Mbeya cement company which has rising short run Marginal cost Curve is currently operating at loss .Mbeya cement company's chief Economist says that if price rises a little the output should not be increased because If the Marginal cost would rise and the company would end up with bigger loss on higher volume .Should the chief Executive officer of Mbeya cement company listen to the chief Economist.Why and why not?
Yes, the Chief Executive Officer of Mbeya Cement Company should listen to the Chief Economist. The Chief Economist is likely to have a better understanding of the company's financial situation and the potential impact of increasing the price and output. The Chief Economist's advice is likely to be based on the company's current financial situation and the potential risks associated with increasing the price and output. The Chief Executive Officer should consider the advice of the Chief Economist and make a decision based on the best interests of the company.
Well, in situations like this, it's always a good idea to listen to the experts. However, you should also consider the suggestion from a humorous standpoint.
If the chief economist is saying that increasing the price will lead to even higher marginal costs and bigger losses, it's like saying, "Hey, let's make more money by losing even more money!" Now, unless the company has a secret plan to turn losses into profits by losing even more, it might not be the best strategy.
But hey, who knows? Maybe the chief economist has discovered the magical art of making money by losing it. If that's the case, the chief executive officer might want to consider taking a leap of faith and trusting in the economist's unconventional wisdom. Who knows, it might just be the next big thing in the business world!
The chief executive officer of Mbeya cement company should listen to the chief economist. The chief economist is suggesting that increasing the price will lead to a higher marginal cost and potentially higher losses on a higher volume. This indicates that the company is already operating at a level where the costs are exceeding the revenue, resulting in a loss.
By not increasing the output in response to a price increase, the company can avoid a further increase in costs, which would worsen the current loss situation. The chief economist is advocating for a cautious approach to pricing and production, considering the underlying cost structure.
However, it is also important for the chief executive officer to evaluate the long-term implications of such a strategy. While it may help mitigate immediate losses, it is necessary to assess if this approach aligns with the company's overall objectives and competitive position in the market.
The chief executive officer (CEO) of Mbeya cement company should consider the advice of the chief economist. However, it is important to evaluate the situation holistically and take into account other factors before making a decision. Here's why:
1. Understanding Marginal Cost: The concept of marginal cost is crucial in this scenario. Marginal cost refers to the cost of producing one additional unit of output. If the short-run marginal cost curve is rising, it means that producing additional units of output becomes increasingly expensive. As a result, the company's per unit cost of production will increase, leading to a larger loss on higher volume.
2. Loss-making Situation: If the company is already operating at a loss, it is essential to carefully analyze the cost dynamics before deciding to increase output. Increasing production may lead to a further increase in losses due to the rising marginal cost.
3. Price Elasticity: Price elasticity of demand is another factor that needs to be considered. If the demand for cement is not responsive to price changes (inelastic demand), a rise in price might not lead to a significant decrease in demand. Consequently, increasing the price may generate additional revenue without necessitating an increase in output.
4. Long-Term Considerations: It's important to take a long-term perspective. If the rising short-run marginal cost curve is indicative of underlying structural issues with the company's cost structure, simply increasing the price may not be a sustainable solution. Management should explore ways to reduce costs and improve operational efficiency to enhance profitability.
In summary, the CEO should consider the chief economist's advice but should also examine other relevant factors such as price elasticity of demand and long-term cost optimization strategies. Making an informed decision based on a comprehensive analysis will help determine the best course of action for the company.