Recommendation
Overall the farm seems to be in a weak state. Two main options: to sell and moving into the crisp market. There are many factors that success depends on such as financial situation, reliability of Romily’s forecast and accuracy of the business plan. Current situation of Baker Ltd. is vulnerable which might resulted in long term loan of 600 000 pounds and the acid test ratio shows that every pound they owe, they can payback only 30 pence. Therefore banks might not give credit in amount of 400 000 pounds for starting-up new business. First of all I would recommend to you sell some machinery to rise money for starting up. Also I would strongly recommend not to rise money through shares, because you already have got only 40% of the company, other wise you might lose control of the company. Another issue is reliability of Romily’s forecast, it’s important because decisions would be made based on her forecast. If expected profits wouldn’t occur you have to sell family’s business in order to cover debt. Therefore I recommend to make primary research as well, to identify trends and insure that Romily’s forecasts are reliable.
Wednesday, 4 November 2009
Wednesday, 14 October 2009
Revision: Elasticity
PES- Price Elasticity of Supply measures the responsiveness of quantity supplied of good X to changes in the price of good X.
Factors determine elasticity of supply.
Time: supply is more elastic the longer the period of time.
Factors of production: how easily available are the factors of production
Capacity: If a firm has spare capacity it can increase output easily.
Level of stocks: the higher the level of stocks, the more elastic is supply.
YED- Income Elasticity of Demand measures the responsiveness of the quantity demanded of a good to the change in the income of the people demanding the good.
A negative income elasticity of demand; an increase in income will lead to a fall in the quantity of inferior goods and may lead to changes to more luxurious substitutes.
(inferior good is a good that decreases in demand when consumer income rises)
A positive income elasticity of demand; an increase in income will lead to a rise in the quantity of normal goods. If income elasticity of demand is less than 1, it is a necessity good. If the elasticity of demand is greater than 1, it is a luxury good or a superior good.
(normal goods are any goods for which demand increases when income increases and falls when income decreases but price remains constant)
(luxury good is a good for which demand increases more than proportionally as income rises)
(Superior goods make up a larger proportion of consumption as income rises)
XED- Cross Elasticity of Demand measures the responsiveness of demand for good A to a change in the price of good B.
PED- Price Elasticity of Demand measures the response of demand for GoodX to a change in the price of that good.
What determines price elasticity?
Availability of substitutes (more substitutes - elastic, no substitutes - inelastic)
Is the product habit (Alcohol, tobacco)
Price as a proportion of income.
Period of time.
Sunday, 11 October 2009
Homework
Christian was right to accept the offer because first of all his investor is expert in retailing stationary. Therefore as he said he can help him to put his product into the market quicker than anybody else. Also he will develop his product range and he has got knowledge and connections in particular market. There were 5 investors, but Christian was interested in stationary retailer. Christian offered 15% of shares, and it is enough, may be that expert wouldn't invest but another one will. But another investor isn't expert in retailing stationary and he wouldn't help so much as expert in retailing stationary. I think that expert was already interested in Christian's product, because his product already has got pattern and different designs and range of product. In my point of view that expert already agreed he just wanted to increase his dividends, therefore Christian should increase his offer to investor by 5% giving to him 20% instead of 15%. In another hand Christian may be didn't want to risk and made an offer that expert wouldn't reject.
Pareto's Principle - The 80-20 Rule
In 1906, Italian economist Vilfredo Pareto created a mathematical formula to describe the unequal distribution of wealth in his country, observing that twenty percent of the people owned eighty percent of the wealth. In the late 1940s, Dr. Joseph M. Juran inaccurately attributed the 80/20 Rule to Pareto, calling it Pareto's Principle. While it may be misnamed, Pareto's Principle or Pareto's Law as it is sometimes called, can be a very effective tool to help you manage effectively.
Where It Came From
After Pareto made his observation and created his formula, many others observed similar phenomena in their own areas of expertise. Quality Management pioneer, Dr. Joseph Juran, working in the US in the 1930s and 40s recognized a universal principle he called the "vital few and trivial many" and reduced it to writing. In an early work, a lack of precision on Juran's part made it appear that he was applying Pareto's observations about economics to a broader body of work. The name Pareto's Principle stuck, probably because it sounded better than Juran's Principle.
As a result, Dr. Juran's observation of the "vital few and trivial many", the principle that 20 percent of something always are responsible for 80 percent of the results, became known as Pareto's Principle or the 80/20 Rule.
What It Means
The 80/20 Rule means that in anything a few (20 percent) are vital and many(80 percent) are trivial. In Pareto's case it meant 20 percent of the people owned 80 percent of the wealth. In Juran's initial work he identified 20 percent of the defects causing 80 percent of the problems. Project Managers know that 20 percent of the work (the first 10 percent and the last 10 percent) consume 80 percent of your time and resources. You can apply the 80/20 Rule to almost anything, from the science of management to the physical world.
You know 20 percent of your stock takes up 80 percent of your warehouse space and that 80 percent of your stock comes from 20 percent of your suppliers. Also 80 percent of your sales will come from 20 percent of your sales staff. 20 percent of your staff will cause 80 percent of your problems, but another 20 percent of your staff will provide 80 percent of your production. It works both ways.
How It Can Help You
The value of the Pareto Principle for a manager is that it reminds you to focus on the 20 percent that matters. Of the things you do during your day, only 20 percent really matter. Those 20 percent produce 80 percent of your results. Identify and focus on those things. When the fire drills of the day begin to sap your time, remind yourself of the 20 percent you need to focus on. If something in the schedule has to slip, if something isn't going to get done, make sure it's not part of that 20 percent.
There is a management theory floating around at the moment that proposes to interpret Pareto's Principle in such a way as to produce what is called Superstar Management. The theory's supporters claim that since 20 percent of your people produce 80 percent of your results you should focus your limited time on managing only that 20 percent, the superstars.
Manage This Issue
Pareto's Principle, the 80/20 Rule, should serve as a daily reminder to focus 80 percent of your time and energy on the 20 percent of you work that is really important. Don't just "work smart", work smart on the right things.
Where It Came From
After Pareto made his observation and created his formula, many others observed similar phenomena in their own areas of expertise. Quality Management pioneer, Dr. Joseph Juran, working in the US in the 1930s and 40s recognized a universal principle he called the "vital few and trivial many" and reduced it to writing. In an early work, a lack of precision on Juran's part made it appear that he was applying Pareto's observations about economics to a broader body of work. The name Pareto's Principle stuck, probably because it sounded better than Juran's Principle.
As a result, Dr. Juran's observation of the "vital few and trivial many", the principle that 20 percent of something always are responsible for 80 percent of the results, became known as Pareto's Principle or the 80/20 Rule.
What It Means
The 80/20 Rule means that in anything a few (20 percent) are vital and many(80 percent) are trivial. In Pareto's case it meant 20 percent of the people owned 80 percent of the wealth. In Juran's initial work he identified 20 percent of the defects causing 80 percent of the problems. Project Managers know that 20 percent of the work (the first 10 percent and the last 10 percent) consume 80 percent of your time and resources. You can apply the 80/20 Rule to almost anything, from the science of management to the physical world.
You know 20 percent of your stock takes up 80 percent of your warehouse space and that 80 percent of your stock comes from 20 percent of your suppliers. Also 80 percent of your sales will come from 20 percent of your sales staff. 20 percent of your staff will cause 80 percent of your problems, but another 20 percent of your staff will provide 80 percent of your production. It works both ways.
How It Can Help You
The value of the Pareto Principle for a manager is that it reminds you to focus on the 20 percent that matters. Of the things you do during your day, only 20 percent really matter. Those 20 percent produce 80 percent of your results. Identify and focus on those things. When the fire drills of the day begin to sap your time, remind yourself of the 20 percent you need to focus on. If something in the schedule has to slip, if something isn't going to get done, make sure it's not part of that 20 percent.
There is a management theory floating around at the moment that proposes to interpret Pareto's Principle in such a way as to produce what is called Superstar Management. The theory's supporters claim that since 20 percent of your people produce 80 percent of your results you should focus your limited time on managing only that 20 percent, the superstars.
Manage This Issue
Pareto's Principle, the 80/20 Rule, should serve as a daily reminder to focus 80 percent of your time and energy on the 20 percent of you work that is really important. Don't just "work smart", work smart on the right things.
Thursday, 8 October 2009
Economics: Monopoly
I am sorry for that I didn't post due to my health problems.
Monopoly - The sole supplier of a good for which there is no close substitute.
There are different types of monopoly:
Natural monopoly - a market where long-run average costs are lowest when output is produced by one firm.
Legal monopoly - a market where a firm has a share of 25 % or more.
Dominant monopoly - a market where a firm has a 40 % or more shares.
A private sector monopolist is likely to want to make as much profit as possible. This objective calls profit maximisation when achieving the highest possible profit where marginal cost equals marginal revenue. A monopolist's profit will continue to rise when addition to total revenue is greater than addition to total cost. Therefore firm makes profit, there are two types of profit:
Supernormal profit - also know as abnormal profit, profit earned where average revenue exceeds average cost.
Normal profit - the level of profit needed to keep a firm in the market in the long run.
Monopoly - The sole supplier of a good for which there is no close substitute.
There are different types of monopoly:
Natural monopoly - a market where long-run average costs are lowest when output is produced by one firm.
Legal monopoly - a market where a firm has a share of 25 % or more.
Dominant monopoly - a market where a firm has a 40 % or more shares.
A private sector monopolist is likely to want to make as much profit as possible. This objective calls profit maximisation when achieving the highest possible profit where marginal cost equals marginal revenue. A monopolist's profit will continue to rise when addition to total revenue is greater than addition to total cost. Therefore firm makes profit, there are two types of profit:
Supernormal profit - also know as abnormal profit, profit earned where average revenue exceeds average cost.
Normal profit - the level of profit needed to keep a firm in the market in the long run.
The monopoly diagram above shows marginal cost (MC), marginal revenue (MR) and average revenue (AR).
The figure shows that firm makes supernormal or abnormal profit, Abnormal profit: the CPAB rectangle. Total revenue will be OPAQ rectangle and total cost OCBQ rectangle.
Under monopoly the abnormal profit can continue in the long run because there are high barriers to entry.
Wednesday, 30 September 2009
Monday, 28 September 2009
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