Economics: business organization - Essay Example

14 January 2007 Economics The existence of a business organization is justified by its profit maximization motive. In the case of the production firm under consideration, this goal is unrealized due to the presence of high costs and probably, low productivity. With the level of company's revenue, it can significantly cover all its variable cost but is unable to pay all of its fixed costs. In order to enable the business organization cover all its fixed cost, it is recommended that the company cuts on its variable costs by laying-off workers.

This, however, seem to be detrimental to the business organization as it will affect the level of productivity and can bring down the level of revenue in the long run. In order to prevent this from happening, this report recommends that the company lays off only those workers who are hard to work with and have low productivity. Table 1 shows the number of workers to be laid-off at different levels of fixed cost. For example, when fixed cost is $2000, the company has to eliminate 5 workers. At this point, productivity is expected to be unaffected as there are still 65 workers to produce 900 units.

However, when fixed cost is $4,000, the company will be better off it discontinues its operation since laying off 25 employees is deemed to significantly affect the level fo production and revenue.Table 1. This report also recommends that when laying off employees, the company should look into enhancing individual productivity by conducting team building seminars and trainings. The company can also mechanize some of its processes in order to enhance efficiency.