Production and Costs


Question Description


For Module 1, you did research on consumer demand and pricing for your business idea. Continue with the same business idea that you wrote about for Module 1, but now look at the cost side of your business.

Do some research on various potential start-up expenses for your business based on research on wages, office space rental rates, etc., in your home town. More specifically, write a three-page paper answering the following questions:

  1. What do you think the main expenses will be for your business? Make sure to discuss labor, rent, equipment, and any other major expense you can think of.
  2. Do some research on the internet or from your own personal contacts to get a ballpark estimate of how much the specific expenses are in your home town for the items that you listed in your answer to Question 1 above. You can use Craig’s List or similar webpages to get an idea about wages for different positions that you may need to hire for, and there are many webpages that have advertisements for renting commercial property in different parts of the country.
  3. Finally, break down your expenses into fixed plus variable costs. Make sure to cite two of the required background readings as justification for your classifications of your different expenses into the fixed and variable cost categories.

SLP Assignment Expectations

Answer the assignment questions directly.

  • Stay focused on the precise assignment questions. Do not go off on tangents or devote a lot of space to summarizing general background materials.
  • Make sure to use reliable and credible sources as your references. Articles published in established newspapers or business journals/magazines are preferred. If you find articles on the Internet, make sure they are from a credible source.
  • Reference your sources of information with both a bibliography and in-text citations. See the Student Guide to Writing a High-Quality Academic Paper, including pages 11- 14 on in-text citations. Another resource is the “Writing Style Guide,” which is found under “My Resources” in the TLC Portal.

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Running head: SUPPLY AND DEMAND 1 Trident University International Kevin Ward Module 1 SLP BUS 530: Managerial Economics Dr. John Gaze 28 May 2018 Running head: SUPPLY AND DEMAND 2 Introduction The business that I would like to start is a bike shop that deals with repairing bikes in general. The main reason for this preference is because I have experience in the sector. Growing up with a father who loved bikes, I learned how to repair bikes at a young age through apprenticeship. The skill was harnessed early in me. Therefore, I already have enough expertise that is required to begin the business. I have a personal connection to the business. My siblings and I used to compete on who would repair bikes the best way possible. I always finished last. However, the work that I put into repairing the bikes always stood out. There are very many sources of information that I would go to gather relevant details about the bike shop. First, I would go to my dad. My father has been repairing bikes almost all his life. The amount of experience and diversity that he holds in terms of the proper equipment and spare parts that I will require is significant. I would also talk to different bike shops in town to understand more about location, rental rates, and price. Marketing my services would be learned through a colleague of mine who focuses in the area to assist me with his expertise. I would also head to the bike market both online and at the town to get the best offers on the best spare parts for sale in the market (Blakcwel, 2011). Prices Offered by Businesses in the Industry The bike industry charges different prices for their services according to the expert level a repair shop can accomplish. Different businesses charge different prices for say the installation of a new chain. The prices differ from shop to shop which creates a little insight on demand from clients of various shops as compared to others. Most bike owners have reported that they would not mind spending extra on clean services that will last a while (Blakcwel, 2011). BIKE REPAIR BUSINESS STARTUP PLAN Firm High-End Price 3 Low-End Price Ala Carte $10 Freddie Grubb $9 Open $20 Bikes Trans $23 Auto Bikes Tollar Shop $12 $24 Glance Repairs Fortified Chains $14 $26 Pro Biker 7TH Shop $13 $23 Different Reasons for the Price Difference The price differences on the same services offered by these bike repair shops exist because of a few reasons. First, a shop like Fortified Chains is located in the heart of town. The location has played a significant role in the prices that it has to charge for its services. If the firm does not cost $26 for the installation of a new chain on a bike, then it might end up at a loss since the rental prices of the location are quite higher. On the lower end, Freddie Grubb has focused on starting its shop in a cheap area of town that experiences a steady flow of clients, but the rent is not as high. Therefore, the firm can afford to charge as little as $9 for similar services without struggling in any way. The quality of the service also matters. Even though Freddie Grubb costs only $9 for the installation of a new chain on a bike, the bike owner might end up revisiting the shop three or four times before a customer of Tollar Shop visits the shop. The Tollar Shop has created a culture where it has been known for its BIKE REPAIR BUSINESS STARTUP PLAN 4 professionalism and quality of work. This is the main reason that the shop is always packed with clients. The Tollar Shop has also invested a lot in advertising especially through the internet. Not only does it repair bikes but also sells new ones and also offers delivery services to the clients requiring spare parts or bikes. Ala Carte has been struggling with gaining new clients. The firm can adopt Tollar Shop’s strategy that will benefit it in terms of receiving new clients while increasing their service prices (Blakcwel, 2011). The Elasticity of the Business The elasticity demand in the market is one that is more confined to a specific range. The highest price of a new chain installed on a bike given in the table is $26 while the lowest is $9. The cost for the service has been noted not to go higher or lower. Therefore, the elasticity demand lies in the region. The market is an inelastic as it might occur in different industries (Mucka, 2016). Conclusion I chose the bike industry because I have experience in the field ever since I was a young child. There are different factors that I ought to consider before determining the prices that I should charge for services offered. Some of these factors include location, advertising and marketing, and the quality of services. For the location, if the shop will be in a central location with a buzz in business, then the rent will be high which will equate to higher prices for services offered. When the location is cheap, then the services might as well be of a reasonable rate. For the advertising and marketing and quality of service provided, when more is invested in the two sections, then the price of services will be high. Also, the industry has an inelastic demand. BIKE REPAIR BUSINESS STARTUP PLAN 5 Therefore, as I raise the prices, it is also important to note that the clients have a limit of how much they can pay for services (Mucka, 2016). BIKE REPAIR BUSINESS STARTUP PLAN 6 References Blakcwel, E. (2011). How to Prepare a Business Plan: Create Your Strategy; Forecast Your Finances; Produce That Persuasive Plan. Mucka, S. (2016). Price Elasticity of Demand and Its Effect on Revenue. United States: GRIN Verlag. Pinson, L. (2008). Anatomy of a Business Plan. United States: Aka Associates. Seidman, D. & Ball, M. K. (2011). Supply and Demand. United States: The Rosen Publishing. ...
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