You are an economist for the Vanda-Laye Corporation, which produces and distributes outdoor cooking supplies. The company has come under new ownership and management and will be undergoing changes in its product lines and operating structure. As an economist, your responsibilities include examining the market factors that affect success or failure of a product, including the supply and demand for the product, market conditions, and the behavior of competitors with similar products.
Your supervisor, Jorge, has assigned you the task of evaluating a new product. The new product, oven mittens, has several competitors in the marketplace, but your company will be using a new patented material that provides protection from heat and maintains a great deal of flexibility.
- Analyze the goals of the company. What is an operating structure and how can changes affect a company?
- Evaluate what information is needed to assess the market factors that will make this product a success of failure.
- Explain the basic supply and demand aspects that will make the product a success or failure.
- Submit a 2-3 page Microsoft Word document, using APA style.
Supply and Demand.html
Supply and Demand
There are several basic relationships in economic theory, such as supply and demand or costs and revenues. A market is a place where potential buyers and sellers come together. All of them have their own perspectives on the market and differ in how much they are willing and able to buy or sell. The mathematical relationships that express these behaviors are called supply and demand functions.
The demand side of the market shows how buyers behave. For most goods and services, as the price decreases, the demand for the goods increases. This behavior is described by the Law of demand. This function shows that as price changes, the quantity demand moves in the opposite direction.
The supply side depicts how the sellers or suppliers of a good perceive the market. They see the same prices as the buyers but react to these in the opposite manner. As the prices increase the quantities supplied by sellers increase and vice versa. As these factors change, managers must be able to incorporate these changes into the supply function and the decision making process.
The market for goods and services are rarely in a state of balance and constantly changes. Both buyers and suppliers in the market aspire to an ideal situation called market equilibrium, the point at which supply and demand functions are equal. It is the point at which buyers and sellers agree as to the amount that will be sold as well as the price that will be paid.
Comparative Statics Analysis.html
Comparative Statics Analysis
“Managers typically control a number of the factors that affect product demand or supply. To make appropriate decisions concerning those variables, it is often useful to know how altering those decisions affect market conditions. Similarly, the direction and magnitude of changes in demand and supply that are due to uncontrollable external factors, such as income or interest rate changes, need to be understood so that managers can develop strategies and make decisions that are consistent with market conditions” (Hirschey, 2009, 133).
“One relatively simple but useful analytical technique is to examine the effects on market equilibrium of changes in economic factors underlying product demand and supply. This is called comparative statics analysis. In comparative statics analysis the role of factors influencing demand is often analyzed while holding supply conditions constant” (Hirschey, 2009, 133).
“Similarly, the role of factors influencing supply can be analyzed by studying changes in supply while holding demand conditions constant. Comparing market equilibrium price and output levels before and after various hypothetical changes in demand and supply conditions has the potential to yield useful predictions of expected changes” (Hirschey, 2009, 134).
Hirschey, M. (2009). Fundamentals of managerial economics, (9th ed.). Boston, MA: Cengage Learning.
A surplus refers to the demand falling short of the supply. A shortage, on the other hand, refers to the demand exceeding the supply. Management must be aware of the market imbalance and make adjustments accordingly. The most time efficient solution is to increase the price in the case of a shortage or decrease price in the event of a surplus.
Goals of a Company.html
Goals of a Company
What is the primary goal of a company? Is it profit? Business companies exist to earn profit, even though there are other goals. In most cases, if at least a normal profit is not earned, companies dissolve and owners place their wealth in investments that have the potential of giving them the desired returns. Managers need to consider various questions regarding the benefits and costs of a particular activity or investment before they make any decisions for the company.
Before making a decision for a company, managers must try to answer various questions that address long-term and short-term considerations. Your decision must address the following questions:
- Will the particular activity benefit the company only in the short term?
- Does this decision have an impact on the company’s success in the long term?
- Will the particular activity have a negative impact in the short term and positive effects only in the long term?
Managers must also consider risk in the decision-making process. Two investments may show overwhelming profits. However, it is unwise to compare results of two investment possibilities with two different chances or probabilities of being realized.
So what should be the ultimate goal of a company? It is to maximize its value. In other words, the company should try to maximize profits and minimize risk to the owners. These are long-term goals of a company, as are most goals of any company, because companies rarely plan to exist for just a short duration.