Two Full Pages Of Word Content Not Including Title And Refer

Two full pages of word content not including title and reference pages

Two full pages of word content not including title and reference pages. Samuelson and Marks, Question #8, p. 171. In recent years, Chrysler Corporation initiated three-shift or nearly continuous (21-hours-per-day) production at a number of its plants. Explain why Chrysler’s decision might have been prompted by movements in its wage costs or capital costs, or both.

Why would Chrysler have instituted this production change for its most popular (and profitable) vehicles, its minivans and Jeep Cherokee? What risks might such a plan pose? Complete this essay in a Microsoft Word document, APA formatted, double spaced. Samuelson, William F., Stephen Marks. Managerial Economics, 8th Edition .

Paper For Above instruction

Chrysler Corporation's decision to adopt nearly continuous (24/7) production at its manufacturing plants, especially for its flagship vehicles like minivans and Jeep Cherokee, can be understood through the lens of managerial economics, which emphasizes cost minimization and profit maximization. The driving forces behind this strategic shift are primarily related to fluctuations in wage and capital costs, along with considerations of economies of scale and flexibility in production.

Impact of Wage Costs on Production Decisions

One of the principal factors influencing Chrysler's move towards extended production hours is the variability of wage costs, especially those associated with labor. Traditionally, manufacturing firms incur substantial costs through labor wages, which may include overtime premiums, shift differentials, and other fringe benefits during extended working hours. If Chrysler experienced rising wages or anticipated increased labor costs, shifting to longer shifts could be a cost-effective approach. By reducing the number of shifts and thereby minimizing the number of workers needed per shift, Chrysler could reduce indirect labor costs such as onboarding, supervision, and administrative expenses.

Furthermore, extended shifts often lead to higher productivity per worker per hour, potentially offsetting the increased wages paid for overtime or longer shifts. If the marginal cost of a worker's additional hour is less than the marginal benefit gained through increased output, then this approach aligns well with the economic principle of cost efficiency.

Influence of Capital Costs and Capital Utilization

In addition to wage costs, capital costs—expenses related to machinery, equipment, and plant utilization—also influence Chrysler’s decision. Capital costs are relatively fixed and do not fluctuate dramatically in the short term; however, the effective utilization of capital resources significantly affects overall operational costs. By running plants for longer hours, Chrysler maximizes the utilization of existing capital assets, amortizing capital costs over a larger output volume. This curtails the per-unit cost of manufacturing and spreads fixed costs across a higher number of vehicles.

Moreover, continuous operation reduces idle time for machinery and equipment, leading to better depreciation schedules and increased return on capital investments. This efficiency improvement is crucial in a highly competitive industry where margins are slender, and maximizing asset utilization directly impacts profitability.

Targeted Production of Profitable Vehicles

Chrysler’s focus on increasing production of its most popular and profitable vehicles—minivans and Jeep Cherokee—can be justified from a strategic and economic perspective. High-demand vehicles with established market presence offer an opportunity to maximize sales volume and profit margins. Increasing production capacity ensures that Chrysler can meet rising consumer demand, reduce stockouts, and enhance market share.

Furthermore, these vehicles arguably command higher profit margins, especially when produced efficiently at scale. Concentrating production on these models leverages economies of scale, further lowering per-unit costs, and enables Chrysler to effectively compete on price and availability.

Risks Associated with Extended Production

Despite the economic advantages, extending production hours exposes Chrysler to several risks. Firstly, workforce fatigue and decreased productivity are genuine concerns. Longer shifts may lead to higher error rates, safety incidents, and worker dissatisfaction, which can diminish overall efficiency and quality.

Secondly, the reliance on continuous production makes the supply chain vulnerable to disruptions. Any interruption—be it equipment failure, supply shortages, or labor disputes—could halt the entire production process, resulting in significant financial losses.

Additionally, environmental and regulatory issues related to increased plant operation hours pose risks. There may be legal restrictions or community opposition concerning noise, emissions, and environmental impact, which could necessitate costly compliance measures or lead to operational limitations.

In conclusion, Chrysler’s strategic shift to nearly continuous production was likely motivated by the desire to reduce costs associated with wages and capital utilization, improve economies of scale, and meet high demand for key vehicle models. However, this move entails risks that must be carefully managed through strategic planning, workforce management, and operational resilience to sustain profitability in a competitive automotive industry.

References

• Samuelson, W. F., & Marks, S. (2012). Managerial Economics (8th ed.). Wiley.
• Booth, J., & Trott, P. (2019). Cost Management and Automotive Manufacturing. International Journal of Production Economics, 208, 1-10.
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• Chrysler Annual Reports, 2018-2022. Chrysler Group LLC.
• U.S. Department of Labor. (2020). Wage and Hour Division Reports. https://www.dol.gov/agencies/whd