Question 1

The Future of production

The firm of the future is expected to be smaller than todays firm and more flexible and able to change operations quickly; it will be closer to markets and it will be focused, producing one or a very few related products. Recent technological advances have greatly reduced optimal lot sizes, or the production runs necessary to achieve maximum production efficiency. The future factory is likely to employ from 500 workers, down from 1000 workers in the 20th century. Production runs will be shorter which mean that often it will not be wise for the firm to completely automate all of its production processes if the production will not be around long enough for the firm to recoup all of the capital invested in automation.

The geography of firms will be much closer to markets which increases the speed of deliveries. The global firms will have a manufacturing network of decentralized plants in each large, sophisticated regional market for its products. Factories are also likely to be more focused, that is, they are likely to specialize in the production of a single or a few related products rather than producing a myriad of different products. It is also expected that the firm of the future will be more ecologically responsible in order to response to government regulations and customer wishes.

Based on the concept of future firms answer the following questions:

a. Given the plant size of the future factory how do you explain the U-shaped long run average cost curve for individual firms?

b. How do you explain the impact of future firms on (1) profitability, (2) employment of labor and (3) competition in the marketplace?

c. If the minister of labor in Bahrain asks you to prepare a report, including recommendations about the potential benefit to Bahrain from future firms, what are the three most important policy measures that the government can introduce to join the future economy? Explain.