Mbeya cement company which has a rising short run marginal cost curve is currently operating at a loss. Mbeya cement company' chief economist chief economist says that if the price rises a little, the output should not be increased because if it's marginal cost would rises and the company would end up with a bigger loss on a higher volume.should the chief executive officer of mbeya cement company listen to the chief economist? Why or why not
Yes, the CEO of Mbeya Cement Company should listen to the chief economist. The chief economist is likely familiar with the company's cost structure and the economics of the industry, and is likely in a better position to make an informed decision about the company's pricing strategy. The chief economist's advice is sound, as increasing the price of the product would likely result in a larger loss on a higher volume.
I don't know
Yes,,,,the CEO should listen to the company's cheif economist,,,,at that point it means an industry is operating at shutdown point,,,that is the company can cover only fixed costs such as rent...I think it's the best advise not to rise the price as when then price goes up,demand decline which substantially affects total revenue...Although the company will continue to operate for the following reasons;to keep the company's reputation,,or if the major aim of the firm to provide social services to the society,,,or when the firm thinks that the good times are just coming,,.
Well, if the chief economist is anything like me, they probably have a great sense of humor. But let's get serious for a second, shall we?
In this situation, it would be wise for the chief executive officer (CEO) to listen to the chief economist. Since the company is already operating at a loss, increasing output would only lead to a higher volume of losses if the marginal cost rises along with it.
By not increasing the output, the CEO can avoid incurring further losses. It's a bit like that old saying: "If you're in a hole, stop digging!" So, in this case, it would be prudent for the CEO to heed the advice of the chief economist and refrain from increasing output.
Remember, when the going gets tough, the tough consider the advice of their chief economist (and laugh a little along the way).
To determine whether the chief executive officer of Mbeya cement company should listen to the chief economist, we need to consider several aspects.
The chief economist argues that if the price of the cement rises slightly, the company should not increase its output. The reasoning behind this is that the company's short-run marginal cost curve is rising. In economics, the short-run marginal cost curve represents the additional cost incurred from producing one additional unit of output in the short run.
The chief economist's concern is that if the company increases output in response to a price increase, the marginal cost would also rise. This implies that the cost of producing each additional unit would be higher and could potentially exceed the revenue gained from the increased price. As a result, the company could end up with a bigger loss despite selling a higher volume.
Now, whether the chief executive officer should listen to the chief economist depends on several factors:
1. Understanding of the Cost Structure: The CEO should have a good understanding of the company's cost structure, particularly the short-run marginal cost curve. If the CEO concurs with the chief economist's assessment that the cost of producing each additional unit would exceed the revenue gained, then it would be advisable to heed the economist's advice.
2. Market conditions: The CEO needs to assess the market conditions and demand for cement. If the price increase is expected to result in a substantial increase in demand, which could mitigate the impact of rising costs, it might still be beneficial to increase output. However, if the market conditions do not support an increase in demand, it would be prudent to consider the economist's concerns.
3. Long-term Strategy: The CEO must also consider the company's long-term strategy and financial health. If operating at a loss in the short term is part of a broader strategic plan, such as maintaining market share or positioning the company for future growth, then the CEO may choose not to follow the economist's advice.
In summary, the CEO should carefully weigh the chief economist's concerns against market conditions, the company's cost structure, and its long-term strategy to make an informed decision.