Marris Growth Maximization Theory Economics Essay Colbourne College Merline Unique Salon Name: Kneka Walters Number: k29-f11 Course Code: EC302 Lecturer: Miss Quarrie Due Date: April 30, 2013 Table of content Acknowledgement ——————————————————- Executive Summary—————————————————— Owner Controlled——————————————————– Firm Objective Behavior Theory———————————————— Profit Maximization——————————————– Marris Growth Maximization Theory——————————— The forecasting of demand Using Market Research———————————————— Market Testing————————————————– Mergers and Acquisition———————————————— Two disadvantage of Government Regulation———————– Privatization—————————————————————Economies of Scale—————————————————— Negative and Positive impacts of Globalization——————— Types of pricing strategies———————————————- Contractual Relationships———————————————– Elasticity of Demand—————————————————– Cost Performance——————————————————— References—————————————————————– Acknowledgement The researcher would like to thank all sources which provided information, lecturer, friends and family especially those who gave motivation. I would like to also thank god for his guidance and protection throughout completing this project. Executive Summary Merline Unique Salon is a small upcoming limited company owned and controlled by Merline O’Brian. The company came into business on February 12, 2013. Employment is provided for six employees who specialize in hair caring. Merline Unique Salon only consists of one manager which is the General Manager. This essay is an example of a student’s work Disclaimer This essay has been submitted to us by a student in order to help you with your studies. This is not an example of the work written by our professional essay writers. Essay Writing Service Dissertation Writing Service Who wrote this essay Place an Order Merline Unique Salon provides hair care service to various customers with different hair conditions. Merline Unique Salon specializes in braiding, creaming, dying of hairand more. Special appointments are organized for various customers with bad hair condition and for private client. Our aim at Merline Unique Salon is to become one of the leading hair care company in Jamaica, we also aim to expand our company across Jamaica and internationally along with the addition of a spa to accommodate the salon. Owner controlled Merline Unique Salon is owner controlled and all decision is made by the manager. Merline Unique Salon is owner controlled because I want to make my own business policy, (I believe I know what’s best for my company). I believe the operation of my company is best known by me and as it relates to reward, I want to reap all my benefits for all my hard work instead of having to deal with liability and pressure of having partners. According to Berle’s assumption a firm is owner controlled if the owners of the entity has 20% share holding. Merline Unique Salon Manager therefore owns the entire share in this company. The objective of this company is to gain profit maximization. According to Investorwords.com, Profit maximization is a process that companies undergo to determine the best output and price levels in order to maximize return. Influential factors will be adjusted such as production costs, sales price, and output level as a way of reaching its profit goals. (NCC Lecture Slide) Firm’s objectives Behavior Theory According to Richard M. Cyert and James G. March (1963), the existing theory of the firm had two main assumptions: profit maximization and perfect knowledge. The behavioral approach takes the firm as the basic unit of analysis. It attempts to predict behavior with respect to price, output and resource allocation decisions. It emphasizes the decision making process. The theory argues that while small firms may operate under the guidance of the entrepreneur, such a simple model does not describe larger corporations. These larger firms are coalitions of individuals or groups, which may include managers, stockholders, workers, suppliers and so on. According to Cyert and March, these groups participate in setting goals and making decisions. (Wikipedia, the free encyclopedia. 2013. Behavioral theory of the firm. [ONLINE] Available at: http://wikipedia.org/wiki/Behavioral_theory_of_the_firm. [Accessed 30 April 13].) Contingency Theory Merline Unique Salon is determine to maximize profit for both short run and long run process by determining the price and output level that will return the greatest profit. According to Wikipedia.com, profit maximization is the short run or long run process by which a firm determines the price and output level that returns the greatest profit. There are several approaches to this problem. The total revenue total cost perspective relies on the fact that profit equals revenue minus cost and focuses on maximizing this difference, and the marginal revenue–marginal cost perspective is based on the fact that total profit reaches its maximum point where marginal revenue equals marginal cost. Marris Growth Maximization Theory Marris saw growth maximization for both managers and shareholders. He states that Managers seek growth in sales while, Shareholders seek growth in the value of the company and hence their shares. Marris stated that a major objective that both managers and shareholders could pursue could maximise both the value of a firm’s sales and its capital value. However, he saw this as constrained by the need to distribute a reasonable proportion of profit as dividends to shareholders. (NCC Lecture Slide) He states that profit maximization is usually based on the assumption that firms are owner-controlled, whereas sale and growth maximization usually assume that there is a separation between ownership and control. (Alan and Stuart, 2007, p51) Profit maximization can happened in lowering price in certain area of my business, offering specials on hairdo and more. The Manager of Merline Unique Salon shares the same views. Merline O’Brian main objective is to achieve profit maximization. Profit is arisen due to the demand of products a company has to offer. The objective of Merline Unique Salon is to increase growth, maximize profit, and gain capital increase and with the Marris growth theory, these are all available. The forecasting of demand using This essay is an example of a student’s work Disclaimer This essay has been submitted to us by a student in order to help you with your studies. This is not an example of the work written by our professional essay writers. Essay Writing Service Dissertation Writing Service Who wrote this essay Place an Order Forecasting demand is an important task for just about any type of business. Accurately projecting the demand for specific goods and services helps companies to order raw materials and schedule production of those products in a timely manner, making it possible to fill consumer orders quickly and efficiently without the need to build up a large inventory that adds to the tax burden of the business.( http://www.wikihow.com/Forecast-Demand. [Accessed 30 April 13].) Marketing research Market research is any organized effort to gather information about markets or customers. Merline Unique Salon marketing research will be carried out through surveys, advertising and product testing. Information gathered will be evaluated and then will be connect back to the forecast demand. Market research will be carried out by Merline Unique Salon to gain competitive advantage so that the company can be able to evaluate the customer’s wants and needs and to also gain information on the most competitive competitor to learn their strengths and weakness so that the company can adjust to being more professional than them. Market testing Marketing a new product in test locations using the planned promotion, pricing, and distribution strategies, Merline Unique Salon products and service will be put on the market to observe the customers response and how well they gravitate to products and service and to also find out the company strong and weak areas to adjust the necessary changes to improve company. Mergers and acquisitions Merger can be defined as the combining of two or more companies, generally by offering the stockholders of one company securities in the acquiring company in exchange for the surrender of their stocks. Acquisitions can be defined as a corporate action in which a company buys most, if not all, of the target company’s ownership stakes in order to assume control of the target firm. (Investopedia. 2013. Investopedia. [ONLINE] Available at: http://www.investopedia.com/terms/a/acquisition.asp. [Accessed 30 April 13].) Merline Unique Salon would merge to maximize profit. Merging with another company can increase profit especially if the company merging with is of close relation and can attract customers for both merging company at once. E.g. Merging with a fashion store, Operating a beauty salon would mean that I would likely to cater to mostly females and having a fashion store can be benefit due to the fact that I can introduce my customers from the salon to the fashion store. In context, Merline Unique Salon will take on two types of merger and acquisitions that may take place in merging horizontal or vertical integration. These mergers may take place since the company is not a private company. A horizontal integration refers two companies that are in direct competition with each other and at the same level of production or sharing the same product lines and markets joining to become one company (Investopedia.com). Vertical integration occurs when two companies at different levels of production combine. Disadvantage of Government Regulations Regulations are issued by various federal government departments and agencies to carry out the intent of legislation enacted by Congress. Administrative agencies, often called “the bureaucracy,” perform a number of different government functions, including rule making. The rules issued by these agencies are called regulations and are designed to guide the activity of those regulated by the agency and also the activity of the agency’s employees. Regulations also function to ensure uniform application of the law. (thefreedictionary.com) Disadvantage Regulations drive up production costs because manpower plus time spent=production costs; making your money worth less. Business, jobs and many corporations move to places like china where a 5 year old can make a sneaker for less than a few cents an hour. with the rise of minimum wage so to do product costs, and as such 2 things can happen employer fires people to keep prices down, or prices must go up to pay the employees. For a new company such as Merline Unique Salon the Fair Trading Act ensures that larger companies compete in a lawful manner also it prevents larger companies from buying out small companies such as Merline Unique Salon without following the regulatory measures stipulated by the Government. On the other the Fair Trading act places Merline Unique Salon at a disadvantage as it reduces the opportunity the company may be presented with to integrate vertically with another or company. This essay is an example of a student’s work Disclaimer This essay has been submitted to us by a student in order to help you with your studies. This is not an example of the work written by our professional essay writers. Essay Writing Service Dissertation Writing Service Who wrote this essay Place an Order Privatization Privatization, also spelled privatisation, may have several meanings. Primarily, it is the process of transferring ownership of a business, enterprise, agency, public service or public property from the public sector (a government) to the private sector, either to a business that operate for a profit or to a non-profit organization. (Wikipedia.org) After a year I have decided to privatize my firm, two benefits I believe will be generated by privatization. In wanting to make more money I decided to privatize my business and get listed in the Junior Stock Exchange program. Benefits of this is that This helps with the government not hassling you. For example: wanting to take business to another location such as downtown, certain privilege will be given seeing that I’m dealing with the junior stock exchange. I will be of preference for restate and more. Privatizing Merline Unique Salon will increase managerial freedom and this is beneficial as it gives the manager of Merline Unique Salon the opportunity to develop its own objectives and grow the company by bringing operations into international markets. (NCC Lecture Slide). Economies of scale Economies of scale, also called increasing returns to scale, is a term used by economists to refer to the situation in which the cost of producing an additional unit of output (i.e., the marginal cost) of a product (i.e., a good or service) decreases as the volume of output (i.e., the scale of production) increases. It could also be defined as the situation in which an equal percentage increase in all inputs results in a greater percentage increase in output. (linfo.org) Two negative and positive impacts of Globalizations Globalization is the process of international integration arising from the interchange of world views, products, ideas, and other aspects of culture. globalization refers to processes that promote world-wide exchanges of national and cultural resources and advances in transportation and telecommunications infrastructure, including the rise of the Internet which is a major factors in globalization, generating further interdependence of economic and cultural activities. (Wikipedia.org) Positive Positive effects include competing on international scale and being able to do business with other countries. According to factoidz.com this is “not all rainbows and flowers”. With all these changes small businesses must now lower prices to compete with the larger businesses. This can negatively affect their profit. Another positive effect is that small businesses now have more buying power and can compete with the larger businesses. Because buying or trading with other countries is much easier than 40 years ago, small businesses can now buy cheaper products. They can compete internationally as well. Negative Outsourcing is a major negative impact on globalization today. many manufacturing and white collar jobs have been lost because of outsourcing. This is happening because workers are cheaper in places such as India and China. Accountants, programmers and other jobs have gone astray because of outsourcing. Small businesses have also been replaced by the e-businesses because it is cheaper for a company to run off a few customer service employees than many employees to keep a Brick-and-Mortar store open. The negative effect or disadvantage this has on small businesses is they have to lower prices to compete with larger companies, which means a lower profit margin. (cgs1172 ecommerce.blogspot.com) Types of pricing strategies Pricing is one of the most important elements of the marketing mix, as it is the only mix, which generates a turnover for the organization. (learnmarketing.net) Pricing is difficult and must reflect supply and demand relationship. Pricing a product too high or too low could mean a loss of sales for the organization. Penetration pricing – this is where the organization sets a low price to increase sales and market share. Once market share has been captured the firm may well then increase their price. Physiological pricing- this is where the seller will consider the psychology of price and the positioning of price within the market place. For example: instead of charging 1500 for creaming hair, the new price will be 1450. (learnmarketing.net) Contractual relationship This can be defined as a Legal relationship between contracting parties evidenced by an offer, acceptance of the offer, and a valid (legal and valuable) consideration. Existence of a contractual relationship, however, does not necessarily mean the contract is enforceable, that it is not void. (businessdictionary.com) Adhesion Contracts- Adhesion contracts are those that are drafted by the party who has the greater bargaining advantage which provides the weaker party with only the opportunity to adhere to (i.e., to accept) the contract or to reject it. (These types of contract are often described by the saying “Take it or leave it.”). Since Merline Unique Salon is owner controlled and the owner wants to always be in controlled, this contract will be good to adopted and use. (thefreedictionary.com) Lease contract (real property lease)-A real property lease is used to document the terms of renting land, a building or other space usually used to run your business.  The distinction is that a real property lease usually governs things that cannot be picked up and moved. With Merline Unique Salon this would work perfectly as it relates to it being a salon and workers would mostly be hairdresser etc. (integratedgeneralcouncel.com) Price elasticity According to Thomas from mheducation.com, price elasticity of demand measures the responsiveness or sensitivity of consumers to changes in the price of a good or service. Availability of substitutes- this is one of the most important determinant of price elasticity of demand. It is stated that the better the substitutes for a given goods or service is, the more elastic the demand for that good or service will become. When the price of a good rises, consumers will substantially reduce consumption of that good if they perceive that close substitutes are readily available. Naturally, consumers will be less responsive to a price increase if they perceive that only poor substitutes are available. Merline Unique Salon will now have to ensure that the prices for their goods and service is always at a reasonable price that will always of attraction to customers Percentage of Customers Budget- The percentage of the consumer’s budget that is spent on the commodity is also important in the determination of price elasticity. All other things equal, we would expect the price elasticity to be directly related to the percentage of consumers’ budgets spent on the good. Merline Unique Salon will have to ensure that the amount of money spent on goods to sell and do hair is made back and with profit. Time period of adjustment- The length of the time period used in measuring the price elasticity affects the magnitude of price elasticity. In general, the longer the time period of measurement, the larger (the more elastic) the price elasticity will be (in absolute value). This relation is the result of consumers’ having more time to adjust to the price change. (mheducation.com)