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.