Thomas_Money_Service

Running head: THOMAS MONEY SERVICE MARKET STRUCTURE PROPOSAL Thomas Money Service Market Structure Proposal Edna E. Perry University of Phoenix Economics ECO/561 J. MACK BAYLES February 22, 2011 Thomas Money Service Market Structure Proposal Thomas Money Service Incorporated is consumer finance company that grants small loans for individual’s needs and has been in business since1940. Thomas Money Service services expanded over the past five years by, issuing business loans, commercial real estate loans, and issuing business acquisition financing service. The firm has decided to branch out into equipment financing by a subsidiary name Future Growth Incorporated (FGI) established in 1946. This decision was made because of the huge demand for forestry and construction equipment. Another huge decision made by Future Growth was to purchase an equipment manufacturing company. This will allow the firm to sell, build, and finance their own brand of forestry and building equipment. Profits for Future Growth for the past 67 years have been continuously increasing even during economic downturns, and Future Growth has never laid-off employees. This allowed stock to grow from $5.00 to $85.60 with stock splits form 1975 to 1998. The present stock value is $35 and FGI has never issued bonds. American economy is suffering because of current global downturn in several states flooding, massive fires, and protest from animal activists. Profits have decline 30% in one year and for the first time in FGI history and the firm had to lay off one-third of their workforce. Also falling is a drop in new-home sales which has caused construction industry to slow down and cut back on orders. Hospitals and nursing homes are still in demand for new facilities. Since FGI is not the only company that can deliver forestry and construction equipment, and each offers slightly different features and function, which the market can make many substitutions. FGI repossessed over 500 pieces of equipment last year and in so, decided to bundle the pieces together to determined and average price for each piece. Instead of selling by bundles each piece will be offered at a more affordable for forestry and constructions companies to buy. FGI would like to construct a revenue, cost concepts, and market structure proposal to put the firm back on top. First, looking at the economy assessment performance to outlined over-all performance for FGI. * Assess the health of the economy by comparing levels of production at regular intervals * Track the long-run course of the economy to see whether it has grown, been constant, or declined * Formulate policies that will safeguard and improve the economy’s health * Provide satisfaction and significance functional needs to customers * Create a price based on the benefits of product brands and make customer judgment a part of final conclusion * Satisfy and differentiate brand to influence customers and competitors that the high level of product is the best offered * Compare sales, profits, market share, brand awareness, stock prices, margins of these key factors for driving revenue into communications effectiveness, brand differentiation and loyalty * When competitors start to follow FGI lead, the firm must protect the product performance, availability, company personality, and customer support that put them back on top * FGI must dominate and keep priority of assets in lead position to maintain leadership role in distribution Achieving ideal production levels for Future Growth: * Increase membership volume * Increase online sales volume * Increase qualified lead volume * Increase up-see effectiveness * Increase cross-sell effectiveness * Increase Web site loyalty and repeat visits * Increase repeat purchases Finally, increases in inventories are considered to be an investment because of unconsumed output. All new output that is not consumed is capital and an increase in inventories is an addition to the stock of capital goods which leads to investments. Determining how fixed and variable cost should be adjusted to maximize profit is a bit controversy, simply put because of the word profit is a bit nebulous (indistinct or confused). This assumption is because firms announced to the public exactly what their firm profits are. Profits are computed by subtracting total receipts of cash outlays plus an allowance for depreciation of capital, and profit emerges as a residual – what is left over after cost have been paid. Since FGI owns their own manufacturing company, considerable overhead will be held to a minimum because of opportunity cost, this will increase wealth which equal profit for the firm. Supply curves for resources shows limitation that the firm faces, which is selling bundles of lumber instead of pieces to make about the same amount of money. The capital for this supply curve depends on decisions of people to buy now and in the future. Since Thomas Money Service own his own manufacturing plant hiring labors, truck drivers, and etc., will cut down on expenses. The similarities between a supply curve for resources and a demand curve for output are supply and demand. Demand curve output of Thomas Money Service (an Oligopoly) is more elastic because of the industry and the competition to be on top. For instance; since there are more than two firms and each one produces their product in bundles instead of pieces with an output of 50 pieces and the elasticity of the industry demand curve is one. The firm increases its output by 10% to 55 because the output has increase to 105, which is a five percent increase. The price elasticity of demand is one, price must decline by five percent, but the firm has a 10% increase in production and a five percent decline in price elasticity of two, not one. The competition is about the same. To increase the demand for capital goods and shift the aggregate demand for a higher profit so the demand curve shift back to the right. The decline in expected returns will decrease revenue and shift the curve to the left. There are several factors influence by these unexpected returns; “forecast high rates of return on current investment and therefore may invest more; new and improved technologies enhance expected returns on investment and thus increase aggregate demand; degree of excess capacity will reduce the expected return on new investment and hence decrease aggregate demand; and an increase in business taxes will reduce after-tax profits from capital investment and lower expected returns. A decrease in business taxes will have the opposite effects (Connell, p587).” The goal is to produce a product that is valuable to someone, and then is forced by the constraints to cover its costs. If an organization covers its cost, its revenues must exceed cost, which means it is making a profit. References McConnell, C. R., Brue, S. L., and Flynn, S. M., Economics (18th ed.) – Principles, Problems, and Policies The McGraw-Hill Companies, Inc. New York, NY 10020