Production Decisions in UK Manufacturing Between 2010 to 2019

Introduction

From a general perspective, production is often termed as a process of approach of merging a wide range of material as well as immaterial inputs such as plans, know-how, etc to make any particular commodity or consumption (output) (Duggan & Clem, 1985). It is generally a process of manufacturing or producing any particular output such as good/service which has requisite value and also provides a contribution to the utility of any particular group and/or individuals. The terminology of production in conventional economics is often considered as a production theory, which is interlinked with consumer or consumption-related economic theory (Krugman & Wells, 2020). For students seeking business dissertation help, understanding these theories and their applications can be crucial for developing comprehensive research in the field.

The current research report aims to conduct a critical assessment of the production decisions in UK manufacturing during the period of 210 to 2019. To critically accomplish the main aim of the assessment, the overall report has been prepared in two categories as Task 1 and Task 2. In Task 1, the discussion mainly deals with examining that When and why do inputs and costs impact the production decisions related to the supply of goods and services. The problem has been addressed by critically explaining relevant economic concepts with providing examples related to the UK economy between 2010 and 2019. And in Task 2, the discussion made in this report primarily defines and explains that how perfect competition or highly competitive markets impact the supply of goods and services. In this context, the report provides these economic concepts by implementing specific highly competitive UK-based industries between 2010 and 2019.

Task 1

The law related to supply is one of the most significant and fundamental principles in the theory of economics. It primarily affirms that an increase in the price of a commodity will eventually result in an increase or remain constant within the supply quantity. From a fundamental economic theory, input cost mainly regulates the price of any product or service. Input costs of goods and services include all aspects of sources that are required to produce or manufacture any particular product or service. Therefore, an increase in input cost tends to increase the actual selling price of the product or service. The scenario resulted in to increase in the volume of supply following the law of supply, and in the context of the opposite, if the cost of product/service decrease, the actual price of the product/service will decrease which will eventually lead to lower the supply volume as well (Asmundson, 2020).

According to the fundamental theory of economics, Total Cost generally refers to the cost that a firm employs in the production process. Total cost mainly includes fixed costs and variable costs. The inputs in fixed cost generally refer to the capital that cannot be adjusted by the firm in the short-term (Young, 2021). Fixed cost generally includes a long-term investment of a firm such as buildings, production machinery items, and as well as various types of time-related costs such as salary as well as monthly rental fees among others. In variable costs, the inputs mainly comprise Labor, raw materials, capital, and land among others. The costs associated with inputs have major impacts on production decisions concerning the supply of goods and services. From the perspective of economic theory, the inputs are raw materials, Labor, utilities, licensing fees as well as different other related goods/services (Krugman & Wells, 2020). Whereas the outputs are finished goods or services that a firm produces by employing the requisite amount of investment and efforts from the laborers and suppliers. Therefore, in case of cost for inputs go up, the overall cost of production for any particular good also increases. Hence, the producers or the basic firms need to sell goods for the overall financial outcome. In this context, it is evident that an increase in input price primarily decreases supply. Correspondingly, a decrease in input price results from an increase in supply.

With the production decisions in the UK economy, the increasing trend of input price has substantially lowered the flow of supply. From 2010 to 2019, it has been witnessed that the production decisions of firms in the UK have been faced major constraints due to the significant increase in input price has substantially lowered the volume of supply across the production processes in the UK (Office of the National Statistics, 2021). Nevertheless, the production decisions of firms are strongly concerned with the inputs and costs. With the theory of economics, it has been argued by the past research studies that the changes in the price of inputs in supplying goods and services have significant implications on the overall price of outputs. This is since if the price supplies procured with the high rate or transported with significantly high price can have a major impact on the optimal price of the finished goods or services of the firm. The increase in the price of inputs, both in the context of procurement and supply of inputs mainly raw materials and/or Labor can eventually increase the price of the overall output of the firm. For example, the producers of clothing products usually source raw materials from both local and overseas suppliers (United Nations, 2020). Hence, the change in the price of sourcing raw materials eventually leads firms to increase the actual price of the finished good or service. Because the price of a finished product or service comprises supply costs that the firm employs for producing products for the consumers. The higher price of procurement will result in producers increasing the selling price of the product or service. Hence, the production decisions of firms, especially in the supply of materials or Labor Firms comprised of each cost that they employ when acquiring, transporting as well as marketing, and selling the final output or price of the product or service. The process helps firms to successfully achieve the expected financial goals. Nevertheless, including changes in production decisions related to the supply of goods and services also brings major changes in the actual price of products. For instance, in the UK, the change of costs in the sourcing of raw materials required producers to increase the price of finished goods and services during the era of 2010 to 2019. Although this is significantly a risky decision for firms, however, it helps organizations to avert the possible constraints of earning the expected ratio of profit from the market (Office of the National Statistics, 2021).

With the law of supply, the actual price of production inputs is also considered as a critical part. The scenario of the lowest price in which a producer can sell any particular product/service without facing loss is generally considered as the amount of money that firm costs to produce those products or services. In his context, it is evident that the production of goods and services mainly involves taking requisite inputs and conducting processes to produce the expected outputs or finished products or services. With this notion, it can be said that the actual output is the firm’s finished goods and services, whereas inputs generally include, materials, Labor, and costs associated with licensing, utilities of paying price for other types of goods/ services for the production processes (Duggan & Clem, 1985).

Task 2

The concept of perfect competition in economics defines the existing theoretical structure of any particular market. In a perfect competition of a highly competitive market, there are no monopolies that can collectively target and acquire the groups of the target audience (Competition and Market Authority, 2020). The perfect competition structure can have a number of key features, whereas the most common characteristics of this model include:

The firms operating in this market structure deal with an identical commodity or product

The firms in this structure are considered to be price takers, however, they cannot affect the existing market price of any particular product

The market price of the firms has minimum or even fewer implications on the actual price of the commodity

The consumers or simply buyers are aware of the comprehensive information about the market along with the actual price of the products charged by the firms

Adequate mobility of capital resources and Labor in manufacturing and/or selling goods and services

Firms can independently choose whether to stay or exit from the current market

With a conventional economic approach, the increase in price leads to the volume of production. Moreover, the suppliers are more likely to increase their production capacity. Conversely, the consumers tend to purchase more of any particular product if the firms keep a low selling rate of the product. The equation in which the quantity of products that consumers buy at each price is primarily termed as demand curve in respect to a conventional economic theory. The following chart represents the supply and demand curve within a perfect competition or highly competitive market structure.

Supply and Demand Curve in a perfectly competitive market structure

According to the above illustration, the demand and supply curve has been portrayed with the quantity of supply on the horizontal axis and the price of the commodity on the vertical axis of the graph. Supply is often considered to slope upward, because of the increase in the price of the commodity which eventually increases the supplier's focus to simultaneously increase production level. On the other hand, demand is mainly sloped downward. In this context, an increase in the price of the commodity often create major constraints for firms to sell products to a large group of the target audience. This is since the increase in the price of a commodity generally leads to a lower willingness among consumers to purchase the same product (United Nations, 2020).

The price of a product or service can be changed due to some reasons such as technological aspects, weather conditions as well as taste, and preference level of the target consumers. In this context, the relationship between supply and demand for products or services as well as their price change can be termed as elasticity. However, products or services that are inelastic relatively insensitive in terms of employing changes in price for similar products or services (Garside, 2021). Concerning the trend in supply and demand in the UK, the following illustration provides a detailed assessment:

From the above illustration, it has been identified that overall supply and demand of coke breeze within the UK were recognized to be equal during the entire period, with a peak of 1.07 million metric tonnes during the FY 2014. From 2010 to 2019, the figure of supply and demand of coke breeze decreased by 192,000 metric tonnes. In recent phenomena, the overall supply and demand concerning coke breeze are totalled 613,000 metric tonnes (Garside, 2021).

In a perfect competition market structure, the price of any commodity is determined by the mechanism of supply and demand. The prices of commodities are often influenced by the actual quantity of supply of the commodities from sellers and by the existing demand for the commodities by the buyers within the market. Therefore, to gain a clear understanding of the concept and relationship between these two variables, the following discussion represents the supply and demand schedule for any specific commodity which is commonly sold by sellers (Krugman & Wells, 2020).

Demand is often considered as a quantity of any particular commodity that consumers are willing to purchase at different prices. The actual quantity of the commodity that buyers willing to purchase are strongly relied upon the actual price of the commodity. The following illustration demonstrates the demand curve of apple in general:

According to the above illustration, it has been recognized that the daily quantity as well as the price of apple sold by the sellers in a local market. The illustration represents that increase in demand from the buyers goes upward when the market price of apple moves downward.

Correspondingly, supply is referred to any product that sellers tend to sell with different pricing processes. The selling of any particular quantity of product that any business tends to sell is mainly dependent on the actual product price. Business institutions are more willing to sell products in the period when the price for the same product increases and are less likely to sell those products when the actual price of the products falls. In general, businesses are designed and practiced to make a profit and the increase in the price of any product/service tends to offer more profit for the business organizations (Competition and Market Authority, 2020). The following illustration represents the supply curve with the assumption that the sellers will be willing to sell apples at different prices. Irrespective of the change in demands.

With the above illustration, it has been witnessed that the supply curve movies in an opposite direction as compared to the demand curve. The illustration represents that the sellers are more willing to sell only a thousand pounds of apples at US$0.40, two thousand pounds when the price for each pound is US$ 0.60, and three pounds in US$ 0.80.

Price Equilibrium

According to an understanding of the market mechanism in a perfectly competitive structure, both demand and supply curves meet in a single point which is considered as the equilibrium price of the commodity in a high or perfect competition market structure. At this particular point, the demand of buyers for apples and sellers' supply for apples is in equilibrium. The following illustration provides detail about the equilibrium price of apples with respect to the demand and supply in the competitive market structure.

According to the above illustration, it has been represented that the demand and supply curve intersects at the price level of US$ 0.60 as well as a quantity of two thousand pounds. Hence, $0.60 is the equilibrium price for apples in a perfectly competitive market structure. At the equilibrium point, the demand quantity for apples by the buyers is equal to the actual quantity that sellers are willing to sell apples in the market.

Conclusion

In economics, the theoretical approaches concerning production and cost define that the production cost of firms is determined by the number of total costs that firms employ to produce the product. Hence there are numbers of key aspects that are important to consider when determining the cost of any particular commodity. For instance, the costs including both fixed and variable costs such as raw materials, Labor, land, and annual rental fees are respectively the most critical factors that have a major influence on a firm when determining the market price of any particular good or service. With the recent market position in the UK, the production decisions mainly encompass a wide area of factors including fixed and variable costs when determining the price of a product or service. ON the other hand, the current report also provided a clear understanding of the implication of perfect competition on the supply quantity of goods and services. Based on the assessment result, it has been identified that an increase in the supply of commodities significantly lowers the price and demand for the same product or service in a perfectly competitive market. In addition, the demand curve shifts upwards in case of a low quantity of supply. With the current UK business market, the increasing competitive structure has been making equilibrium prices for products or services.

Reference

Asmundson, I. (2020). Supply and Demand: Why Markets Tick. [Online] Available from https://www.imf.org/external/pubs/ft/fandd/basics/suppdem.htm [Accessed November 09, 2021].

Duggan, J. E. & Clem, A. G. (1985). Input prices and cost inflation in three manufacturing industries. Monthly Labor Review, 16-21.

Garside, M. (2021). Supply and demand of coke breeze in the United Kingdom (UK) 2010-2019. [Online] Available from https://www.statista.com/statistics/554784/coke-breeze-supply-demand-uk/ [Accessed November 09, 2021].

Krugman & Wells. (2020). Essentials of Economics. New York: Worth Publishers. Pages 355-451.

Office of the National Statistics. (2021). Index of Production, UK: March 2021. [Online] Available from https://www.imf.org/external/pubs/ft/fandd/basics/suppdem.htm [Accessed November 09, 2021].

Office of the National Statistics. (2021). Index of Production, UK: November 2020. [Online] Available from https://www.ons.gov.uk/economy/economicoutputandproductivity/output/bulletins/indexofproduction/november2020 [Accessed November 09, 2021].

United Nations. (2020). World Economic Situation Prospects. [Online] Available from https://www.un.org/development/desa/dpad/wp-content/uploads/sites/45/WESP2020_FullReport.pdf [Accessed November 09, 2021].

Young, M. (2021). Lecture 6: Supply curve, inputs, and costs. MOD3327 Economics for Business. Anglia Ruskin University of London

Take a deeper dive into Principles and Practices of Marketing with our additional resources.