Recent orders
Cost Curves and Economics
Cost Curves and Economics
Name
University
Course
Tutor
Date
Question 1
We use seven cost curves to make decisions in economics.
Total cost curve: Firms produce at the lowest possible total cost for the produced quantity.
Total cost (TC) = Fixed Costs (FC) + Variable Costs (VC)
Fixed Costs (FC) – These are costs that have to be met no matter the production level.
Variable costs (VC) – These change with output produced
Marginal Costs (MC) – This is the additional cost of producing of one extra unit.
MC = σTC
MC = dTC/dQ = d(FC+VC)/dQ = dVC/dQ
MC is the gradient of the VC or TC implying that the magnitude of change in cost depends on variable costs.
Marginal costs increase as production increases in a law called diminishing returns. This continues to a point where the production of one more unit is untenable since the cost is greater than the revenue
On the other hand, Average fixed costs will always decrease with an increase in production but since marginal cost of production eats into the gain, the firm might be losing out at the lowest AFC.
Average costs.
AC = TC/Q = (FC+VC)/Q = FC/Q + VC/Q = AFC + AVC
AFC decrease as production rises while AVC doesn’t.
AVC is dependent to the MC.
The MC intercepts both AFC and AVC at their minimum points. This is because if marginal cost goes below the average cost, the average cost must be decreasing. Whenever MC<AC, the AC will fall regardless of whether MC is rising or not.
When diminishing returns to scale kick in at Q1, marginal cost curve begins to rise while ATC begins to fall until we get to point Q2 where an increase in AVC is equal to the decrease in AFC. In the short run, the output Q2 is lowest point of the average total cost and the output Q2 is known as the ‘productive efficiency output’ (Black 2002).
Question 2
Figures 1 and 2 prove that no economic profit is possible for firms in a perfectly competitive market, any gain in profits a firm makes by alterations in the equilibrium price or quantity by a single firm will be offset by a loss in efficiency, price or quantity produced. The equilibrium in the long run will always remain at the point where MR = MC.
In choosing the best production mix, we are assuming that the firm’s management is rational in making the decisions they make and that consumers are also rational and will choose the product that best suits them at the best suitable prices.
Profit maximization occurs at the output level which corresponds with the equality point between marginal costs and marginal revenue given that a profit maximizing firm operates at a point where total revenue less total cost is highest. In the Long run the firm will have to explore different options.
Output Q1 with Average cost 1
Output Q2 with AC3
Output Q3 with AC3
Output Q4 with AC2
All the production combinations above the LRAC are attainable but not realistic, while all the combinations below it are unrealistic for a firm focused on profit maximisation.
At Q1 the firm is producing but at a level below potential, given the resource mix present. As the firm takes advantage of economies of scale and becomes more efficient, it will start enjoying increasing returns to scale. As firms expand, the economies of scale will come from factors such as more availability of cheap credit, more specialization of its labour, more discounts and bargaining power among others. The point Q2 is referred to as minimum efficient point, which is the point at which a firm has exhausted its economies of scale.
Over a certain range of output (Q2 – Q3), the Average cost could be constant but after some time, the benefits brought about by the economies of scale will start getting eroded. The erosion will arise from factors such as rising administrative costs, increased investments in capital goods such as space and equipment. The management will also start meeting challenges and this and other factors will cause the average cost to rise from here. The returns to scale will also start to decrease resulting to diseconomies of scale.
Question 3: The Perfect Market
A perfect market or perfect competition is hypothetically a market where competition is at its best. The neo-classical theory proffered that this is the market form that would yield the outcomes that would best suit all stakeholders; society, consumers and producers. The competitive market theory operates under certain assumptions.
References
Top of Form
Baumol, W & Blackman, S 2001, Perfect markets and easy virtue: business ethics and the invisible hand, Cambridge, Mass., USA, B. Blackwell.
Top of Form
Cassidy, J 2009, How markets fail: the logic of economic calamities, New York, Farrar, Straus and Giroux.
Black, J 2002, Perfect Markets and Economics today,Top of Form Cambridge, MA, MIT Press.
Miller, R 2001, Paving Wall Street: experimental economics and the quest for the perfect market, New York, Wiley.
Bottom of Form
Bottom of Form
Cost Benefit Analysis
Part 3
Cost Benefit Analysis
This is generally used to compute the aggregate evaluated expense being contrasted and the aggregate unsurprising advantages just to choose whether this undertaking is valuable for the organization of not. This technique is simple, versatile and easy to get it. This will help determine the flow of the cash flow in addition to its reliability in decision making. Yet you will discover numerous contentions against this. A group ought to first evaluate the all the objectives and necessities of the undertaking and afterward will assess all the needs of the conceivable disadvantages to choose climate the expense advantage examination is a helpful hypothesis of recourses and time (Boardman, 2010). This systems is generally used to choose that whether a change ought to be made or not. Just the expense advantage investigation is yielded utilizing the budgetary profits and expenses. Like for instance expense advantage investigation for building a street will be ascertained by taking the expense needed to manufacture and deduct this with the profit of financial which is as enhanced cost analysis of the cash flow (Liu, 2010). An alternate method for building the expense advantage models is by putting the fiscal esteem on the elusive profits and expenses.
Strengths for cost benefit analysis Cash Flow Innovation
Cost benefit analysis serves to pick the best conceivable proposal regarding the utilizations of stores, different assets and human help to give the organization a tremendous net benefit. Format for the expense advantage investigation helps you in auditing numerous distinctive activities and their suggestions and by changing over this data to the banquet for each cash entry (Pauker & Kassirer, 1975). This will likewise help in picking the best conceivable alternative. An expense advantage investigation spare a ton of trusts, important time and the anxiety, as it is exceptionally basic and straightforward.
Challenges of cost benefit analysis for the Cash Flow Innovation
Cost benefit analysis perceive all the profits and costs, and measured effectively. In any case as this is just done physically by the people, it for the most part dispenses with a few advantages and cost because of disappointment to anticipate these roundabout interfacing relations. When they apply the budgetary worth to the elusive things prompts a mistaken expense advantage investigation, and this would prompt raise the level of danger and choice making gets to be useless. The aggregate subjectivity involved by evaluating, approximating and perceiving the different profits and expenses is additionally a downside of expense advantage examination in light of the fact that a few advantages and expense are non-budgetary. All the appraisals and forecast is basically focused around prospect and past encounters, which are generally out of line. So this additionally prompts deluding and wrong cost advantage investigation.
Risk Analysis
Event Tree Analysis
Event tree analysis (event tree analysis, ETA) otherwise called choice tree investigation, is an alternate vital technique for danger examination that will be used to determine the effective of the cash flow technology being implemented. It is the occasions of a given framework, the investigation of the occasions may cause an arrangement of results, and subsequently assesses the likelihood of the framework (Mann et al,. 2002). Occasion tree is given a beginning occasion all conceivable ways and method for advancement, each part of the occasion tree occasions (with the exception of the top episodes) are the execution of specific capacities of measures to avert mishaps, and all have twofold results (achievement or disappointment). While the occasion tree outlines the different episodes reasons for the mischance arrangement bunch. Through different transitional steps in the mischance arrangement gathering can arrange the multifaceted nature of the relationship between the beginning episode and the likelihood of systemic danger lessening estimation, and recognize the mishap grouping gathering. So we can compute the likelihood of each of the key succession of occasions happened.
Part 4
Action sales plan Business planning is crucial in giving a schema of what is to be attained and how, which is the first venture to make effective deals.
First Step:The initial phase in the deals region plan, before actually making the arrangement I will make myself a master on my organization and the item. To make deals I need to peruse and know everything about the organization and the item, at the end of the day I say I need to achieve the master level that no one knows any data about them more than me. I accept that my insight will be my essential instrument.
Second Step: A SWOT investigation (Strengths, Weaknesses, Opportunities and Threats) which will incorporate all parts of the region, e.g. deals and exercises, qualities and shortcomings of key customer connections, the opposition and conceivable new rivalries. All elements, both positive and negative ought to be considered. The SWOT investigation will encourage me to figure out the key components for future achievement in this domain (Sunstein, 2000).
Third Step:Right now I will begin to contact my clients to present myself. I will begin on the biggest customers in the new domain and the devoted clients to my item and my organization to continue the relationship and guarantee on our prevalence against our rivals. My arrangement right now will be 1-creating long haul offering arrangement with the biggest customers 2- I will attempt to create heads with those real customers to extend my base. * I accept that the initial three steps will be my need and center at the initial 30 to 45 days in my new position..
Fourth Step:At this stage I will put more concentrate on picking up more customers and piece of the overall industry. In the wake of checking on the gave data on Cash Flow Innovation I see my offering focuses will be compressed in: 1. financially savvy (It is 20% more financial than different brands with same quality). 2. High Safety profile for all ages with the sterile bundles and the distinctive sizes. 3. All around perceived with high caliber. My procedure will be regulate eye to eye presentations to all the potential customers in my region utilizing all the deals and showcasing materials to push our offering focuses and its essentialness to the clients with week after week catching up on the results. Month to month exercises (Speaker gatherings, lunch gatherings and healing center battles) will of an extraordinary profit. In the meantime I can utilize other advertising means with all my prospective customers like conveying letters and press discharges as a presentation for our organization and our items.
Fifth Step: Cash Flow Innovation has a quick draining control with high security profile, simple to utilize and a monetary value preferences. Taking into account these peculiarities I will recommend on the advertising administration beginning drug store crusade to acquaint Cash Flow Innovation with drug stores and crisis rooms as a medical aid item for mending of little shallow cuts.
Sixth Step:I will make month to month assessment to permit me to screen and track the deals, make conformities where vital and to figure out whether deals are keeping pace with the objectives.
I will be close to home taking care of the positions for promoting and deals force. For the procuring procedure we can enlist outside or interior. Inside we can begin with .this will develop the lesson of the works realizing that we deal with our own. The primary step is to create a successful technique for spreading the saying about openings. We can utilize email or we can post recognizes on announcement sheets in break rooms or distribute them in the worker pamphlet. The key is to verify that everybody knows where and how to discover the information. Next, review inside employment recognizes the same way you set up those for outside postings. Make sure to incorporate all data: a concise depiction of the position alongside the coveted level of rank, exceptional abilities, degrees and some other necessities. In the event that competitors don’t essentially require a degree or expert certificate, make certain to note this in the employment description. After we use up inside applicants, are enrolling specific ability or more elevated amount positions, or have settled on a cognizant choice to select remotely. A show of sources exists to look over including, yet not constrained to: daily paper and exchange production
References
Boardman, A. E. (2010). Cost-benefit analysis.
Liu, B. (2010). Uncertain risk analysis and uncertain reliability analysis. Journal of Uncertain Systems, 4(3), 163-170.
Pauker, S. G., & Kassirer, J. P. (1975). Therapeutic decision making: a cost-benefit analysis. New England Journal of Medicine, 293(5), 229-234.
Reynolds, A. J., Temple, J. A., Robertson, D. L., & Mann, E. A. (2002). Age 21 cost-benefit analysis of the Title I Chicago child-parent centers. Educational Evaluation and Policy Analysis, 24(4), 267-303.
Sunstein, C. R. (2000). Cognition and cost-benefit analysis. The Journal of Legal Studies, 29(S2), 1059-1103.
Vose, D. (2008). Risk analysis: a quantitative guide. John Wiley & Sons.
Cost and Budget Management
Name:
Tutor:
Course:
Date:
Cost and Budget Management
The Central Artery/Tunnel (CA/T) project had an enormous problem with cost and value management. As a result, the project which took slightly over 20 years to complete, remains a monumental disaster that reminds tax-payers of the billions of dollars that have been wasted.
If an effective cost and value management strategy was employed from the onset of the project, it would have been completed successfully. One of the major problems the Big Dig project faced was an ever increasing budgetary quotation which soared from 2.5 billion dollars on its inception back in the year 1983 to 14.63 billion dollars in 2003, twenty years later. This resulted from a failure on the part of project management to forecast and plan adequately in terms of finances, personnel and any other resources in case of changes during the project implementation. The project management team ought to have considered the life-cycle of the project against cost so as to arrive at a life-cycle cost effective budget. Further, the project management team should have continually tested for the viability of this budget through employment of cost management to evaluate the functions of materials, the construction equipment involved as well as the processes involved so as to ascertain that the objectives are met at the lowest cost. The contractors should have been made accountable for their actions. This would have gone a long way in ensuring that they offered high quality work at reasonable costs. The audits however reveal contradictory information stating that there was no accountability demanded from the contractors who made mistakes.
Had the project management been keen in monitoring and controlling, which are key aspects of an effective cost and value project, the technical mishaps such as the collapsing of a section of the road would not have occurred in 2006. Through regular monitoring and evaluation, the progress of the project would be closely monitored to ensure that the project’s objectives were being met. Also, this would have enabled any correctional measures to be taken in order to avoid resultant dangers. However, it is clearly evident that this was not done because had it been done, the project management team would have detected the sub-standard concrete that the contractor used along with the poor quality of workmanship. It would have then taken corrective and preventive measures long before any detrimental effects such as death of a commuter were felt.
The principles of value management stipulate that a critical appraisal be done by the project management with a thorough analysis of all the project procedures so as to make decisions which reduce the number of wasteful processes and inefficiency while at the same time improving the benefits enjoyed by the customer. If this process was done, the numerous numbers of wasteful processes such as the repairs to the collapsed road section as a result of using sub-standard materials would have been avoided. This would have also enabled commuters a faster access to the road whose main aim was to ease traffic from the very beginning. The delays caused by the uncountable repairs deny the commuter the value he/she is supposed to be getting from the road due to extended shutdowns. The unfortunate delays caused throughout the project would have been avoided if proper planning, implementation, monitoring and evaluation were done.
In conclusion, cost and value management are key components of project management and should be accorded the importance that they hold. Even after completion of the Big Dig project, the many years delay coupled with the billions of tax payer’s money lost as a result of poor management have over-shadowed its value.