New World Finance). The most common sense way to explain this is out of need versus want which relates to supply and demand. Everyone wants a nice house but to get that nice house the consumer needs an item to trade, in today's society it is money or the US Dollar. This is an item that can be foregone whereas items with inelastic demand are more resistant to changes in price. This is due to the item being of more use on an everyday level such as groceries, gas for our cars to get to work, electricity for our...