Mihocko Case Study Solution
Inc. respond to the need for compliance with the proposed Environmental Protection Agency’s
(EPA) emissions limits.
The first strategy would be to adjust its product mix. Mihocko produces five products, one at a time, throughout the year. Using data provided, Mihocko can determine an optimal production combination function based on potential sales, variable costs, particulate emissions, revenue streams and operating hours. One potential benefit of this strategy is that Mihocko could mathematically maximize its profit potential within the EPA policy emissions guidelines using a formula to determine the quantity of each product needed to achieve the …show more content…
First, a capital outlay – $300,000 plus $50,000 each year for the next five years is substantial. This could amount to approximately $550,000 over a 5-year period once the equipment is installed and running. If the Mihocko plant does not have the capacity to increase production, they may not be able to produce enough of their current products to recover new equipment and operating costs. Per the information provided, one would estimate that the only available time to make-up production is during the scheduled yearly shutdowns, which would instead be used to install the new equipment at the start of the first year.
Currently, Mihocko produces approximately 95 tons of particulate emissions per year.
Capturing that amount in the new housing and shipping it off would simply make the particulate emissions someone else’s problem. Lastly, $300,000 in new equipment would add to the cost and time required to keep the equipment running. $50,000 per year may not truly cover all operating costs.
A third strategy would be an investment in new production equipment that would essentially eliminate emissions. The investment would cost $1.5 million dollars and wouldn’t alter …show more content…
The second caveat to be considered is that even if one of the major firms decided on a non-lobbying strategy, the entire effort is presumed to fail. Should lobbying efforts fail in either case, Mihocko would be right back where they started and the entire $200,000 fee would be a sunk cost that yielded no positive results. Not joining the lobbying group and becoming the major firm that tries to abide by the new regulations could create tension with and hurt Mihocko’s standing among industry peers. However, the public may view joining anti-EPA lobbying efforts as bad stewardship for the environment. The potential harm to Mihocko’s standing and reputation with the local community, customers and environmental groups would increase and potentially spawn a public relations nightmare. Mihocko must carefully weigh the $200,000 lobbying fee against these numerous and unquantifiable risks.
Each of the aforementioned strategies takes several factors into careful consideration. Those factors include cost, potential impact to the Mihocko’s facilities and the surrounding community, potential impact to production, and the collective impact of all those things on