Reduction of Costs to Maximize Profit Returns

1602 Words Jan 8th, 2018 6 Pages
This type of leadership strategy allows them to make profits even with low costs than their competitors. It places the business at a position where it can effectively compete on the basis of price with both the new entrants in the industry and existing competitors. It also creates a potential for profits; charging prices that are almost average to the industry while earning profits above industry standards. The following process is used to achieve cost leadership: advertising and promoting the product to achieve sales in large volumes (Buchner, Ellerman & Carraro, 2007). Invest in the latest production technology to lower production costs. Achieve high levels of productivity to reduce labor costs, one can copy designs rather than producing originals and cheaper raw materials can be used. Reducing localization and distribution costs will reduce distribution costs. Exploitation of organizational experience and knowledge will also be helpful. Finally, secure government assistance will be important.
Short run cost curve
Price
Marginal cost Marginal revenue
Quantity
Long run cost curve Price marginal cost
Marginal revenue
Quantity
The short run cost curve is u-shaped due to the period taken to experience sharp changes in the cost. The price…
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