Economics

Production Decisions

Learn about production decisions by making them in this simulation.

Your business must combine your entrepreneurial talent and the skills and resources of your team to make the following production decisions.

What will you produce?

You must decide between:

  1. producing  aeroplanes which sell for $500,000 but require significant capital outlay, high material resource costs, high labour costs and considerable training and time to produce, with a limited prospective customer base.
  2. producing jewellery which sell for $10-$30 and require very little capital outlay, low material resource costs, low labour costs, can be produced with little training, require little time to produce, production is flexible and can easily respond to changes in demand and there is a very large prospective customer base or market.

Scenario 1: The aeroplane

Capital outlay: requires plant and machinery costing $1,000,000 financed by a loan at an interest rate of 10% p.a.

Each aeroplane requires the purchase of material resources at a cost of $100,000.

Skilled engineers, technicians, production managers, logistics managers etc are required to produce an aeroplane.  The labour costs for your team is $500,000.

There are only 5 prospective customers for your aeroplane.

How many aeroplanes you can make and sell before the deadline depends on your skill and teamwork.

Training video for making your aeroplane:

Scenario 2:  Jewellery

Requires minimal capital outlay on jewellery making tools $100.

Material resources to make 50 chains costs $100.

There is little training required to make the jewellery and due to the low level of skill required, labour costs to make 50 chains $200.

There is an almost unlimited market for your jewellery and your flexible production means that you can quickly respond to customer demand.

Who made the most profit?

At the end of the simulation we will calculate the profits made by each team by subtracting the costs of production from the sales revenue.

Debriefing Session

Could you have produced any more?

What were the limitations that constrained your production output?

What would you do to increase your productive capacity?

 

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s