Question

please respond in 150-200 words these are the only questions i do not know.

1. Have you ever driven by a poorly maintained business facility and wondered why the owner does not either fix up the property or go out of business?  

Explain a scenario or situation where you have seen this and discuss why this might be the case. What factors went into determining the reason the business is still open and/or opportunities the business might have. Explain what costs that business might incur and how they might still be making a profit or minimizing their losses?

2. What is the goal of a firm?

What is the difference between revenue and profit? Why do we use the assumption that firms have the goal of maximizing their profits as the basis of our models in this chapter? Is this model/assumption always true? Why or why not?

3. Let's examine what happens in an industry when it becomes competitive.  

The pharmaceutical industry allows drug makers to hold a patent on a drug for a certain period of time to recoup their costs before it is made available to the public via a generic branding. Why are the prices of generic drugs so much cheaper after they come off a patent? As a part of this, pharmaceutical companies often attempt to extend the patent period for a specific good, buy why? Take a look at the pharmaceutical industry in depth with an eye towards the economics of the industry.

Answer 1

1.

It is the case of sugar producing factory that is being poorly managed and has been regularly reported for its malfunction, employee dissatisfaction and higher turnover of the employees. The major reason of the problems or the mismanagement is the cash crunch or liquidity problems faced by the factory, seasonal nature of the sugarcane production that is the input material for the production of sugar, causing the employees to leave on a regular basis. Though, it can be resolved if following factors are considered:

A. The first factor is the different alternatives now available to produce the sugar and it can used by the factory with proper reorganization of resources.

B. The second factor is the derived demand of sugar into the different products and food industries that make it an attractive proposition to continue with the production and operate with superior efficiency.

C. Working capital arrangement for the factory and management of funds (inflow / outflow) can effectively streamline the cash flows and most of the problems can be eliminated by the factory.

D. Informed decisions taken up by the managers and bringing in independent directors who can take the decisions that are best for the organization.

Business may incur the restructuring cost including some investment into the machineries so that different input materials can be used. Besides, the working capital should be organized in advance to meet all the different kind of variable and overhead costs. Proper streamlining of the cash flows, elimination of waste and improving the efficiency level will cause the factor to earn profit once again.

2.

Goal of the firm is the combination of short term and long term objectives, the founders of the firm want the firm to achieve.

Revenue is the proceeds achieved for the sales process, whereas the profit is the net income after the subtraction of expenses from the revenue. So, Profit is calculated from the revenue earned by the firm in the market. The assumption is taken on the basis of firm’s key objective of profit maximization as proposed by shareholders theory and the theory proposed by Friedman. On this basis, we can assume that firm only operates to make profits for their owners.

This assumption may not be true, because the firms also focus upon the stakeholder theory that focuses upon the wealth maximization of all the stakeholders including the owners also. Here, the stakeholders are owners, employees, consumers, society and the regulatory bodies. A firm takes care of the best interest of all the stakeholders, rather the owners only. So, in the modern business environment, the assumption will change.

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