Help Mee,,
Mbeya cement company which has a rising short run marginal cost curve is currently operating at a loss ,mbeya cement company's chief economist says that if the prices rises A little ,the output should not be increased because if it's marginal cost would rise and the company would end up with a bigger loss on a high 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 the best position to advise the CEO on how to maximize profits. If the company increases output and prices rise, the marginal cost of production will increase, resulting in a larger loss. Therefore, the Chief Economist's advice should be taken into consideration.
To determine whether the Chief Executive Officer (CEO) of Mbeya Cement Company should listen to the Chief Economist, we need to understand the reasoning behind the economist's suggestion.
The economist argues that if the company raises prices slightly, it should refrain from increasing output because doing so would result in a higher marginal cost and ultimately a greater loss on a larger volume of production.
Now, let's analyze whether the CEO should heed the economist's advice:
1. Consider the current situation: The company is operating at a loss. This means that the costs of production are exceeding the revenue generated from selling cement.
2. Rising short-run marginal cost curve: In economics, the marginal cost refers to the change in the cost of producing one additional unit of output. If the short-run marginal cost curve is rising, it means that it becomes increasingly expensive to produce additional units of output.
3. Potential price increase: The economist suggests that if the company raises prices slightly, it should not increase output. This is because raising output would lead to higher marginal costs, eroding potential profit gains from the price increase.
Based on these considerations, it can be argued that the CEO should listen to the Chief Economist for several reasons:
1. Maximizing profit: The economist's advice aligns with the goal of maximizing profit. By refraining from increasing output, the CEO can prevent higher costs from eroding the additional revenue generated by the price increase.
2. Minimizing losses: If the company is already operating at a loss, it is crucial to minimize losses. Implementing the economist's recommendation would prevent the company from incurring additional losses on a larger volume of production.
3. Long-term perspective: The economist's suggestion demonstrates a long-term perspective, taking into account the implications of higher marginal costs. By avoiding a bigger loss on a high volume, the company can protect its financial stability and potentially recover in the future.
However, it is important to note that the CEO should consider other factors as well, such as market demand, competition, and the specific dynamics of Mbeya Cement Company. The CEO may also consult with other experts and conduct a thorough analysis to make an informed decision.
In summary, the CEO of Mbeya Cement Company should consider heeding the Chief Economist's advice, as it aligns with profit maximization and minimizing losses in the face of rising short-run marginal costs.
There are a few factors to consider in determining whether the chief executive officer (CEO) of Mbeya Cement Company should listen to the chief economist. Let's break it down step by step:
1. Understand the situation: Mbeya Cement Company is currently operating at a loss and has a rising short-run marginal cost curve. This implies that producing additional units of output will lead to higher costs per unit.
2. The chief economist's suggestion: The chief economist suggests that if prices rise only slightly, the output should not be increased. This is because the marginal cost would also increase, resulting in a bigger loss on a higher volume.
3. Evaluating the suggestion: To decide whether the CEO should listen to the chief economist, they should consider the following:
a. Profitability: Increasing prices may help improve profitability if increased revenue from higher prices outweighs the increased cost per unit due to the rising marginal cost curve.
b. Market conditions: Analyzing the demand for cement and market dynamics is crucial. If there is low demand or intense competition, raising prices may lead to lower sales volume and potentially further losses.
c. Cost analysis: The CEO should evaluate the cost structure and determine the break-even point. If the current cost per unit is above the revenue generated, it may be more beneficial to focus on cost reduction rather than raising prices.
4. Consider alternative strategies: Instead of solely relying on price increases, the CEO could explore other steps to improve profitability, such as optimizing production processes, reducing operational costs, or targeting different market segments.
5. Consult with other experts: It is beneficial for the CEO to seek input from other stakeholders, such as sales and marketing teams or financial advisors, to gain a comprehensive understanding of the situation and potential strategies.
In conclusion, whether the CEO should listen to the chief economist's suggestion depends on a careful analysis of market conditions, cost structures, and alternative strategies. Ultimately, it is essential to make informed decisions that align with the company's goals and long-term viability.