Proportional Mix Strategy in the Purchase of the Trucks - Assignment Example

The oversupply of oil causes the supply curve of diesel oil to shift while demand is constant as illustrated graphically above eventually causing prices to go down as explained by Nadler-Kafferlin Economic Consulting, Group, Inc.

According to the dealer of Park Company, the change in prices of gas is not only from changes in normal demand and supply curves, but because it is a complementary good of gas trucks. Thus, changes in the price of one good result in effects on the maintenance cost of the other good. More significantly, the increased supply of gas for the next ten years will lead to a decrease in price levels, as the demand levels remain the same. As a complementary good, the cheap prices of gas will be from increased supply and inelastic demand that later causes maintenance of power trucks to be low in the market making it a viable option.

It is considered that changes in price levels in the short-run average cost curve always add up together as combined costs in the long-run average cost curve. Based on Nadler-Kafferlin Economic Consulting, Group, Inc's advice it is expected that price levels of diesel oil in the market would change thus, leading to price decreases that will consequently lead to a decrease in the short-run average curve. In the end, Ashland Long Haul costs of maintaining the diesel trucks will change over the short run period leading to shifting in the eventual long-run average cost curve as shown below in the graph where subsets of the short-run curve lead to the eventual long run curve.

More significantly, changes in the prevailing natural gas prices are expected in the next ten years. Therefore, the maintenance cost of gas trucks that remain as a complementary good of natural gas is high currently because the level of changes in the price levels are currently high thus, short-run average costs remain high. However, as the price levels change in the end the average costs will decrease this is because the costs of natural gas are expected to go down. Therefore, the short-run curve will be high but will finally be low causing the shift in the end to curve downward as price levels decline.

More than often, it is necessary to consider the initial cost of purchases and maintenance costs considering the changes in market factors caused by shifts in the supply and demand levels that cause changes in price levels. Because Ashland Long Haul is already in possession of diesel trucks and changes in the price levels of diesel trucks are expected to shift it is rational to maintain the diesel trucks. However, with a promising market later in natural gas prices it is advisable to change the purchases in the end after ten years of the speculated changes with the company maintaining both diesel oil and natural gas trucks.

In economics, the speculation of changes in the supply and demand levels as different factors that affect the prevailing market price changes is highly considered. The ceteris paribus state of the market creates the theory of influences in the market prices when factors are held constant while others change. Based on the theory of demand and supply, the disequilibrium state in the market causes either an increase or decrease in the prevailing market prices of goods this is the reason for changes in diesel oil prices. Nonetheless, the changes in natural gas are influenced by the fact that it is a complementary good and the inelastic demand level indicates that there are no expected changes in the demand levels for the next ten years. As a result, an increase in supply causes an oversupply with buyers left with the choice of dealers who sell goods at low prices leading to changes in the cost of maintenance.

More importantly, the best strategy is to use a proportional mix strategy in the purchase of the trucks with both purchases of trucks that use both diesel oil and natural gas. The strategy is based on the expected changes in the price levels of both natural gas and diesel oil that are expected to fall. Because it is wise to make a rational decision for being in charge of purchases of the truck the focus is on minimizing the cost it is relevant to ensure that the burden is diverse because the prevalent market prices will be expected to change over time. Read More