Question: How would you respond to this post? A significant increase in the scale of production comes with an increase in the total cost of the
How would you respond to this post?
A significant increase in the scale of production comes with an increase in the total cost of the business. Both owners of North Carolina's Summer Lawn Care have valid points. However, the marginal costs, which are the changes in the overall costs due to the new business addition, will be significant. Therefore the pros and cons must be properly evaluated. The proposed business name change will include additional advertisement costs of reprinting business cards, vehicle paint, signage, and ads in Yellow Pages. These costs, together with any additional tool purchases, are all explicit and relevant business costs. Changing the business name and promotional materials to include expansion to tree care services may be valid, but only logical if certain that this expansion is permanent. However, as mentioned, the surge in the request for tree cutting services is attributed to recent storms in the area. Accurate estimation of market demand for the service long term is necessary (Douglas, 2012). Temporary increase in revenue due to the seasonal demand for the tree cutting service may not be enough to offset these added costs, which means it will take the business longer to be profitable. An implicit cost in this scenario is the opportunity costs of not attracting more tree cutting contracts with the new business name. It can only be an implied cost since it is not always easy to account for them in business reporting. Also, costs that have been incurred previously and cannot be retrieved are called sunk costs (Douglas, 2012). If the partners agree to change the business name, all previous materials printed will therefore, become sunk costs as the contents will become worthless. It is important to note that advertising can influence the market demand for their service. Still, if an additional dollar is spent on advertising, its contribution margin would have to increase by more than $1 to be profitable. The absolute conclusion here is difficult as the full cost of name change in proportion to the added business revenue is not fully known. Still, in the case, changing existing business materials will be too costly, and such incremental costs are not really necessary to operate in a tree cutting market. "A fundamental principle of good economic decision-making revolves around maximizing benefits while minimizing costs" (Giuliana, 2016, p.59). The current business name and materials indicates complete lawn care, which can also encompass tree cutting as well.
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