Essay on "Cost and Profit"
Essay 4 pages (1235 words) Sources: 4
[EXCERPT] . . . .
ProfitThere are two important things to consider. The first is whether the new investment pays for itself (Investopedia, 2012). Managers should not undertake activities that decrease the profits of the organization, so the manager needs to understand which of these options will increase profit more. If both will decrease profit, then neither option should be undertaken. If both will increase the restaurant's profit, and the options are deemed to be operationally mutually exclusive, then the one that increases profit more should be undertaken. The biggest worry here is that the investment does not pay off with increased sales. If sales do not increase as the result of removing the bottleneck, then the restaurant should not make any investment. Adding more capacity is only useful if there is market to fill it. If there is no additional market to be won with the additional capacity, then all any capacity addition will do is reduce the organization's productivity.
The second thing that the manager needs to take into consideration is with respect to operations management -- which solution actually addresses the bottleneck. The choice is between adding new equipment and adding more workers. At present, one or both of these will be the source of the bottleneck. Thus, the manager needs to consider whether the workers have down time at present or the equipment has down time. If the workers have down time, then more equipment needs to be added. If the equipment has down time, then more workers need to be added. The organization's operational considerations need to be taken into account. If both have down time, then there is no bottleneck and therefore no benefit to adding capacity, si
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2. The marginal decision rule states that a company should expand production if the price is greater than the marginal cost (Whitehouse, 2011). The assumption is that this additional production will be sold -- that there is unmet demand for the product. Arguably, a more logical view is that the marginal price should be higher than the marginal cost, since the price of a good may decline with increased production, in order to stimulate additional demand, since the good is probably already in a state of equilibrium.
The factors of production are related to the marginal decision rule because they affect the marginal cost. Expanding production, for example, means that marginal costs must be taken into consideration. Firms must understand their marginal costs in terms of being labor-intensive or capital-intensive products. Maquiladoras have thrived because they are typically for labor intensive production, because the lower cost of Mexican labor lowers the marginal cost of production. This is especially true if the decision is whether or not to build a new plant. With a new plant decision, the marginal cost associated with output from a new labor-intensive maquiladora plant and the marginal cost associated with output from a new capital-intensive plant in the United States is an important consideration.
Maquiladoras benefit the U.S. economy because they lower the cost of production for a number of manufactured goods. This lowers the retail cost of these goods to American consumers and allows for American shareholders to enjoy higher profits. The benefits stem from the theory of comparative advantage. The maquiladoras provide an opportunity for Mexico to specialize in labor-intensive production and the U.S. To specialize in capital-intensive production. With both nations specializing in the type of production in which they have comparative advantage, both nations benefit by having a higher amount of aggregate production and trade.
3. Generic drug companies have been successful because they specialize as cost leaders. Their systems are built around the idea of low cost production in high volumes,… READ MORE
Quoted Instructions for "Cost and Profit" Assignment:
“Write a few paragraphs for EACH of the following short answer questions (be sure to number your answers in your assignment):
1. Business is booming at a local fast food restaurant. It is contemplating adding a new grill and french fry machine, but the day supervisor suggests simply adding more workers. How should the manager decide which alternative to pursue? What would happen if too much labor is hired without an addition to capital? Explain using economic terms.
2. Read the following short article and answer the question:
Vargas, L. (2001). *****Maquiladoras: Impact on Texas Border Cities,***** in The Border Economy, Federal Reserve Bank of Dallas. Retrieved on December 2, 2011 from: http://www.dallasfed.org/research/border/tbe_vargas.html
How does this article apply the marginal decision rule to the problem of choosing the mix of factors or production (capital intensive vs. labor intensive methods of production)? How do maquiladoras benefit the U.S. economy?
3. Read the Case in Point: Competition in the Market for Generic Prescription Drugs in section 3 of Chapter 9 and answer the question.
Why have generic drug companies been so successful? What economic and/or political conditions would cause a generic drug maker to go out of business?
4. What is the difference between the short-run and the long-run for a perfectly competitive firm in terms of costs and profits? Explain why a perfectly competitive firm may continue to operate in the short-run even with a loss of profits. *****
How to Reference "Cost and Profit" Essay in a Bibliography
“Cost and Profit.” A1-TermPaper.com, 2012, https://www.a1-termpaper.com/topics/essay/profit-two-important/3704854. Accessed 5 Oct 2024.
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