Key Issues Analysis When MRMC Ethical efficiencies in valuing and pricing - Essay Example

The opportunity costs are the goods and services that consumers want and value. Incorrect pricing has ethical implications. To charge too small a price for a product in relation to its production costs will affect revenue negatively, upset the delicate balances required for profit maximization, and lead to disastrous repercussions, perhaps even to the demise of the company. On the other hand, to charge too much for the product, more than people are willing to pay, will result in the same kinds of consequences.

Incorrect payments to the factors of productions is unethical because it would also result in opportunity costs for the company. The opportunity costs include the foregone profits of producing goods and services that consumers want and also the opportunity costs arising from the greater community in which the firm exists - from the immediacy of geographical location to philosophical, religious, legal, sociological, and cultural implications of the greater world. Paid less than the value of his/her marginal product, the employee, a scarce human resource, would leave the company.

Paid more, the company's opportunity costs would result in fewer resources from which to produce the goods and services the community wants. One disposition is to put aside individual ethics and adopt only corporate ethics, that is, profit maximization or opportunity costs minimization, producing goods and services that consumers want and value. Price is a measure of how much do consumers want and value the goods and services produced. The payment to all of the factors of production will be equal to the total revenues from the price.

The total dollars from the production of goods and services is apportioned among the various factors of production according to the contribution of that factor of production's contribution, called its marginal physical product (MPP) in economics terms. The sum of the MPP of the factors of production equals what is produced. With respect to value, the MPP of each factor of production is sold in the market place for that price the consumer is willing to pay for it. When that price is multiplied by the MPP of each factor of production, the dollars we receive are called the value of the marginal physical product (VMP).

Another disposition is to attempt to influence the value that consumers place on goods and services produced by the firm. This could be achieved through advertisements. Value could be added to the factors of production so that their VMP could be increased. For example, labor could be trained and creativity could be encouraged. Also, cheaper factors of production could be used. For example, rather than producing steel in the USA, the firms in the steel industry could have based their production in Venezuela, Canada, and Australia where the cost of production is lower.

Nike is a good example of an organization that has adopted this disposition. Its operation is based in China, where the cost of production is low. It tries to influence consumer demand for its goods through advertisements. The value of entrepreneurship is increased by outsourcing all functions in which it has no competitive advantage and focusing instead on marketing.The first disposition is recommended. This is because it essentially means production at the level where marginal cost (MC) is equal to marginal revenue (MR) when profit is maximized.