ECO 550 Week 5 DB 5

I will post student response once one is posted during week 5.

Market Structures and Cost Management

• From the scenario for Katrina?s Candies, determine the appropriate type of market structure for the situation in question. Cite at least four (4) defining characteristics that have helped you reach this decision regarding the appropriateness of the chosen structure.
• Imagine that you are a manager of a chemical company. An accident has occurred in which chemicals leaked into the ground water nearby. The community is unaware of the accident. Compare the primary costs involved in cleaning up the water immediately (and thus confessing) versus hiding your culpability now and possibly paying more in the future. Predict the impact on profitability in both situations.

During the Weekly Scenarios Herb Jones, a graduate student and part-time data analyst, together with other key members of Katrina's Candies will work together on projects related to managerial economics and globalization. The Week 5 Scenario covers the following topics: Market Structures Slide # ECO550 Week 5 Scenario Script: Market Structures Scene # Narration Slide 1 Scene 1 An older cottage style family run business (Katrina's Candies) Slide 2 Scene 2 In conference room with all Katrina's Candies employees to get ready for a Webinar on Cost Analysis ECO550_5_2_Gigi-1: Good morning, everyone! I'm not sure if everyone received Herb's email this morning, but we all will be attending a Webinar pertaining to Cost Analysis. If you need any assistance logging in please reach out to Herb. ECO550_5_2_Herb-1: Thank you, Gigi! Just to recap how to log into this Webinar, simply follow the instructions I provided in my email this morning. ECO550_5_2_Maria-1: Thanks again for getting this set-up Herb! ECO550_5_2_Renee-1: Thank you as well Herb! I'm excited to see what all this Webinar entails. ECO550_5_2_Gigi-2: Fantastic! Okay, is everyone now logged in and ready? ECO550_5_2_Maria-2: Yes, I'm ready. ECO550_5_2_Renee-2: Me, too. ECO550_5_2_Herb-2: Yes, I'm ready as well; however, there's been a slight change in the format. Instead of an actual person presenting to us, the consultant firm provided a prerecording session. ECO550_5_2_Gigi-3: Why? What happened, Herb? ECO550_5_2_Herb-3: It turns out that the initial person scheduled to present to us had previously scheduled with another client. We could have rescheduled to a different day, but because of the deadline we're confronting with the analysis we have to give Ken, I thought it best that we proceed using the pre-recorded webinar. ECO550_5_2_Gigi-4: Herb, I think this is a good decision. We cannot afford to postpone anything at this point, just in case we hit a snag later. ECO550_5_2_Renee-3: I have one question, Herb. How many times can we view this presentation just in case we need to go back to review key items? ECO550_5_2_Maria-3: Good question Renee; I was wondering the same thing?? ECO550_5_2_Herb-4: Since the consulting firm caused the mix-up, the scheduler gave us unlimited views for the next two weeks. ECO550_5_2_Renee-4: Wow, that is great! ECO550_5_2_Maria-4: I agree, we definitely may need to view the presentation again, I'm glad we have some leeway with the viewing period. ECO550_5_2_Herb-5: Let's now get started! While watching this presentation please write down any questions you may have then we can address the questions once the presentation is concluded. Slide 3 Scene 3 Interaction Slide Incorporate Computer Screen to show Video about Cost Analysis Slide 4 Cost Analysis o http://www.youtube.com /watch?v=SUberLlz0Us Scene 4 In conference room with all Katrina's Candies employees reviewing the Webinar they just participated in. ECO550_5_4_Gigi-1: That was a very good presentation on cost analysis. In such a short time period, I learned a lot. ECO550_5_4_Maria-1: l learned a lot too! ECO550_5_4_Herb-1: I think we all learned a lot! ECO550_5_4_Renee-1: I definitely agree! Thank you for setting this up Herb! ECO550_5_4_Herb-2: Does anyone have any questions on anything? ECO550_5_4_Renee-2: Yes. As a group, there was one major question that we have. ECO550_5_4_Herb-3: Oh, okay, what question is that? ECO550_5_4_Maria-2: I will go over the question with you, Herb. I took really good notes on what everyone discussed after the presentation. ECO550_5_4_Herb-4: Okay, that sounds good to me. ECO550_5_4_Maria-3: Herb, last week when you reviewed cost concepts including, you identified the Breakeven point as the point where Total Costs equals Total Revenue. Then you explained that minimum Average Total Costs is the decision-making variable firms should use to determine how much to produce and whether a firm was earning profit where Average Total Costs is the sum of Average Fixed Costs and Average Variable Costs. ECO550_5_4_Herb-5: I'm following you thus far. Please continue. ECO550_5_4_Maria-4: In today's recorded webinar, the presenter explained the Break-even point differently. Our presenter explained the Break-even point as the outcome of the calculation of the Contribution Margin which subtracts out the variable costs term. The question we have is why should firms use the Contribution Margin approach to find the Breakeven output instead of using the Total Revenue and Total Costs approach? ECO550_5_4_Herb-6: Maria, that is a very good question. The answer is that the Total Revenue and Total Costs approach to finding break-even output gives a result that tells analyzers how much a firm should produce to cover all production costs. On the other hand, the Contribution Margin approach is a practical application used to evaluate the outcome of decisions that change fixed costs. For example, the decision Ken has to consider, whether to expand operations to go into the international market, is a decision that would change fixed costs. Decisions that affect fixed costs require a different type of analysis like contribution margin. ECO550_5_4_Maria-5: Thanks, Herb. That's a very clear answer to the question. ECO550_5_4_Herb-7: Just in case I missed anything, here's a six minute video that gives another example of how to calculate the contribution margin. Once you view this video, I would like for you to participate in a review activity I put together based on the key items we discussed. Slide 5 Scene 5 Interaction Slide Incorporate Ipad to show Video about Break Even Analysis Break Even Analysis Explained o http://www.youtube.com /watch? v=V_ZOmXsuNSk Slide 6 Scene 6 Check Your Understanding Multiple Choice Question A. B. C. D. A firm produces and sells a product with price, P = $16, average variable cost, AVC = $12 and total fixed cost, TFC = $60,000. What is the level of output at which the firm will break-even. 7,500 10,000 15,000 17,500 Correct. Yes, given the contribution margin this level of output will yield a break-even for the firm. Incorrect. Try again, did you set the equation properly? Scene 7 Slide 7 Summary Concluding scene taking place in conference room ECO550_5_7_Herb-1: I hope the review activities were helpful everyone! ECO550_5_7_Maria-1: I thought they were great, Herb! Thank you for sharing those with us; they were a great review tool. ECO550_5_7_Renee-1: I agree, Maria; the review materials were very good! ECO550_5_7_Gigi-1: I agree as well! Very nicely done Herb. Now to conclude our meeting I would like to do a review of what we accomplished today so I can update Ken. ECO550_5_7_Herb-2: That sounds great! The main focus of our meeting today revolved around a Webinar presentation on Cost Analysis. We then talked about Break-even points, and I explained why firms use the Contribution Margin approach to find the Break-even output instead of using the Total Revenue and Total Costs approach. ECO550_5_7_Maria-2: You also explained that the Total Revenue and Total Costs approach to finding breakeven output gives a result that tells analyzers how much a firm should produce to cover all production costs. ECO550_5_7_Renee-2: We continued our discussion on break-even points by learning that the Contribution Margin approach is a practical application used to evaluate the outcome of decisions that change fixed costs. We also noted that decisions which affect fixed costs require a different type of analysis like contribution margin. ECO550_5_7_Gigi-2: Great job to all of you! I would say today was a success! I feel really good about meeting up with Ken and answering any questions he may have about the concepts we discussed today. ECO550_5_7_Herb-3: That is fantastic, and I believe that is all for our meeting today. Remember to review the videos if you need to refresh your memory on the concepts. Until we meet again, don't forget to complete your weekly threaded discussions based on the key concepts we covered this week. ECO550_5_7_Maria-3: Thanks, Herb and have a great day everyone! Student Discussion Point #1 In relation to the Katrina's Candies scenario and most business environments, managing costs is one of the major problems and focuses. If there is anything that worries the business is the fact that they can manage the costs. You cannot pass during one week where you read that a business is laying off some of their workers because they are \"managing costs\" or they like to call it \"organizational restructuring\". Anytime you hear the term \"organizational restructuring\" that means that the company is considering laying off people and getting rid of some of the positions. One of the methods to control for costs is to outsource. Whether we like it or not, outsourcing is proving to have significant impact, and sometimes survival, or the company. To maximize profits, we need to have either increase revenue or decrease costs and the later seems easier in many cases. The question is what are some of the industries that you can outsource in and what are the ones you cannot? How can you balance between outsourcing (cost reduction) and keeping the workers in your homeland happy to avoid media issues? And finally (and the most important question) does the outsourcing ability the derivation is mainly based on the market structure (monopoly compared to perfect competition)? Student Discussion Point #1 In relation to the Katrina's Candies scenario and most business environments, managing costs is one of the major problems and focuses. If there is anything that worries the business is the fact that they can manage the costs. You cannot pass during one week where you read that a business is laying off some of their workers because they are \"managing costs\" or they like to call it \"organizational restructuring\". Anytime you hear the term \"organizational restructuring\" that means that the company is considering laying off people and getting rid of some of the positions. One of the methods to control for costs is to outsource. Whether we like it or not, outsourcing is proving to have significant impact, and sometimes survival, or the company. To maximize profits, we need to have either increase revenue or decrease costs and the later seems easier in many cases. The question is what are some of the industries that you can outsource in and what are the ones you cannot? How can you balance between outsourcing (cost reduction) and keeping the workers in your homeland happy to avoid media issues? And finally (and the most important question) does the outsourcing ability the derivation is mainly based on the market structure (monopoly compared to perfect competition)? Student Discussion Week 5 Outsourcing is the process of getting work done by outside suppliers instead of completing it internally. It is used by the companies as a method for reducing the cost of production as they transfer part of the work to outside suppliers who perform the work at a price which is lower than producing internally. It is one of the costs saving strategy. The industries that can be outsourced are information and technology, accounting, tax preparation, web designing, computer programming, manufacturing, legal services, data entry, etc. The industries that cannot be outsourced are building and construction, theatre and music, engineering including defense and construction for defense and armed forces. To set equilibrium between outsourcing for cost reduction as well as to keep homeland happy it is important to outsource the works that does not require specialized skills. The high ability and technical works should be performed and processed in homeland whereas the low level works that require high workforce with low talent and technology should be outsourced to other countries. It facilitates by keeping media and homeland public happy and the core activities of the company are not exposed to the outside agencies. For example research and development activities should be conducted in home land whereas activities such as mass production should be outsourced. No, the outsourcing ability is not based on market structure. In true sense monopoly is not observed in any business these days. Examples of monopoly are limited to federal government, such as atomic energy, satellite technology, etc. In perfect competition every business firm tries to gain competitive advantage over other and cost reduction is the main tool to supersede the competitors. To gain cost reduction advantage the companies prefer outsourcing business activities to other countries to gain advantage of low working force in production or even to gain advantage of low cost of technical expertise. Student Discussion Point #1 In relation to the Katrina's Candies scenario and most business environments, managing costs is one of the major problems and focuses. If there is anything that worries the business is the fact that they can manage the costs. You cannot pass during one week where you read that a business is laying off some of their workers because they are \"managing costs\" or they like to call it \"organizational restructuring\". Anytime you hear the term \"organizational restructuring\" that means that the company is considering laying off people and getting rid of some of the positions. One of the methods to control for costs is to outsource. Whether we like it or not, outsourcing is proving to have significant impact, and sometimes survival, or the company. To maximize profits, we need to have either increase revenue or decrease costs and the later seems easier in many cases. The question is what are some of the industries that you can outsource in and what are the ones you cannot? How can you balance between outsourcing (cost reduction) and keeping the workers in your homeland happy to avoid media issues? And finally (and the most important question) does the outsourcing ability the derivation is mainly based on the market structure (monopoly compared to perfect competition)? Student Discussion Point #1 In relation to the Katrina's Candies scenario and most business environments, managing costs is one of the major problems and focuses. If there is anything that worries the business is the fact that they can manage the costs. You cannot pass during one week where you read that a business is laying off some of their workers because they are \"managing costs\" or they like to call it \"organizational restructuring\". Anytime you hear the term \"organizational restructuring\" that means that the company is considering laying off people and getting rid of some of the positions. One of the methods to control for costs is to outsource. Whether we like it or not, outsourcing is proving to have significant impact, and sometimes survival, or the company. To maximize profits, we need to have either increase revenue or decrease costs and the later seems easier in many cases. The question is what are some of the industries that you can outsource in and what are the ones you cannot? How can you balance between outsourcing (cost reduction) and keeping the workers in your homeland happy to avoid media issues? And finally (and the most important question) does the outsourcing ability the derivation is mainly based on the market structure (monopoly compared to perfect competition)? Student Discussion Week 5 Outsourcing is the process of getting work done by outside suppliers instead of completing it internally. It is used by the companies as a method for reducing the cost of production as they transfer part of the work to outside suppliers who perform the work at a price which is lower than producing internally. It is one of the costs saving strategy. The industries that can be outsourced are information and technology, accounting, tax preparation, web designing, computer programming, manufacturing, legal services, data entry, etc. The industries that cannot be outsourced are building and construction, theatre and music, engineering including defense and construction for defense and armed forces. To set equilibrium between outsourcing for cost reduction as well as to keep homeland happy it is important to outsource the works that does not require specialized skills. The high ability and technical works should be performed and processed in homeland whereas the low level works that require high workforce with low talent and technology should be outsourced to other countries. It facilitates by keeping media and homeland public happy and the core activities of the company are not exposed to the outside agencies. For example research and development activities should be conducted in home land whereas activities such as mass production should be outsourced. No, the outsourcing ability is not based on market structure. In true sense monopoly is not observed in any business these days. Examples of monopoly are limited to federal government, such as atomic energy, satellite technology, etc. In perfect competition every business firm tries to gain competitive advantage over other and cost reduction is the main tool to supersede the competitors. To gain cost reduction advantage the companies prefer outsourcing business activities to other countries to gain advantage of low working force in production or even to gain advantage of low cost of technical expertise