Managerial Economics and Globalization Eco 550 Essay

1080 Words Jun 3rd, 2014 5 Pages
DATE: 03/09/2014.

* Briefly describe the details of the fictitious business that you created for this assignment.

Urbanaz Inc manufactures aluminum roofing sheets. The company has been in business for over 10 years and during this time have established itself as a high quality manufacturer of roofing sheets, even though this company only appeals to a small fraction of the roofing sheet industry, they had been able to maintain a 22% profit margin. Due to the failing economy which brought about the decline in building, Urbanaz’s profit margin dropped below the break-even point, The Company is also
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* Could less skilled workers be employed in order to cut down the cost of labor?

* What fixed or variable costs could be reduced?

* How feasible would it be to move productions to another area of the country or world in order to reduce production costs?

*Can new technology reduce cost of production and increase output? Evaluate the financial performance of the company using… We have; Employee Wages: 100 workers x $70/day = $7000/day x 20 days/month = $140,000/month spent on employee wages. Variable input cost: $2000/day x 20 days/month = $40,000/month in variable costs. Taking into account that the marginal cost of the last unit is $30: 6000 units/month are produced; 6000 (total units) x $30 per unit = $180,000 per month spent on production. Total operating costs per month: $140,000 + $40,000 + $180,000 = $360,000. Each unit sells for $32/unit: $32 x 6000 = 192,000/month revenue.

Total Revenue = $192,000, Total Cost = $360,000, they spend almost twice as much as the revenue they generate, they operate at a loss.

TC = FC + VC
360,000 = FC + 180,000
FC = 360,000 – 180,000
FC = 180,000

And AVC (average variable cost) = FC/Q

180,000/6,000 = 30

So, AVC = $30

The company will need to break-even if they want to stay in business, so we apply a break even analysis; TR = P x Q and TC = F + V x Q, where P is price F is fixed cost V is average

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