Topics: Costs, Supply and demand, Marginal cost Pages: 5 (1351 words) Published: December 7, 2012
MorDates is a new plant that has opened in Morocco and the firm’s main operations are going to be date post-harvest handling and packaging activities to produce high-quality dates. Dates in Morocco are typically harvested completely ripe and require little or no post-harvest drying. But in order to ensure a high quality product, dates are washed and treated to kill any bacteria. MorDates also plans to export its harvested dates to U.A.E. as part of its operations.

MorDates plans to open a 400 Mega Tonne capacity plant. The total initial cost of investment is approximately $ 219,000.

Approximate Initial Investment Cost to build a date plant with the capacity of 400 Mega Tonne / year ItemCost ($)
Land Purchase 17,000
Buildings 35,000
Misc. Materials 37,000
Trucks & Transportation 31,000
Cold Storage Units 33,000
Crates 33,000
Containers 20,000
Office Supplies 1,000

Once the plant starts to operate, the total cost to treat and pack dates is calculated by adding the initial investment cost to the variable cost for each tonne of dates treated, packaged, and sold.

Breakeven point of the date plant

Initial Investment Cost$ 219,000
Variable cost (per ton)$ 4,500
Average Selling Price (per ton)$ 6,200
Production (ton) to reach breakeven point122
Total Production Cost$ 768,000
Total Revenue$ 768,000
Profit (per ton) after breakeven point$ 1,700

The above information depicts that if the plant sells 122 mega tonnes of dates to the domestic market at an average selling price of $6,200/MT, it will breakeven, that is, its revenues will surpass the initial investment cost. At this point, MorDates could make an estimated profit of $ 1,700 for each MT of dates sold.

According to the World Bank, “Morocco has one of the “worst” indices for rigidity of labour, including minimum wages and firing costs.” High labour cost weakens competitiveness and encourage informality. Since labour costs are a part of the variable costs, a rise in labour costs would create an effect on the total cost and hence increasing the average total costs. A rise in the variable costs of production leads to an upward shift both in marginal and average total cost. The firm is not able to supply as much output at the same price. The effect is that of an inward shift in the supply curve of a business in a competitive market.

The IMF (International Monetary Fund) currently predicts Morocco’s 2012 GDP growth should be about 4.5-5%, the same as 2011.

Though the growth rate is not rising at a substantial rate, there is a strong demand for high-quality dates in Morocco, due to low domestic supply of high quality dates.

Hence MorDates finds it lucrative to open a date plant in a country like Morocco which would offer high quality dates with high quality packaging. In addition to these, there are many government incentives offered, such as the following: •No land registration fees

Subsidies (10%) for the construction and the equipping of units for cold storage of agricultural products. •Morocco has European-quality road and railway systems for the transport of both passengers and cargo between major cities and air and marine departure points.

Considering there is an unmet demand for high quality dates, it would be a luxury good.
If the price of dates MorDates are offering rise in comparison with the competitors, consumers would prefer to buy from elsewhere instead of MorDates. Therefore the price elasticity is high in nature.

Similarly if the economy continues to do well, and there is an increase in the income level, the demand for these dates will rise. But if the income level falls, there will be a fall in demand as well. Therefore MorDates are income elastic in nature.

Since there are only around 10 firms like...
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