The Costs of Globalization for American Workers, Research Paper Example

There are a wide range of microwaveable food products that also provide the consumer with low calorie options. As consumers become more health conscious, while simultaneously taking on more demanding work schedules, microwavable foods become a more affordable and convenient option. Increase use of Microwaves directly results in an increase in microwavable goods. The rise in microwavable products allots the consumer a wide range of options, specifically in regards to focusing on healthier items.

Many of the most noted frozen food health items include brands like Healthy Choice, Slim Fast, and Lean Cuisine.  Within the Frozen food market, Lean Cuisine is recognized for its viable position both within the U.S. And internationally. The company has been in business since 1980, as a subsidiary of the Nestle. The company currently corners the market in healthy food options with as a low calorie provider of frozen meals.. Another competitor the firm needs to watch out for is Healthy Choice. The company is a subsidiary of ConAgra, which manufactures some of the top low calorie frozen foods in the industry. Both Lean Cusine and Healthy Choice represent the two largest market shares of the low calorie frozen food industry, which Healthy Choice coming in second.

Based on the information taken from assignment 1, it is clear that the most important aspect of operations that will influence the frozen food expansion for the firm are variable costs, outputs, workers, and labor time. It is the responsibility of the managing consultant to pay special attention to marginal costs to structure an economic model that will be most effective in taking advantage of these factors (Michaels, 2011).  Fixed costs are recognized as being easy to calculate as they usually represent the costs of machinery, facilities, tools, and other resources. Florentino points out that these types of costs are often called “one time” purchases. Additionally he notes that IRS allows them to depreciate in value, which reduces the tax burden incurred by the purchase over time (Florentino, 2014).

The fixed cost  does not change over time, while the variable costs tend to  represent expenditures that can fluctuate like  raw materials used in unit production, location costs, or labor changes in responses to increases or declines in production. It is the balance of fixed and variable costs that serves as the key distinct focus for implementing the driving factors that influence economic performance for the short term and long term.

It is the job of the managing consultant to utilize information accessed, such as worker productivity and labor to manage performance. When one makes a closer analysis of the total cost function shown below:

160000000+100Q+0.0063212Q^2

It becomes clear that the marginal cost can be calculated due to the fact that it represents the first derivative of total costs related to Q. This means the marginal cost = 100+0.0126424Q. This reaffirms what was provided in the marginal cost. The next step is to assess the equilibrium price level to P. In the short run, marginal cost equates to marginal revenue, which means the Total Revenue is equal to P*Q which means P = MR. In the short run at equilibrium, marginal cost (MC) equals marginal revenue (MR), which is calculated as P= 100 + 0.0126424Q. That is how the short run production function is assessed. To find the long run operating conditions of the firm more factors must be taken into account.

TC= 160000000+100Q+0.0063212Q^2
TR= P*Q
TVC= 100Q+ 0.0063212Q^2
MC= 100+0.0126424Q

In the short run over the course of 20 work days 6,000 items are manufactured by the company. Which accounts for an estimated 300 per day. At the current moment, the firm has 100 employees, Worker productivity (WP) is calculated through dividing daily production unit by the number of workers or employees. For example, WP = 300 / 100 = 3 units per worker-day.

Total Variable Cost is calculated by  taking the number of workers and multiplying them by the daily salary and then adding variable costs. For example the total variable cost of this company is $9,000. This value is found by multiplying 100 times $70 plus $2,000. The average variable costs is calculated through dividing the total variable costs by the daily units of output. This value is estimated by dividing the $9,000 earned by the 300 sales per day which brings the marginal cost to $30.  This value represents a curved point that crosses between AVC and MC and this value is the minimum value of the average variable cost, which is 300 sales per day and equates to $30.

The total fixed cost of operations actually remains unknown for the short run (TFC).  This value can be used to assess the company’s average total cost (AC). The Average Total Cost equals the Total Variable Cost combined with the total fixed cost, after it’s been divided by the units of output per day. For example if the total fixed cost equals $300, then this would mean the AC equals $9,000 plus $300 divided by 300 units and equaling a value of $31. AC ultimately indicates the profitability per unit that can be extracted from each daily operation.

In the long run, all values must be recognized as variables. This means AC, AVC, and TVC increase in direct relation to the yearly production of the firm. In the case that production is increased, it has no impact on the variable cost per unit, but does change the variable cost itself. For example, the total annual cost changes to  to $2,304,000, which is calculated by multiplying $32 by the 72,000 units produced each year. What this reveals is that the cost per unit adjusts to the increase in production making the increase in production sustainable both short term and long term, due to a corresponding decrease in cost per unit.

Market structure plays a significant role in the performance of the firm. This can be seen with such influencing factors as political policy, market price and other industry trends. It is essential that the managing consultant take the necessary precautions to be aware of these factors and incorporate them into a viable economic model for the firm. Demand, substitution, and supply are also critical factors that must be taken into account, specifically in regards to how effective responses to these conditions can vary.

If the firm employs  50 laborers, 6,000 units  for every 150 employees can be produced 20 days a month. This would equate to a total of 2 units produced per worker each day. The productivity is considered to have decreased When the firm produces 8,000 units with the same amount of  workers. In this case, 8,000 units divided by the sum of 150 workers times twenty work days a month would equal 2.7 units of production per worker per work day. In both examples the worker productivity decreases under the original rate. This reveals that increase in labor or  production does not directly result in a productivity increase. One way to improve productivity would be to improve technology and enhance efficiency through the use of more cost effective materials or tools. This could result in higher production through the use of less workers, which is understood as an increase in productivity.

For pricing purposes, the firm needs to take into account concentration ratios that assess market share value. Based on the market share, management can draft strategies for competitive pricing. This is a common approach within an oligopoly market. Within a monopoly market structure, the firm would have to establish exclusive rights to their original product, such as a certain unique type of frozen food, and then they would have to deal with the growing pains of entry into the health food market, most likely through significantly low pricing. In an oligopoly market, few firms share the market, due to them providing exclusive goods or services. On the other hand a monopoly market has a single seller of a particular product.  For the company to increase its profitability in a competitive market (oligopoly market), it needs to enhance output (total revenue, profit, total cost),  as well as its works within a long-run equilibrium, while comparing costs externally and internally. There are certain circumstance in which the company may need to discontinue operations. For example is the company is operating at a loss, the short run decision could be to fire workers, but the loss could be due to a loss or market share, which could be a a trending issue due to lack of innovation. Cost curves are how managers identify whether or not the company is operating at a loss or producing profit and ultimately whether operations should continue or discontinue (Michaels, 2011). If price is less than average total cost (AC), the company will be operating at a loss. If it’s equal to the AC the company is breaking even. For example if TFC is $900,  AC is $9,000 + $900 then divide the sum by 300 to produce a value of $33. On the other hand, if TFC is $900, then P/L is $9,600 – ($9,000 + $900) which comes out to $9,600 minus $9,900 for a loss of $300. This reveals that in order to have a competitive cost, the price of products need to be more than the average total cost but less than its most viable competitor within its market, whatever that price may be.

In conclusion, even if variable costs are reduced, it can still result in the reduction of profits for the company. The firm needs to pay close attention to factors influencing market share as well as well as aver total cost when mapping its price structure.

Reference

Bivens, J. (2013). Using Standard Models to Benchmark the Costs of Globalization for American Workers without a College Degree. Economic Policy Institute Briefing Paper #354.

Farnham, P. G. (2010). Economics for Managers: 2010 custom edition (2nd ed., pp. 5-127) Upper Saddle River, NJ: Prentice Hall.

Florentino, A. (2014). Cost drivers for cost estimations in manufacturing. International Journal Of Advanced Manufacturing Technology, 70(5-8), 1437-1444. doi:10.107/s00170-013- 419-6
Michaels, R. J. (2011). Transactions and Strategies: Economics for management. (1st ed., pp. 5-277) Upper Saddle River, NJ: Cengage.

Public Citizen. (2014). “On Anniversary of U.S.-Korea FTA Implementation, U.S. Exports Down 9 Percent, Imports from Korea Up and Deficit With Korea Swells 30 Percent, Undermining Obama Export and Job Growth Goals” (press release), March.

Taylor III, B. W. (2011). Inroduction to Management Science: 2011 custom edition (10th edd., pp. 8-9) Upper Saddle River, NJ: Prentice Hall.