Discussion:
From the scenario for Katrina's Candies, determine the relevant costs for the expansion decision, and distinguish between the short run and the long run costs. Recommend the key decision-making criteria that Katrina's Candies should use for expansion decisions in the short run and in the long run. Determine under what conditions, a company should or should not continue to produce the good or service
with reference (apa_
Peer response
There are many types of costs involved for Katrina's Candies when determining relevant costs. One of which is opportunity costs. Opportunity cost is defined as the loss of potential gain from other alternatives when one alternative is chosen. Idle cash balances represent an opportunity cost in terms of lost interest. The company is in a dilemma in regards to expansion or not. If Katrina's Candies does expand out globally, they may be forced to eliminate other projects and focus solely on the expansion. If the company chooses not to expand, the company may miss out on the benefits of international revenue. Taking into consideration the opportunity cost of pending decisions, one has to make a rational choice. A rational choice is one that gives the greatest benefit, having weighed the benefits of the decision, against its opportunity cost. Monetary cost should also be considered. Katrina's Candies should also consider labor cost to create the product, accessibility to the ingredients needed, and cash invested to complete the necessary tasks in order to make a profit.
The short run and the long run in terms of cost can be summarized as follows: Short run equal fixed costs that are already paid and are unrecoverable. Whereas long run is fixed costs that have yet to be decided on and paid, and are thus not truly "fixed". The long run is not defined as a specific period of time, but is instead defined as the time horizon needed for a producer to have flexibility over all relevant production decisions. Most businesses make decisions not only about how many workers to employ at any given point in time but also about what scale of an operation (size of factory, office, etc.) to put together and what production processes to use. In contrast, economists define the short run as the time horizon over which the scale of operation is fixed and the only available business decision is the number of workers to employ. Both are vital to a company's success. Having short-run vision without long-run plans can put an expiration date on a company, whereas having long-run vision without short-run action can mean a company runs out of gas.