ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Chapter 1, Problem 1QTC
To determine

To discuss: the issues related to hiring third-party services and the way these issues can affect the financial viability.

Expert Solution & Answer
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Explanation of Solution

When a restaurant uses third-party services, it may face some operational issues. Some of these issues have been discussed below:

1)Misuse of confidential information: When a restaurant uses third-party services, it puts on the confidential information on risk, that can be used by the third-party for making personal gains.

2)Lack of flexibility: The restaurant may face difficulties in performing its operations. There is a possibility that third-party services might not be performed by skilled workers. Such a scenario may lead to poor quality of restaurant operations and can harm the firm in the long run.

3)Instability: The third party can go out of business at any time which can lead to difficulties in the management.

4)Unsatisfied services: The third-party service may fall behind the expectations of the restaurant. Also, customers might blame the restaurant for a mistake made by third party services.

The way in which these issues affect the financial viability of the restaurant are as discussed below:

1). Risk of uncertainties: When vital functions are outsourced, the restaurant might be dependent on the service provider and risks such as bankruptcy and financial loss cannot be controlled.

2)Market consequences: When the market price changes so frequently, the restaurant can take advantage of this by purchasing at the right time.

3)Extra-market consequences: These are the items that are not directly priced in the market, but in indirect ways, a price may be assigned to these items called shadow price by economists such as injuries and other uncertainties at the workplace.

Economics Concept Introduction

Third-party services: It refers to the services that are rendered by a third party (party other than the company providing services and the client) and third-party service providers can be any agent, consultant, advisor or any independent contractor who is providing services to the main firm.

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For the firm whose cost curves are shown at right, the minimum efficient scale is ○ A. between 60 and 140 units of production. OB. about 20 units of production. OC. about 60 units of production. OD. about 100 units of production. OE. the level of fixed cost corresponding to SRATC2. SRATC₁ LRAC SRATC4 SRATC₂ SRATC3 เนด เad iso C 20 20 40 60 80 100 120 140 160 180 200 Output per Period
SRATC₂ SRATC3 In the figure, increasing long-run average total costs for the firm are confined to the output range OA. where the LRAC curve is downward sloping. B. above 80 units of output. O C. above 50 units of output. OD. between 50 and 80 units of output. SRATC₁ OE. between 10 and 100 units of output. ---- SRATC LRAC 10 20 30 40 50 60 70 80 90 100 Output per Period
For the firm whose cost curves are shown at right, the minimum efficient scale is OA. between 10 and 50 units of production. OB. about 80 units of production. O C. the level of fixed cost corresponding to SRATC₁. OD. about 10 units of production. ○ E. about 50 units of production. Cost per Unit SRATC₁ LRAC SRATC2 SRATC4 SRATC3 10 20 30 40 50 60 70 80 Output per Period 90 100
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