MBA 403 MANAGERIAL ECONOMICS ASSIGNMENT 1
Assignment 1 1. Suppose you are Manager of an institution which produces something.
Fashion Boutique is a manufacturing company which is situated in the heart of Suva.
The company specializes in making of Men’s Shirts. It employs 50 workers who hold
vast experience in making of Shirts. The company has different types of industrial
machines which help in the production of these Overalls. (Straight machines, Over
lock). The major client market for Fashion Boutique is mostly the Private and Public
sector employees and other walk-in customers. With current economic situation careful
thoughts has to be given as a Manager that what to produce, how to produce and whom
to produce for. Apart from looking after the employees, as a Manager some other key
factors are looked into such as liaising with clients, keeping up to date with the latest
fashion and style, staff welfare, day to day operating cost and budget. Frequent follow
up with suppliers and fixed customers, ensuring that resources are available for the
production of Shirts. 2. Firstly, explain how knowledge of economics is important for
you. In terms of opportunity cost and other economic concepts you learnt, state what
type of decisions (or issues) you have to make regarding management of resources of
the firm. Company has rented land, hired labour, borrowed money for capital. (Hint: if
the company is with highly qualified (or skilled) labour, their opportunity cost is greater).
In my role as a Manager the knowledge of economics is very important for me to
constantly make a number of decisions which are vital to the survival and growth of the
business. Economics will guide me to make well-informed decisions, such as budgeting
and how to raise profit margins of the business. Economics provides a more
comprehensive view of business which will help reveal the true picture of the
relationship between the society and the market. Knowledge of economics also gives an
understanding on how to make or improve decision making between individuals and
market, thus guiding the business towards higher profit margin. Opportunity cost simply
means when you choose one alternative and let go others. Opportunity cost is the cost
of the next best alternative that is foregone when making a choice between alternatives.
Simply stated, an opportunity cost is the cost of a missed opportunity. It is the opposite
of the benefit that would have been gained had an action, not taken, been taken—the
missed opportunity. Scarcity mostly results into trade-offs, which generally results into
opportunity costs, thus choosing best alternatives from the available resources. For
instance, in the case of our Fashion Boutique, the opportunity cost of investing in a set
of new machines to replace existing worn out machines, worth $100,000.00 would be
the cost of opportunity foregone in investing the same resource in expanding the current
Boutique (the profits that would have been gained from the expanded retail store /
Boutique) or setting up another outlet in another town (profits that we have lost by not
investing in the new outlet). I must also consider the availability of factors of production
(Land, Labour & Capital) that can be used to successfully complete an order that is
requested by our client. Decisions that need to be made, such as resources that are
already engaged that cannot be utilized for new jobs and resources that are available
that have the skills and abilities to engage in new orders. Resources of the organization
such as machines, are limited and skills of machinists (labour) varies as most of them
are school drop outs who have industry experience but very limited to tertiary education,
therefore it is vital to plan ahead, analyze, forecast outcomes of business operations in
terms of our organizations ability to produce a product and in terms of quantity (whether
we have the capacity to produce with the given resources over the given period of time)
and the cost involved, the price that need to be set, cost of distribution (for special
orders) and renewal of worn out equipment’s and machines. Hire of technical
assistance that will come and fix the industrial machines. While rent is not charged by
the Proprietor since he owns the building where Fashion Boutique is situated, still rent is
considered as a cost. Staff / labour have to be motivated with time and half pay and pay
raise is given based on merit and performance so that the productivity rate is high.
However, when the production level falls or the quality of the Shirts are not satisfactory
then problem solving technique is being adopted such as identify the problem, why the
quality of shirt is unsatisfactory, then a model is developed; example poor quality of
materials / fabric was supplied, then testing of the model is done, where all possible
data is gathered so the current problem or situation can be solved. As a Manager,
immediate and effective solution has to be looked for, that is either return the shirt
material / fabric to the supplier or even at times supplier has to be changed. In every
decision that is made opportunity cost is involved. Therefore, Managers should be able
to make choices from the alternatives that will give maximum benefit to the organization.
3. Suppose that in the next month, Government is going to increase salaries of the
Public sector employees and taxes on some goods will be increased. In this situation
and in presence of scarcity, explain how you decide, what to produce and how to
produce in the next month. How increase in taxes and salaries of the Public sector
employees’ influence on the market for your goods. The Market Demand Analysis
shows that when salaries increase, customers taste and preferences change as well.
However, when Fashion Boutique is taken into consideration than we can say that
individuals buying behavior will change, especially for those customers who were
buying similar kind of Shirts at a cheaper price and usually of a lower (poor) quality.
Now more customers will tend to buy our Shirts which are of better quality for the price
that is being charged. In relation to our Boutique, most likely consumers who bought
items from second hand clothes shops (inferior goods) would inevitably decide to
explore in brand new clothes (normal goods). It can be expected that sales of Shirts
from our retail shop will increase and there would be a need to increase supply of
garments and replenish stocks and attract customers through various marketing tools
and strategies. In the presence of scarcity proper planning has to be done in terms of
availability of raw materials like fabric that is used to make Shirts. In this situation, our
Boutique has to work hand in hand with the suppliers. Also the Boutique has to produce
some other garments that will suit our customers such as Collar T-shirts. This will be
substitute goods for the Shirts. Even the Boutique will introduce some complimentary
items that can go along with the Shirts like neck ties and office coats. However, the
garment also plans to make some ladies clothes as well such as Office Shirts (Blouse)
and Office Dresses with Collars and ladies coats as well. As a reason if there is not
enough sales from the Men’s Shirts than possibility is that sales will increase through
ladies dress wear. Some complimentary good will be introduced in the future for ladies
as well such as scarfs and shawls to match their dresses. Our Boutique also have
competitive advantage when compared to other manufactures as the Boutique has a
specialized screen printing machine which can print names and logos of the companies
which can be done on request. Apart from printing, the Boutique also has Embroidery
machine which can embroider names of individuals (staff) as well. However, increase in
taxes can mean that customers will also have less spending power as certain amount of
wages / salaries will attract taxes. Thus this means that demand for Shirts can decrease
as well since customers will think twice before spending. However, our Boutique offers
quality garments at an affordable price. If our market analysis shows that demand for
locally made garments will increase, because the styles that are available in the
Boutique are of very good quality, our supply will increase as well. More resources will
be allocated in making those garments that are in demand so that resources are fully
utilized and maximum sales achieved. REFRENCES Irvin Tucker (2011). Economics for
Today, 7th Edition, South-Western Cengage Learning. Layton, Alan, Tim Robinson and
Irvin Tucker, (2009). Economics for Today, 3rd Asia Pacific Edition, Cengage Learning
Australia.