Production & Cost

University Degree Business and Administrative studies

Production & Cost

Thomas Burton’s, “Cargo Idles Off West Coast As Labor Dispute Hits Ports,”

Norihiko Shirouzu’s, “Bumpy Road: As Toyota Closes In on GM, Quality Concerns Also Grow,”

Fixed and Variable Inputs: As defined in our textbook, in the short-run of production, firms use at least one fixed input, defined as a quantity that managers are not able to change during a particular time period. In relation to Thomas Burton’s 2002 article “Cargo Idles Off West Coast As Labor Dispute Hits Ports,” for the short-run, firms were fixed on the utilization of West Coast ports and had to brace for possible shortages and attempt to “weather the storm.” In the long-run of production, all inputs are variable, meaning that their quantities can be changed by management during a particular time period. If the closure continued, managers would have to look at the long-run and to alternatives for delivery to the West Coast Ports. Shipping cargo containers to other ports was one such option, although this could be limiting due to port capabilities, such as, many updated containers were too wide to travel through the Panama Canal. Air freight was another alternative option; however it was three times the expense of shipping cargo containers. Managers must always operate in the short-run because at any particular point in time, there is at least one fixed input in the production process, but they must also constantly maintain a plan for the long-run.
Diseconomies of Scale: Norihiko Shirouzu’s article, “Bumpy Road: As Toyota Closes In on GM, Quality Concerns Also Grow,” discusses Toyota’s almost doubling of its revenue and its escalating global expansion from 1994-2004. Due to these developments, Toyota looked increasingly to its American work-base to “take up more of the slack.” According to our textbook, diseconomies of scale occur when firms begin encountering elevated unit costs of production by assuming a larger degree of production. Within the article, Shirouzu notes signs began to appear that the growth was straining Toyota’s American resources, both personnel and technology, and weakening quality, both of which are inefficiencies associated with management of large-scale firms in diseconomies. Toyota’s “corporate faith” became increasingly diluted as it expanded globally due in part to employees receiving promotions too quickly because of time constraints and to language and cultural training barriers. In an effort to combat these problems, Toyota’s management team set up special task forces and plans to renovate management on the shop-floor level. This is one example of how getting bigger is not always better for a company.

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Economies of Scale: Operations within Asian and European ports, detailed in Daniel Machalaba’s article, “U.S. Ports Are Losing the Battle to Keep Up With Overseas Trade,” represent examples of economies of scale, defined in our textbook as organizations incurring reduced unit costs of production by assuming a larger scale of production. The United States is losing in trade battle due in large part to the restrictions of labor unions, requiring that U.S. ports maintain crews with larger numbers of personnel continuing to operate manually and citing safety as a concern for not adjusting the ...

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Economies of Scale: Operations within Asian and European ports, detailed in Daniel Machalaba’s article, “U.S. Ports Are Losing the Battle to Keep Up With Overseas Trade,” represent examples of economies of scale, defined in our textbook as organizations incurring reduced unit costs of production by assuming a larger scale of production. The United States is losing in trade battle due in large part to the restrictions of labor unions, requiring that U.S. ports maintain crews with larger numbers of personnel continuing to operate manually and citing safety as a concern for not adjusting the storage of containers to allow for greater maximization. Some of the major factors that created the economies of scale present in Asian and European ports include technological factors and the use of automatic devices. A single operator can man a crane from the comfort of his office via a joystick and video monitors. Computers also aid with the operator’s accuracy, verifying that the each container is loaded onto the correct truck at the correct time. In addition to technology, many overseas ports have expanded their terminals to serve multiple shipping lanes, unlike those in the U.S. The U.S. would not be able to adopt the technology that has been incorporated into Asian and European ports without significant financial cost; however, since U.S. trade with Asia is projected to double in the next 10 years, according to Machalaba’s article, U.S. ports will be forced to enhance their productivity or meet with more delays, inferior service and higher costs.
Input Substitution and Marginal Cost: Our textbook defines marginal cost as the “additional cost of producing an additional unit of output” as opposed to average cost which is a “cost per unit of output.” Marginal cost is taken into consideration when firms look to input substitution in production, the extent to which an organization can substitute one input for an alternative. Firms often seek to substitute inexpensive inputs for those more costly in an effort to minimize their costs of production. One factor influencing input substitution is technology. In Timothy Aeppel’s article, “Workers Aren’t Included in Lights-Out Factories,” advancements in technology allowed for the development of computer controlled manufacturing machines that operated after workers have left for the night, substituting computer input for human input. Manufacturing plants could also cut down on personnel by utilizing operators that worked from home, supervising several plants simultaneously. Marginal cost came into consideration as firms were hesitant about the financial risks of new technology and creating concern among staff regarding job loss. As technology advances and the market place continues to change, managers will look for ways to prevent diminishing returns.