Firms Actions in Increasing Its Profitability and Producing High Quality Products - Assignment Example

Firm’s Actions in Increasing Its Profitability and Producing High Quality Products Task A What would a firm do to thrive, increase its profitability, and produce high quality products that would lead to its success in the future? The best micro economic principle to consider in this case is the theory of a firm. The principle is the best to solve this situation whereby the organization focuses on increasing its profitability and increasing its efficiency in the market. The principle is the best since it ensures that the firm sets up strategies that would be efficient in increasing its profits in the future and ensures that all the factors leading to the profitability of the organization are put into action and consideration. The factors to be considered include the firm’s inputs, outputs, the pricing of goods, and its targeted revenue, among others (Suárez 2012). The theory of a firm ensures that it regulates all the above named factors in the company to ensure that they lead to the success of this firm. This principle focuses on using cheap and available inputs in the production processes since they reduce the cost incurred during production. They are also concerned with the methods that are used by the firm in the production process. For example, the products produced must be of very high quality since this principle is able to equalize on the inputs. This theory articulates that all the firms will realize a great profit if they produce goods up to the point where the marginal revenue is equal to the marginal cost, whereas, the firm consumes all its factors of production to the point where the cost of production is at par with the marginal revenue. The theory is known to be the best in identifying the future of the firm, ensuring that it makes enough profit with time. The theory ensures that it studies the structure of the company and improves its relationship with the market for it to succeed in the future. The theory is also effective in answering some other economic questions such as how different firms come to emerge and grow in the economy, relationships between different firms and the markets, and how to improve the performance of a firm through its actions. The theory of a firm economic principle is very effective in ensuring that the costs incurred in the production process do not also exceeds the earnings after production to prevent losses. The model balances between the internal and external transactions in every firm ensuring that the firm is able to grow with time (Suárez 2012). For example, it is through this principle whereby the external transactions are always made to cost higher compared to the internal transactions for the firm to grow. Task B There are various economic principles, which can be used to explain why the prices of maize fluctuated greatly over the period in the past five years. From the diagram, the prices of maize have not stabilized; however, economical analysis can also be used to explain the changes that have occurred during this period. The cost of production could have caused the great fluctuations of maize prices that are there in the market. When the cost of production is high, the prices of the products always tend to rise up, whereas, when the prices of products of production are low, the prices in the end are also low. In this case, the prices were very high in the year 2008 since the cost of production could have been very high. The cost of production is affected by various factors such as the cost of raw materials, the cost of the factors of production, which include; labor, land, entrepreneurship and capital, among other costs. In this year, 2008, it is most likely that the farmers struggled much to ensure that their crops grew well in the fields (Liu & Qi 2012). The cost of the seeds during this particular time could have been very high such that very few farmers were unable to plant the maize crops. Additionally, the cost of fertilizers during this time could have hiked much to a point where it would be difficult to purchase the products. All crops need to have rich nutrients in order to grow healthy and to produce better outcomes. In this case, the cost of the fertilizers caused the cost of production to rise and this resulted to increased prices of the maize after the production process. Consequently, the prices of maize were observed to reduce in the following year, 2009, since the cost of production could have reduced during the planting season. Once the prices of factors of production decreases, the cost of production too decreases leading to low prices of the maize products, as it is observed in the year 2009. During this time, the amount of maize being sold in the market was very high given that many farmers were able to produce the products at a cheap cost and the factors of production were available (Suárez 2014). In addition, during the production period, the farmers were able to enjoy low prices of fertilizers and other products. Labor was also available at a cheap price and was in plenty. All these led to a decrease in the cost of production for materials leading to increased production of the maize products. Observing the pattern, it is clear that the prices of products started rising again in the year 2010. This trend could be similar to the one in the year 2008 where the prices of the maize products were very high. In the year 2010, the prices steadily started to rise with time due to the increased cost of factors of production. The cost of inputs such as fertilizers started to rise hence causing an increase in the cost of production of the maize products. This increased cost made the farmers lose hope, whereas, some lacked the finances to sustain their plantation, therefore withdrawing from the production of maize. Consequently, few farmers sustained their plantation no matter the cost of production, causing the final products to have very high prices due to reduced products in the market. The trend continued and in the year 2011, the prices of the maize products were very high. The prices of the maize products were also very high up to the year 2013 (Asandului 2014). The high costs of production could result from unfavorable climatic conditions such that, when the climatic condition is unfavorable, the maize crops are not able to survive. During this condition, the farmers need more finances to buy more inputs such as fertilizers in order to produce quality products. Demand and supply forces may have caused the great fluctuations in the maize prices during this period. Most of the economists use these two tools to analyze any shift in the economy. Through research, it has been identified that when the prices are high, the demand is very low, whereas, the demand is very high when the prices are low. Supply also affects this market condition since, when the supply is high; the market prices are very high, whereas, when the market prices are very low, the prices of goods and services in the market are also very low (Courtney 2013). The force of demand and supply function together to stabilize the condition of the market as it is an economic principle. In the year 2008, the prices of maize were very high compared to the year 2009. High prices could be caused by the excessive demand of the maize products in the market. If the demand for a good is very high, the prices increases since there are a lot of money in the economy chasing a few goods in the market. This situation might be the as case in the year 2008 when the prices of the goods are very high. However, observing the trend of prices in the year 2009, the prices of the maize decreases steadily. They demand of the maize would have decreased greatly due to availability of many dealers in the market. Consequently, the dealers and farmers are forced to sell their maize at a lower price for them to gain customers. During this time, the customers have a wide variety of maize dealers to buy their products. However, those who benefit are the one selling their products at a cheap price since they will attract more customers. The prices therefore in the year 2009 were very low due to reduced demand for products in the market. Unfortunately, the prices start increasing greatly in the year 2010 up to the year 2013 (Courtney 2013). The prices however are able to stabilize a bit as it is observed from the trend of this curve. This may be the market price of the products. However, the prices increases since there are few goods in the market as it is similar to the case in the year 2008. The supply of goods also affects their prices a lot. It is common for dealers to hold on unto the maize products waiting for their demand to increase, for them to make a big profit margin. Most of them hold on unto the maize and reduce the amount supplied to the market, which consequently leads to increased demand of the products (Courtney 2013). The dealers then release the products in the market at a very high price as it is observed in the year 2008. Unfortunately, their plans fail when there is an increased amount of products in the market since the prices are able to reduce greatly as there is more number of dealers selling the same products. The customers also have a wide variety of products to choose from and hence the prices must be put low for the maize dealer to attract more customers. The supply of the products increase in the year 2009 compared to the year 2008. This could have been caused by favorable climatic conditions during the planting season. The climatic condition could have been very favorable in the sense that there was enough rainfall in the geographical location. In addition, other factors could have led to this change such as reduced cost of production as discussed above. The supply and demand of products affect the pricing of goods and services in the market greatly, however, the two forces must be in action to ensure that the prices of goods and services in the market are able to stabilize (Xiaochen 2013). Economists use the demand and supply forces in the market to ensure that the customers are not overpriced, and the farmers and producers do not undergo any loss, as it is the case in the year 2009. Inflation could be a major reason why the prices of the maize hiked during this period. Inflation is the general increase in the prices of goods and services in an economy. The price of the maize product can be used to represent the price of all the products in the economy. The prices of products may be so high in the economy due to an increased supply of money, consequently; there are large amounts of money chasing a few goods in the market. In the year 2009, the inflation rate was very low and hence the prices of the maize were low in the market. However, in the following year, the curve shows that the price of the goods and services in the market hiked (Gordon, Nadal & Semeshenko 2013). From an economical view, this trend can be due to increased inflation in the year 2010. Between the year 2011 and 2013, the prices of the maize products are also very high, which can be due to increased inflation rates in the economy. The type of inflation depicted by the diagram is a cost-push inflation whereby the general prices of goods and services rise greatly. Various things can cause this kind of inflation such as; increase in individual wages whereby people have more money, hence increasing the demand for the maize products in the market. The prices of imports also cause the cost-push inflation in the case where all the imported products have high prices, hence leading to inflations (Mitra Erum 2013 2014). Thirdly, the prices of the inputs will cause the cost-push inflation to increase greatly in the sense that the cost of production will increase hence causing the product, which is the maize, to have a high cost in the market. Fourthly, profit push would result to the increased cost of maize, as it is the case in the year 2011 to 2013 (Gordon, Nadal & Semeshenko 2013). Individuals and organizations producing maize may anticipate increasing their profit margin by increasing the price of the maize products, which results to the curve trend between the year 2011 and 2013. Decreased productivity may have caused the products prices to rise in the market since there will be increased demand for the maize products whereas the supply in the market is a bit lower. Increased taxation of the maize production inputs would also increase the prices of products in the market where the government taxes the producers much money such as increasing taxes in the farm inputs. In this case, the producers are always forced to increase the prices of products in the market so that they can compensate to avoid loses (Asandului 2014). Conclusively, it is the duty of economists to ensure that the prices of the products and services in the market are regulated and stabilized. By initiation various macroeconomics and microeconomics principles into the economy, the prices of maize will be regulated, leading to stability of its prices in the market. All the factors analyzed above including inflation, cost of production, and the supply and demand of products in the market should be critically analyzed and used to reduce the prices of maize. In addition, economists should come up with the proper solutions to these problems to ensure that the prices of the maize products are fair and favorable such that both the customers and producers are satisfied, hence leading to efficiency. References Asandului, M 2014, 'The Relationship between Inflation and Inflation Uncertainty. Empirical Evidence for the Newest EU Countries', Plos ONE, 9, 3, pp. 1-11. Courtney, MM 2013, 'Consumer price indices and the identification problem', Statistical Journal Of The IAOS, 29, 1, pp. 41-51. De Gregorio, J 2012, 'Commodity Prices, Monetary Policy, and Inflation†', IMF Economic Review, 60, 4, pp. 600-633. Gordon, M, Nadal, J, Phan, D, & Semeshenko, V 2013, 'Entanglement Between Demand and Supply in Markets with Bandwagon Goods', Journal Of Statistical Physics, 151, 3/4, pp. 494-522. Mitra, S, & Erum 2013, 'Early warning prediction system for high inflation: an elitist neuro- genetic network model for the Indian economy', Neural Computing & Applications, 22, pp. 447-462. Xiaochen, S 2013, 'Coordination in a Single-Retailer Two-Supplier Supply Chain under Random Demand and Random Supply with Disruption', Discrete Dynamics In Nature & Society, pp. 1-12. Suárez, P 2014, 'The analytic solution of the firm's cost-minimization problem with box constraints and the Cobb-Douglas model', AIP Conference Proceedings, 1504, 1, pp. 1188-1191. Liu & Qi, X 2012, 'Simultaneous and sequential price quotations for uncertain order inquiries with production scheduling cost', IIE Transactions, 44, 10, pp. 820-833. Read More