As a result of these costs, firms become reluctant to change their prices as it will be costly to constantly change prices and hence rigidity in changing of prices. Also when firms reduce prices, that does not benefit it only but extend to the other firms. A reduction in prices of commodities increases the buying power of customers and increase demand for all firms. To this, firms escape the responsibility of incurring menu costs and instead they only produce more to increase revenue rather than reducing prices. This is known as aggregate demand externalities.
Thus, J&L’s operating margin was exposed to the volatility of fuel prices. In order to stabilize operating margin, J&L has two options. One is to enter fixed-price contracts with its fuel suppliers, however, it does not work, because fuel suppliers tend to walk away when fuel prices rise and J&L will be left with unattractive options. The other (and the only available) option is to hedge by purchasing derivatives. Argument against hedging The most important argument against hedging this type of risk is that a corporation needs to, in exchange for hedging, (i) give up the upside of commodity prices going down (in futures, swaps and collar) or (ii) pay premiums (in options) or (iii) both.
So just as profits reward producers for making things people want to buy at prices they are willing to pay, losses punish producers for wasting resources and producing things people don’t want at a cost consumers are not willing to cover. Negative profits and business failures serve a productive function in the process of business growth and development. When one business enterprise in a market economy finds a way to lower its costs, competing enterprises have no choice but to scramble to try and do the same. Any change in the economy, such as an increase in demand for a product, requires further changes and adjustments in many aspects. Any kind of change in the output of one product will most likely require changes in other markets, as well, and will start a chain of adjustments.
Organizations looking to make substantial profits could possibly be willing to push those able to pay hefty prices for organs to the top of lists causing those in need to go without and ultimately die. That situation would be a matter of business ethics and in my opinion goes against moral standards which take priority over other standards, including
The Effects of Outsourcing on the Economy In recent years, outsourcing has become an increasingly popular alternative for some of the largest corporations in North America, who are looking for inexpensive ways of lowering overall costs. Outsourcing, which is the relocation of jobs to other foreign countries, has become a controversial new way of doing business. In considering the pros and cons of outsourcing, we have to ask some key questions: Who is benefiting for outsourcing? What types of jobs are being outsourced? What effect does outsourcing have on Americans?
An increase in the price of raw materials against a depreciating US dollar will severely cause costs to become inflated leaving less room for profit margins. Despite all these, the external markets did play a biggest major role in influencing the decision to restructure, and it turned
Identify two areas of government regulation and explain why this can be seen as a bad thing for businesses. Taxation may lead to businesses being driven out of the country due to high taxes and due to this businesses will move to countries with lower tax rates to maximise their profits. Building regulation stops the growth of businesses because without the approval of the government businesses’ cannot expand
This is almost a guaranteed way to lose customers. 5. I would suggest that GLC carefully consider every pro and con of the possible operation. Being able to transport products to the manufacturer in a larger quantity would be great, but does the possibility of losing customers or perhaps not being able to have the project funded by investments put the company in an economic decline be worth
As marketer’s decision of reducing on price, which we can consider it as investing on potential customers, to ensure their interest in one specific brand. In one period we consume, in the other time we save for investment. Not to mention, in the time of having high cost of living which leads to the shrinking of consumers’ purchase power, or we can also see the inflation on the price of goods. In this case, by repositioning a company’s brand meanwhile realigning with the perception of value in consumers’ mind is critical for a firm to sustain its brand image amount the publics. Even though this action has caused a short term profitability decline, but for firms’ long-term sustainability, it is vital to keep up with customers’ perceived value, and understanding the core idea of value-pricing strategy.
A high stock price decline after an earnings announcement can often be a reason for investors to accuse a company for having withheld important information. In order to avoid these legal costs a manager can preempt the disclosure of a large negative earnings surprise. Such voluntary disclosure makes it harder for plaintiffs to claim a manager withheld information as the plaintiff cannot know exactly when the manager obtained the bad news. It also limits the time period of nondisclosure and thereby the possible damages which can be claimed.51 The voluntary release of earnings forecasts can also be beneficial for a company. When there are changes in the environment of a company and managers release an adapted earnings forecast, they demonstrate their ability to anticipate future changes.