Operations Decision

1519 Words Aug 14th, 2012 7 Pages
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
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