Production and Cost Curve

Topics: Costs, Cost, Variable cost Pages: 3 (920 words) Published: July 18, 2005
Production/Cost Curves

Every company has some kind of Revenue and they all have costs that are associated with running the company. It is also true that if a company wants to increase their Revenue, their costs will increase too. It is every company's goal to maximize revenue and either through Production or Services, and minimize cost. These things are easy to figure out, but actually identifying the production and figuring out how it will increase or decrease with change is very difficult.

In Fred Meyer our output like in all grocery stores, is not a product but the amount of items we sell. Sales is what drives the company, it is the source for our Revenue. Similar to manufacturing companies where they have numbers that tell them how much they produced, we have numbers that tells us how much we have sold. Every department has a goal that they have to reach. They have to sell their products to come to that number. The number varies daily, and managers expect from every department that they will sell more products compared to last year.

For departments to achieve that, managers have to look at the output level and decide how they can increase profit. It will be very difficult for them to do that because if they want to increase the production/output which is sales in my situation, they would incur costs. So if managers decide to try and sell more products, they could hire more employees to persuade customers to buy more products. We can see that when we go to "Circuit City" and "Best Buy", they have employees just standing around and not doing anything, but once a customer shows up, they are all over them. So for managers in my Home-electronic department they could hire more employees to sell more products. That concept would not be very efficient after a certain number of employees are hired. If we h ire 10 more employee, than a lot of them would just stand around and be in the way of customers and even each other. This situation could be a bottleneck...
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