Denise M. Minor
ECO 561 Week 3 Individual Assignment
Professor John Lindvall
November 11, 2010
Thomas Money Services started out as a consumer finance company granting small loans for household needs. Over the years, the company expanded by issuing business loans, financing acquisitions and commercial real estate loans. The company also became involved in financing equipment through a subsidiary named Future Growth Inc. (FGI). Thomas Money Services acquired a lot of lucrative business opportunities over the years. However, the fall of the economy has caused profits to decrease resulting in layoffs. This proposal will provide recommendations on increasing revenue, achieving normal production levels, and ways to reduce cost.
First, in order for Thomas Money Service to increase revenue, the company should produce enough quantity until their marginal revenue equals marginal cost (MR=MC). Currently, marginal costs are above marginal costs, causing a decline in profits. Equilibrium was determined through graphing both marginal revenue and marginal costs. The equilibrium occurs when the company produces an output of 7 with marginal costs of $88 and marginal revenue of $14,000. It is apparent that the company is not a monopoly because marginal revenue would always equal marginal costs (Perloff, 2007). Another way that the company can increase revenue without changing the price is through advertising. Advertising could assist the company by providing consumers with information regarding the products and services provided through the company. Information provided suggested that at an output of 1 the product’s elasticity of demand at -26. However outputs of 7 and more became less elastic, causing the product to eventually become inelastic after outputs of 13. This inelasticity suggests that consumers purchasing behavior did not change because the price changed.
References: Output Decisions: Revenues, Costs, and Profit Maximization. (2010). Retrieved November 11, 2010, from Pearson Education: http://wps.pearsoncustom.com/pcp_90734_uop_casefair/109/27997/7167399.cw/index.html Perloff, J. M. (2007). Microeconomics. Boston, MA: Pearson Addison Wesley.