Tag: Economics

Question: Give an example of a business with a high fixed cost. What are the pros and cons of running a business with high fixed costs instead of high variable costs?

Costs of running a business can be divided into fixed costs and variable costs. Fixed costs as the name indicates, remain the same whatever quantity of goods and services are produced.

Reply:

Student 1

A great example of companies with high fixed costs is airlines. An airline incurs almost the exact costs of flying one person or 200 people from place A to place B; the only variable is the extra fuel for the weight difference due to the number of passengers and luggage. The staff and airport fees are all fixed costs per flight. In 2020 due to COVID-19, many airlines received aid from the government to keep functioning. The International Air Transport Association (IATA) downgraded its revenue outlook for next year because of the slow recovery from the coronavirus pandemic. Governments are closing borders and implementing other travel restrictions as infections surge at a record pace in Europe and the U.S. The industry association forecast 2021 airline revenues will be 46% lower than the $838 billion achieved in 2019 compared to a 29% contraction in its previous analysis. (Kulisch, 2020)

Being an aircraft owner or having a private flight company also demands high fixed costs as aircraft maintenance, insurance, and hangar rental. Since the very beginning of the pandemic, the flight industry was shot down and highly restricted, which led to the Airlines laying off thousands of employees seeking a reduction on its fixed costs. As opposed to variable costs, fixed costs are defined as costs that remain the same. Conversely, variable costs are subject to change and include fuel, oil, maintenance, landing fees, etc. An aircraft’s fixed costs remain the same no matter how many hours you fly your plane. However, the “cost per unit” of a fixed cost will increase (or decrease) depending on the level of activity of the airplane. (Houston, 2019)

I believe covid 19 is a clear example of why a company wants to keep its fixed costs as low as possible. As we all saw, the pandemic hit hard the airline industry. In January 2021, Alaska airlines released its full-year results for 2020. They reported that by eliminating fuel expense and certain special items from their unit metrics, they have better visibility into the effects of operations as they focus on cost-reduction initiatives emerging from the COVID-19 pandemic. The industry is highly competitive and holds high fixed costs, so a slight reduction in non-fuel operating costs can significantly improve operating results. In addition, they believe that all domestic carriers are similarly impacted by changes in jet fuel costs over the long run, so management must understand the impact of company-specific cost drivers such as labor rates and productivity, airport costs, maintenance costs, etc. are controllable by management. (AlaskaAirlines, 2021)

References

AlaskaAirlines. (2021, January 26). Alaska Air Group reports fourth quarter 2020 and full-year results. Retrieved from newsroom.alaskaair.com: https://newsroom.alaskaair.com/2021-01-26-Alaska-A…

Houston, S. (2019, December 9). The Fixed Costs Attached to Aircraft Ownership. Retrieved from www.thebalancecareers.com: https://www.thebalancecareers.com/aircraft-ownersh…

Kulisch, E. (2020, October 27). Fixed costs to sink airlines unless governments intervene, IATA warns. Retrieved from www.freightwaves.com: https://www.freightwaves.com/news/fixed-costs-to-sink-airlines-unless-governments-intervene-iata-warns

Student 2

by Mario Salge Mata on Monday, November 15, 2021, 11:44 PM

Number of replies: 3

First, let’s define the idea of a fixed cost; refers to an expense that a company has to incur no matter the fluctuation in other variables, in other words, “refers to a cost that does not change with an increase or decrease in the number of goods or services produced or sold.” (Hayes, 2021) A real-life example of one of the most common businesses with a high fixed cost is airline companies or cruise ships. These costs are set over a specified period of time and do not change with production levels. Airlines would have to keep paying for the fuel, the crew’s wages onboard, plus all the staff inside the airport no matter the number of seat tickets they have sold until that date. “If fixed costs are high, a company will find it difficult to manage short-term revenue fluctuation because expenses are incurred regardless of sales levels.” (McClure, 2021) In other words, one of the cons that would affect airlines’ performance and investment is the difficulty of producing revenue in the short term. Besides, the high risk attached to the acquisition of high fixed cost companies struggles to find investors and capital at low rates. companies with high operating leverage are also vulnerable to sharp economic and business cycle swings. (McClure, 2021) On the other hand, one of the advantages of high fixed costs is riskier. It does mean that every sale made after the break-even point will generate a higher contribution to profit. they are very profitable companies in the long run as long as resources are well managed and strategy is applied.

References:

Hayes, A. (2021, November 11). Fixed cost definition. Investopedia. Retrieved November 12, 2021, from https://www.investopedia.com/terms/f/fixedcost.asp.

McClure, B. (2021, September 13). How operating leverage can impact a business. Investopedia. Retrieved November 12, 2021, from https://www.investopedia.com/articles/stocks/06/op…

1. Offer at least two 200-300-word comments (replies) to posts from your peers’ discussions by Sunday 11:55 pm to earn a maximum of 8 points each

Find an urban socio-economic issue you care about (get creative with it, any country, state, county, region, etc.)

Declare your topic in discussion forum. You are expected to present an abstract of your essay (including the topic of research, where are you getting your data from, what you plan to do in your research, properties of you dataset such as: timespan, what country or state the data is from) in the discussion forum. Your topic should be unique and different from all your classmates. THIS IS THE TOPIC I’VE CHOSEN:

I’ll be researching the socio-economic issue of overpopulation and how it effects the economy while effecting peoples everyday life. Many countries are overpopulated but I’ll be focusing on China. Population control and results of that.

https://pubmed.ncbi.nlm.nih.gov/12345584/

https://www.brookings.edu/articles/chinas-population-destiny-the-looming-crisis/

https://www.123helpme.com/essay/Overpopulation-Problems-in-China-130491

Collect data and formulate an essay on the state of the issue.

1st draft feedback – ½ points guaranteed with reasonable work

Incorporate feedback and improve work.

Please post your data (excel files and codes, if applicable) for final submission.

Optional Recommended Format:

While the following format is recommended for your essay, it is optional. If you find another format that better fits your topic and essay, you are not required to follow this structure.

Introduction & Motivation: Discuss your socioeconomic issue and why is it significant

Background and literature: Discuss existing work on the issue

Data, Analysis, and Findings: Your analysis on the issue

Conclusion and discussion: Discuss what we can take from the combination of existing work and your analysis, why it is important, and possible future work

Grading Criteria:

How comprehensive your assessment is – writing, etc. – 25%

Use of existing literature and evidence (without copying) – 25%

Data skills – 50%

Unemployment

A country’s economic performance is measured using three key indicators, one of which is the unemployment rate. When adults who are willing and able to work cannot find a job, it may be a sign that an economy is producing less than it could. On the other hand, unemployment is also a natural phenomenon that even healthy economies experience. While the official unemployment rate is helpful in representing the state of a nation’s workforce, it does have some shortcomings that should be considered, such as excluding discouraged workers.

There are three types of unemployment that economists describe: frictional, structural, and cyclical. During recessions and expansions, the amount of cyclical unemployment changes. Cyclical unemployment is closely related to the business cycle, and causes the deviations of the current rate of unemployment away from the natural rate of unemployment.

The labor force participation rate (LFPR)

The labor force participation rate (LFPR) is another measure of labor market activity in the economy. The LFPR is the percentage of the adult population that is in the labor force. The labor force includes everyone who is either employed or unemployed. The adult population is defined as anyone who is over the age of 16 who potentially could be part of the labor force. Anyone who is less than 16 years old, is in the military, or is institutionalized is not considered to be potentially part of the labor force and is excluded from this calculation.

When people enter the labor force the LFPR increases, and when people exit the labor force the LFPR decreases. A decrease in the LFPR that occurs at the same time as a decrease in the unemployment rate can signal that there are more discouraged workers.

Limitations of the unemployment rate

The unemployment rate as it is measured officially is often criticized for understating the level of joblessness because it excludes anyone working at all or people who aren’t looking for work. In particular, the official unemployment rate leaves out discouraged workers and the underemployed. People who have given up looking for work because they are convinced that they cannot find jobs are considered discouraged workers. Some people are counted as employed because they are working part-time, even though they really want full-time work.

Three types of unemployment

Economists primarily focus on three types of unemployment: cyclical, frictional, and structural. Cyclical unemployment is the unemployment associated with the ups and downs of the business cycle. During recessions, cyclical unemployment increases and drives up the unemployment rate. During expansions, cyclical unemployment decreases and drives down the unemployment rate.

The natural rate of unemployment

The natural rate of unemployment (NRU) is the unemployment rate that exists when the economy produces full-employment real output. NRU is equal to the sum of frictional and structural unemployment. When an economy is producing an efficient amount of output (meaning it is operating on its PPC), the unemployment rate will be equal to the natural rate of unemployment. Even though an economy may be operating efficiently, there will still be some unemployment. Because of that, the natural rate of unemployment is never equal to zero.

Changes in the natural rate of unemployment (NRU)

The natural rate of unemployment (NRU) can gradually change over time due to events such as changes in labor force characteristics. The NRU can change due to changes in structural and frictional unemployment. For example, a firm may want to hire fewer workers because the skills of those workers are not needed as much as they used to be. That will cause more structural unemployment, and the natural rate of unemployment will increase.

Discussion Topic # 2

Explain with relevant data sources from https://www.statista.com/statistics/262524/unemployment-rate-in-saudi-arabia/ .

If a decrease in the unemployment rate isn’t necessarily a sign of an improving.

The uninsured healthy, and young take good health for granted, place a high emphasis on the experience of care, are tech-savvy, and have low motivation to enroll in health insurance plans. Discuss the following for this assignment:

What can marketing techniques appeal to the young and healthy and encourage them to enroll in health insurance plans?

To prepare:

• Select a healthcare product or service that you have recently seen in a marketing campaign.
• Use the four P’s of marketing to assess the product or service you selected.
• Reflect on the impact of the marketing campaign on your own healthcare decision-making. Consider how the campaign positively or negatively influenced your personal opinions of the healthcare product or service.

1. Using the resources provided in this workshop along with your own independent research, develop an infographic that explains the importance of opportunity cost in the healthcare setting. Feel free to use the following tools:
   1. Video: Infographic Do’s and Don’ts to Design Beautiful and Effective Infographics(new tab)
   2. Webpage: Infographic Example – Infographic: U.S. Healthcare Spending(new tab)
   3. Website: Easelly(new tab)
   4. Website: Venngage(new tab)
   5. Website: Visme(new tab)
2. Navigate to the threaded discussion and post your infographic with your comments explaining the importance of the infographic and your rationale for selecting the information in the infographic.

For this assignment read Chapter 30 in the textbook Corporate finance (3rd ed.), by Berk, J. B., & Demarzo, P. M. (2014). Also review the article http://laithanomics.com/2015/04/corporate-valuation-merger-consequences.html and the three articles attached

For the assignment, ensure the following are fully addressed and as titles.

1/ Briefly discuss a minimum of three risk management techniques that could be used in a pre-merger risk assessment within the development of a merger and/or acquisition.

2/ Explain how these techniques would work to minimize tax consequences.

3/ Explain the various remediation and mitigation options that could also be adopted in the pre-merger risk assessment in order to ease the later implementation of a strategy for integration and/or restructuring.

I need help writing a 5–7-page paper in APA format that covers Disney’s acquisition of 21st Century Fox. The paper should have an introduction with a thesis statement as well as a title for all the listed content below that is numbered and a conclusion at the end. The paper should also have a reference page with at least 7 scholarly and or professional sources. The paper should be free of grammatical errors and have an originality score of 20% or less.

Prior to beginning work on this assignment, read Chapters 10, 12, 18, 21, and 30 in the textbook . Corporate finance (3rd ed.). by Berk, J. B., & the three articles attaches below. You will support your findings and recommendations with evidence from the four scholarly and professional sources above in addition to the required annual reports for your chosen acquiring and target companies Disney and 21^st Century Fox). (These may include items such as the textbook and industry reports) Be sure to include any links to professional websites used as references or to access company information.

*** This assignment will build upon the assumptions for the projected pro forma financial statements you developed in your Week 3 assignment. It will apply various risk analysis techniques and strategies to determine the appropriate rate of return for discretionary cash flows; it will examine the different ways of minimizing potential risk in a merger or acquisition transactions; it will compare and contrast how various companies identify and mitigate liabilities in pre- and post-mergers and acquisitions. Using the concepts from this course and other related scholarly and/or professional sources, you will prepare a 5-7 report addressing how the various risk analysis techniques are used.

The assignment must include the following elements:

1/ Analyze various business valuation techniques and explain how your acquiring company will determine the appropriate rate of return (discount rate or capitalization rate) to apply against the prospective discretionary cash flows anticipated from their acquisition.

2/ Examine and summarize the various risk management methods used in your acquiring company’s due diligence process.

3/ Compare and contrast the procedures that will be used to uncover the various potential risks and liabilities for the target company in order to implement a strategy for integration and ensure a solid foundation for ongoing regulatory and internal compliance.

4/ Explain how your acquiring company will identify and mitigate liabilities in the pre- and post-merger risk assessment process.

5/ Compare and contrast how the target company’s risk analysis methods are similar to a post-merger or acquisition company within its industry.

I’m working on a information economics question and need an explanation to help me learn.

American Airlines and British Airways are proposing to merge. If British pilots and American pilots are represented by different unions, how would this merger affect airline costs?

I’m working on a economics question and need guidance to help me learn.

Acceptable Use Policies

Prompt: What principles should the information security analyst apply in order to develop appropriate acceptable use policies for the client? Make sure you address confidentiality, integrity, and availability of information, as well as each of the following questions: What should users generally be allowed to do with their computing and network resources? When and why would each example be allowable? What should users generally be prohibited from doing with their computing and network resources? When and why would each example require prohibition? When and why should users be aware of acceptable use policies and how can organizations keep track of these policies