Economic Theory Used to Determine Management’s Decision to Continue or Discontinue Operations
Managerial economics involves all factors available in any market system for production and marketing of goods or services (Farnham, 2010). Managing consultant uses the information come out of this process to develop economic models, which it can help to understand the business environment. Additionally managing consultant applies the economic theories to business decision making (Michaels, 2011).
According to previous information for this firm the factors that will have the greatest impact on plant operations are workers, maximum outputs, labor time, and variable costs. Currently, the managing consultant will work with special attention in the
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The minimum average total cost (AC) is $30 at an output of 300 units. When cost curves are superimposed, AC curve is always above AVC because AC involves fixed costs. This firm receives $32 with variable costs of $30 per unit, so it can cover variable costs without shut down. Revenues and total variable costs change proportionately with units of output. In the long run, all inputs are variables, so the TVC, AVC, and AC will grow proportionately to the annual production. If this firm increases its production, the variable cost per unit will remain the same, but the variable cost will increase overall. Total annual cost will increase to $2,304,000 ($32 * 72,000 units per year) annually. If this firm increases production, the total annual cost increases but the cost per unit decreases. So, this firm can continue in the short run and still in the long run.
The market structure has some bearing on this performance; otherwise the competition will not exist. Demand, supply, substitution, market price, the effects of government policies, and political platforms can affect the firm’s economic performance, and managing consultant needs to learn about how response to these conditions in different markets.
Recommendations for the Company Operates within a
1- The total unit cost = Total Variable Cost + Production Fixed Expenses + Advertising Expense + Selling and Administrative Expense = 3.23 + 1.20 + 0.30 + 0.19 = 4.92.
When working with case two and three focused on the human and the political perspective of management consulting, respectively, the value of identifying the power base and understanding the patterns of dependence and interdependence within the client organization became evident. Case three particularly called for an understanding of the political and human factors, since the presentation was intended for the actual client and not for the consulting mentor as was the case in the second assignment.
Note: You can assume that variable costs are constant so that the average of them is the variable cost relevant for a change in sales.
* Variable costs: Assumed from exhibit 6. It will increase the same 8% as the variable revenue.
3.1.10. Management and Leadership ................................................................................. 8 Context Analysis ............................................................................................................ 8 Competitors and Industry Analysis .............................................................................. 11 Key Competitors ................................................................................................... 13 Market segmentation and target market group ..................................................... 16 Customer Analysis ....................................................................................................... 14 Collaborators ................................................................................................................ 17
Discuss the market factors (level 2). How do the relevant market factors affect the performance of the focal organization?
The Law of diminishing returns states that if one factor of production is increased while the others remain constant, the overall returns will relatively decrease after a certain point. The total fixed cost is the same regardless of the output; the total variable costs will change with the level of output resulting in the total cost as the sum of the fixed cost and variable cost at each level of output. Over the 0 to 4 range of output, the TVC and TC curves slope upward. They reflect a decreasing rate due to the increasing minor returns. The slopes curves will increase due to these diminishing marginal returns.
The formula of average total cost (ATC) = sum of average fixed cost (AFC) and variable cost (AVC)
Business managers are microeconomic market participants. Microeconomics helps businesses to make important decisions by providing analytic tools about firms and market structures to improve a company’s business practices.
The assignment method was used in determining ways that the schedule can be change to maximize production while reducing idle time, completion time, and potentially labor costs. Using the information that was provided, Operator A will cost $10.00 for the first job, $11.00 for the second, $9.00 for the third, and $10.00 for the fourth. Operator B will cost $12.00 for the first job, $9.00 for the second job, $8.00 for the third, and $8.00 for the fourth. Operator C similarly will cost $11.00 for the first, $11.00 for the second, $11.00 for the third, and $9.00 for the fourth. Last, Operator D will cost $11.00 for the first, $11.00 for the second, $9.00 for the third, and $10.00 for the fourth. While
The Theory of Constraints indicates that excess capacity from ‘subordinate’ departments should be utilized to lessen the strain on the bottlenecked department. Until the constraint on production has been removed management should subordinate everything else to the constraint. The proposed action of outsourcing inspection from the coating and sharpening department will free-up more valuable direct labor hours in the area of constraint. A separate inspection station before the final stage of production should be added to the production process. An employee from the chemical bathing stage will be cross-trained to inspect products as needed for the brief periods of inspection required. Because the second process has been deemed subordinate to the area experiencing constraint its excess capacity can be utilized in a more valuable capacity. Each additional hour in the coating and sharpening process will result in a firm benefit of $1250, or the contribution margin per unit of constraint for the Model C210. The addition of an inspection
Operations processes refers to the acquisition of inputs which are transformed in a business through the addition of value into outputs of goods and services. Businesses use operational processes involving inputs and transformation processes to increase efficiency and output. The operations management focuses on carefully and managing processes to produce and distribute products and services based on the nature of the business. To achieve objectives in a business, the quality of products are monitored regularly using customer services and warranties. Both Qantas and McDonalds, utilise operation process in order to gain maximum efficiency and productivity.
average cost. In the short-term, it may be acceptable to price below AC if this price exceeds
In general, manager’s look at competition has been too narrow. There is a broad set of competitors that need to be looked at, which are described in “The Five Competitive Forces That Shape Strategy” by Michael E. Porter. The model explains that there are several other forces in the competition for profits that the strategist should be aware of when forming a stagey. Those forces determine the profitability of the industry and are the most important to look at when you are forming a strategy. These five forces are are the “industry structure” model which contain: New Entrants, Suppliers, Buyers, Substitutes, and Existing Competitors.
Before this analysis will begin, it is vital to stress that this model is well-known as an effective instrument. An advantage of this model is that it captures the immediate environment in which the company competes. It allows to clearly understand the forces which