Thomas Money Service Inc Scenario Eco561 Version University

Thomas Money Service Inc Scenarioeco561 Version University of Phoe

Thomas Money Service Inc. has been in business since 1940, initially offering small household loans, then expanding into business and real estate loans. In 1946, it established a subsidiary, Future Growth Inc. (FGI), to finance equipment, which became highly profitable after purchasing an equipment manufacturing company in 1951. FGI’s history of continuous profit growth and stock appreciation made it a compelling investment until recent economic downturns caused profits to decline by 30%, leading to layoffs and reduced demand, especially in construction and forestry sectors. FGI has repossessed over 500 pieces of equipment, with an average resale price of $1,732, and faces declining demand due to economic struggles and reduced advertising. Their current production involves multiple costs, and they seek to analyze demand vs. profitability to determine the optimal output level.

Paper For Above instruction

The scenario presented for Thomas Money Service Inc. and its subsidiary FGI highlights the importance of understanding demand analysis, cost structures, and profit maximization in a competitive and fluctuating economic environment. As FGI faces declining demand due to a broader economic downturn, analyzing the demand curve and associated costs to identify the production level that maximizes net income becomes crucial for strategic decision-making.

Understanding the demand curve is fundamental to assessing how different price points influence sales volume and revenue. Based on the provided demand figures, FGI’s optimal output level can be estimated through profit analysis at various demand points. The demand data shows that demand decreases as the price increases—a typical downward-sloping demand curve. For FGI, evaluating total revenue (TR) and total cost (TC) at each output level reveals the point where profit, the difference between TR and TC, is maximized.

Calculating total revenue involves multiplying the demand quantity by the price at each level. For instance, at a demand of 1.990 million units with a price of $990, the total revenue would be approximately $1,970,100,000, whereas at lower demand, the revenue declines. Total cost is the sum of fixed and variable costs, which vary with output level. The fixed cost remains constant at $990 million, while variable costs increase with production, affecting marginal cost and overall profitability.

By examining the data, the point of maximum net income is where the difference between total revenue and total cost reaches its peak. Typically, this involves identifying where marginal revenue equals marginal cost, which can be inferred from the change in revenue and costs at successive levels. According to the data, the demand level of approximately 1.7 million units (price of $800) appears to offer the highest net income, as the total revenue exceeds total costs substantially at this point.

In terms of strategic implications, FGI’s decline in demand emphasizes the importance of price elasticity in their market. The phenomenon observed in movies and artwork sales, where increasing prices and expanding advertising can lead to higher sales, suggests that careful pricing strategies could stimulate demand, especially if the market perceives added value. Elsa Buldley's experience highlights the need for balancing price increases with effective advertising to boost volume.

Moreover, FGI must consider the elasticity of demand for construction and forestry equipment. If demand is elastic, lowering prices could significantly increase sales volume, potentially increasing overall profit despite narrower margins. Conversely, if demand is inelastic, higher prices might be sustainable. Using historical data, industry trends, and economic forecasts, FGI can model various scenarios to optimize their output and pricing strategies.

In conclusion, FGI’s challenge is to identify the production and pricing strategy that maximizes net income while considering the current economic conditions. A detailed demand analysis, coupled with cost considerations, indicates that targeting a demand level around 1.7 million units, with an appropriately set price, could be most profitable. The company should also explore marketing strategies to enhance demand elasticity and leverage their unique strengths in manufacturing proprietary equipment technology.

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