Question

1,

Assume you are an engineer working for a chemical production company. You are on the technical team that is responsible for deciding what to do about the dangerous chemical that your company is using to produce its best-selling chemical product. Recent reports have just made known the dangers of this chemical, and the company now needs to decide how to proceed. There are several options to consider: stop producing the harmful product altogether and take a hit on total profits; continue to make the product and sell it, like nothing's wrong, since the federal government has not cracked down. You could also spend money and engineering efforts in R&D to develop a safe chemical that would take its place. There is no guarantee that this would happen any time soon, but the scientists think it is realistically possible. To make matters worse, your biggest competitor produces this harmful product off-shore and is not hampered by the US regulations. If you stop producing this product altogether, the financial positions of the company would be at risk to some extent. Additional marketing efforts would have to be made to sell other products to gain back the lost revenue and profits.

Consider the possible decisions and the ethics of this situation. Take into account, safety, costs, profits, competition, etc. Discuss what you would propose as a member of the decision team and why you would propose it.

2. Six years ago when the relative cost index was 50, a 15 MW power generation facility cost $10M to build. Today the cost index is 80. What would the cost be to produce a 45MW facility today if the power sizing factor is 0.7?

Answer 1

1. When we use harmful substances in the manufacture of products, it gives rise to pollution and affects society negatively. But we should know, that for the manufacturers of such substances, it is most beneficial for them to continue production, and they will generate more profit from it. But the surplus cost of the harmful effects of the substance, known as negative externality cost, will keep accumulating. So in order to decrease such extra cost of harmful substances, not accounted for by the government, since they are not taking decisions to curb such externality. The company can reduce the harmful effects which can be very costly and the product cost will also rise in such adaptation. Now if the company completely stops its production it will be very difficult for the company to manage its profits since the new production line is to be formulated, which can be very difficult, time-consuming and expensive. The company can also reduce the production of the product to a certain extent. But unfortunately in this situation, the competitor poses a threat to the company since it is making the products offshore, at a cheaper price and not considering the harmful effects of the substances.

As regards safety, there are only two options, first is to completely cease production of the product and the second is to produce a safe chemical that is costly and time consuming with high expenses on R&D. But if the harmful chemical continues to be produced it can cost the society with harmful effect. Now the profit is least when the company stops production, and the continuation of production will fetch profit but will not be ethically correct due to the harmful effects. We can see that the harmful effect of the chemical can be curbed in the future but that will require lots of time and money which cannot be provided immediately.

Therefore, for the company, to be ethically correct, either it has to stop the production altogether, or wait for the R&D team to come up with the new safer chemical. When we are considering the company's cost and profit scenario, it is most profitable to continue business as if nothing has happened. But certainly, that is not the right thing to do since we all have obligations towards society. Although the competitor is producing it offshore, the people in their country will be affected due to such harmful substances until and unless their government fixes the issue to curb such production.

As a responsible citizen, the company has to take an ethical decision without losing much profit. So it is suggested that the company continues the production at a reduced level, with a 50% reduction in the scale of production, although the company will incur losses, it can manage to increase the production of products in other business lines and invent new products from the long-term perspective. And while the company tries to keep up with the reduced manufacturing of the harmful substance, it can invest in the invention of the safer chemical. If the company takes an effort and invent a safer chemical, it will have a better competitive advantage through R&D. If not immediately, but at some future point of time, a few years later, such harmful chemicals will be banned by the Governments of the different countries and it will be an added advantage if the company is the first to produce the safer chemical. It can also make a profit by lending its technology in the future when all the manufacturers will be required to maintain safety.

To conclude, we can see that in the long term, it is in the best interest of the company to try to invent the safer chemical through continuous R&D effort in order to gain a competitive advantage in the future and assist other companies while making a profit from selling the safer chemical in the future. And it will also save the cost and increase profit in the future since the company will have the best technology to produce the product. To manage its profit during the short-run it can work at a reduced scale of production and manufacture fewer products with harmful chemicals. A few different market lines can also be innovated if the company has expansion plans. If it works this way, in the short-run it will be able to cover its loss, and in the future, it can make better profits following the ethical standards while not harming society with the production of harmful chemicals.

Note - Since both are separate questions, the answer to the first question has been provided.