MBAC 6010 Chapters 9-11-12-Discussion Articles

MBAC 6010 Chapters 9-11-12-Discussion Articles - The...

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The University of Colorado MBAC6010: Managerial Economics Spring 2008 Chapter 9: Production and Costs In an article published in the New York Times (July 20, 2005), Gary Rivlin provides some insight into the production process in large corporations. The article, titled “Hewlett-Packard to Lay Off 14,500 in Turnaround Effort,” outlines the firm’s plans to cut costs and streamline its production. The article can be found for a nominal fee on the New York Times archive website or at most public or university libraries in their newspaper holdings. There are several aspects of this article that coincide with points raised in the chapter, including: 1) At the time, Hewlett-Packard (HP) was confronting inefficient production processes; as a result, it announced it would lay off 14,500 workers, nearly 10% of its staff. This is effectively a reduction in its variable costs. 2) Marginal benefits (i.e., savings and costs) of this massive layoff plan are expected to exceed its marginal costs (i.e., loss in output and costs of severance packages), as the firm is expecting to save a total of $1.9 billion in labor costs while only losing $1.1 billion in the process. a. Some financial experts are calling for more extreme efforts to streamline HP’s operations, such as separating the technology giant into two different entities. At this time, HP executives are not considering these more extreme suggestions because, presumably, they feel the costs of attempting such a major overhaul would outweigh the benefits. b. Cutting back on fixed costs, such as plant, equipment and R&D are not part of the streamlining effort, as yet. 3)
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This note was uploaded on 06/01/2008 for the course MBAC 6010 taught by Professor Bonner during the Spring '08 term at Colorado.

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MBAC 6010 Chapters 9-11-12-Discussion Articles - The...

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