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lectur2-page46 - overtime Time and a half can get expensive...

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The market is again in disequilibrium. The current rate of consumption is greater than the current rate of production at the prevailing market price. As a result, inventories are decreasing. These decreasing inventories will pressure a happy manager to take some action. What would you do? Let’s assume that this is the market for Ford, F-150, extended cab, 2-wheel drive pickup trucks. Could we speed up the assembly line to increase the rate of production? Yes, but what may happen to the “quality” of the finished product. Are ll ” h t d l ith Will th j b id t i d i i “recalls” cheap to deal with. Will on-the-job accidents increase, driving up our workman’s compensation rates? Will workers start calling in sick because they are so tired? What if we keep the assembly line at the same speed and work folks
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Unformatted text preview: overtime? Time and a half can get expensive quick. We could build another plant, and hire more workers. Is this “excess demand” permanent or just temporary? A new plant would cost hundreds of millions of dollars. Not a cheap alternative either. Again, we have been focusing on the production or “supply” side of the equation here. What about looking at another perspective, the consumption or “demand” side of the management decision. What could we do to decrease consumption of our trucks? Raise the price? That is easy and cheap to do. We could “hold firm” on the sticker price at dealerships, offer only market interest financing, and/or not offer any dealer incentives. 46...
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