Business Economics for the World Market Essay Example | Topics and Well Written Essays - 750 words

care Economics for the World Market - Essay ExampleBased on this compendium the total cost of the draw glide by the present value of future sales. It is true that the total costs of the project exceed the present value of future sales, but we have to consider the R&D costs were already incurred. If the companion were to decide to reject the project the R&D expenses would become a sunk cost. A sunk cost can be defined as cost that has been incurred that cannot be reversed (Investopedia). If the theater decided to forfeit the project the accumulated sunk cost would lead to a project blemish of $8 million. On the hand if the blotto decided to give an additional $4 million dollars the secure would end up with a final project loss of $2 million. It is better to lose $2 million than to lose $8 million. Another possibility of continuing the project is for the company to create lengthiness products or other related product lines in the future. These products could help improve the total performance of the project in order to reach profitability. Another consideration for the company is that producing this product can help the devoted improve its overall market share in the industry. The firm should have performed a better analysis of the potential returns of the project much earlier in the project life cycle. Since the firm already invested $8 in research and phylogenesis the best decision is to continue with the project. I do not confine with the recommendation of canceling the project. The firm made bad decision in the past to undertake the project and invest $8 million in R&D without having a good estimate of the potential returns of the project. compensate now rejecting the project at its current development stage would compound the original problem. 1b) The new education given that the marketing and overhead expenses associated with continuing the project amount to $4 million does not multifariousness my opinion around the best solution for the fi rm. Based on the new figures the company would lose $6 million if they continue with the project. If the firm decides to discontinue the project the overall loses for the project would be $8 million. The company should continue with the project in order to learn from their experiences. Based on the new information I would be more willing to reject the project if the financial conditions are not correct. For instances if the company does not have the $8 million dollars readily available I would recommend the company does not go out of their way to incurred in moves such as selling common stocks to finance this project. The firm should utensil changes in its risk assessment protocols for new products or capital projects in order to incorporate the use of methods such NPV to assess the viability of a project prior to investing money in research and development initiatives. 2) The video rental store owner would have benefited a lot from having more knowledge about economic concepts. I t is possible that the owner made a decision based on the law of take and supply which stipulates that by lowering the price of an item the volumes of sales will go up as a consequence. The error the video rental owner made is that he did not consider the implications of having a price of elasticity of -0.45. The price elasticity of demand is an economic variable that measures the responsiveness of the quantity demanded of a good or service to a change in its price (Absoluteastronomy). The price elasticity of the firm can be categorized as relative elastic since the value of -0.45 which is between cero and -1. This implies