11 Aug How increased input prices could affect the firm’s profitability
Instructions
Detroit City Motors anticipates that the current ‘green’ initiatives being mandated by the federal government will create an increased demand for their most energy efficient vehicle, the Trius. The firm is developing a report of possible constraints that the firm will have to deal with concerning the ability to acquire adequate parts (lithium batteries) and skilled labor (due to labor shortage) to increase production. They are also concerned that the degree of market competition will restrict their ability to increase price of the Trius if faced with higher input cost due to increased competition for batteries.
Your Task
- Produce a 3-page executive summary of the issues that will have to be dealt with when increasing production at the facility. Be sure to address the points of:
- How the concepts of scarcity and rationing can affect the firm’s ability to meet the anticipated increase in demand
- The variables that would impact consumers decision to expand their demand for the product
- How increasing demand will necessity the increase in supply to maintain current pricing
- How increased input prices could potential affect the market price for fuel efficient cars and how substitutability with its competitors will affect the firms ability to adjust price
- How increased input prices could affect the firm’s profitability
- Discuss the consequences if the firm decides not to increase production and the market demand for fuel efficient cars does increase, what is the opportunity cost for choosing not to expand
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