a) Seasonal demand can be consumer interest in purchasing particular products only during a specific period within the calendar year. For example, Christmas trees, most fruits, school books and uniforms, TVs, cards and tourism sector among others are subject to seasonal demand. There are certain problems that are associated with this kind of seasonal demand they include; Over stocking is one of the problems of this kind of demand. Seasonal demand poses problems for businesses because they have to build up stocks for sale during the period of peak demand. Stocks are expensive to keep.
Before the world cup electronic shops have to keep large stocks of TVs waiting for the high sale period. This is the same thing with bookshops that have to stock up awaiting the January sale season. Relatedly, firms are also caught with too many stocks if peak demand sales fail to live up to expectation, but sales are lost if peak demand exceeds expectations. Failure of reaching the expected sales can lead to high losses especially for perishable goods. For example flower shops had large stocks of flowers anticipating the high sales during the valentine period counted losses if they didn’t sell all their stocks.
Seasonal unemployment also arises from this kind of demand. Due to low sales during the low season the organizations are forced to lay off some of the employees they had during the boom period. For example hotels that have very high number of customers during the December period lack customers during the off-peak period are forced to lay off some of their staff during this periods. Hoarding can also arise in this kind of demand. This means some of the sellers or producers can hide their products because they anticipate high demand.
For example the petrol stations that hide the petroleum products before charismas because they know people are travelling. To the consumers high prices may be associated with seasonal demand. The sellers or producers take advantage of the high demand to charge exorbitant prices since there is high demand. For example the bus companies who know people are travelling upcountry during the festive season and charge high prices b) Managers of firms that exhibit seasonal demand can solve the above problems in the following ways;Employing a product mix within the product.
If the demand is regular there would be a need to employ a product mix in order to ensure survival. For example card maker who makes charismas cards can also start making cards for other occasions like Easter, birthdays, weddings, valentine, anniversaries to sustain him throughout the year. Labour management may be another way to solve the problems. Workforce adjustments may take the form of flexible arrangements depending upon the nature of the business, the job training required, and the severity of the desired volume leverage.
For example temporary personnel provided no more than three weeks training applies. Some organizations maintain a register of students, housewives, or retirees seeking temporary employment. Short-term employment contracts (full or part time) can also be done. A typical contract lasts three months. Hence some casual workers report for just a few hours of continuous work. For example supermarkets can hire any number of unskilled workers for a single shift at a time, with just a day’s notice, from a specialist employment agency. Preparing a production schedule can also ease the problem.
This means creating genuine aggregate plan of different seasons throughout the year. This can be done by looking at the past trends and coming up with total labour and inventory costs each month of the year. For example a bookshop can draw up a plan when they have large demands especially before schools reopen and calculate the labour and inventory costs for each month. Subcontracting is also another way to ease the problem of seasonal demand. This means giving another firm that deals in that kind of service to take care of it when it’s needed.
For example the Kenya premier league subcontracts ticket masters and G4S during matches instead of incurring costs of having a printing press and security personnel trough out the year. Chase strategy be employed. The “chase” rationale is based on similar logic to JIT (just in time) production. This means having the products only when they are needed The “chase” strategy is critical when products are valuable, bulky, or hard to store, and for goods that are perishable or carry an appreciable risk of obsolescence. For example fridges, flower and Ice cream can be ordered as demand rises. Further the firm can employ a Level strategy.
This means having a fixed level of stock no matter the season in order to operate at full capacity all year round. For example electronic shops can have a level of Colour television sets that are expensive, so (unplanned) overtime is authorized during the peak period to correct for long term forecasting errors. Therefore, with these provisos, the “level” option is a safe and simple strategy. “Demand management” strategy The obvious way to stimulate off-season sales is to launch a complementary product range . Thereafter, most planning revolves around coming up with different business to maintain during the entire year.
For example you can have a fridge repair and air condition repair during the hot season and repair of heaters during the cold season. c) To a large extent the problems and/or solutions would not be different if the extreme fluctuations in demand were not seasonal because of the following;| Firms that don’t have seasonal demand still need to employ a product mix in order to maximize their profits. For example hardware shops have to stock everything while buildings is a full year activity Organizations without seasonal demand may also require temporary workers if demand is high and may lay off workers if the demand is low.
For example businesses had to lay off workers due to political unrest in 2007 due to low demand. Planning is a pertinent in any kind of demand thus a production schedule needed by seasonal demand firms is also needed for those that don’t show this kind of demand. It means creating aggregate plan for the year. This can be done by past trends analysis and coming up with total labour and inventory costs each month of the year. For example a tyre production company needs to plan for its production even if its demand is not seasonal. Subcontracting is also relevant for any kind of demand.
Organizations need to engage in their core activities whether seasonal or not. For example firms don’t have to build a conference room that you can hire if you require from time to time. The just in time strategy production is also employed by non seasonal demand kind of goods. It reduces the cost of storage due to the fact that you only order when you need a product. For example a firm can order what its going to use. The Level strategy is also very relevant even when the demand for product is not seasonal. The “level” option is a safe and simple strategy since there is a fixed level of stock no matter the demand levels.
For example having a fixed level of food stuffs in a supermarket ensures that there is a steady stock in case demand rises. QUESTION 2 a) The firm is operating inefficiently. The Law of Diminishing Returns states that when more and more units of a variable input (in our case labor) are applied to a given quantity of fixed inputs (capital), the total product may initially increase at an increasing rate and then at a constant rate, but beyond a certain level of output, the rate of increase in the total output diminishes.
The MP ratio of labour to capital is (1:100) when MPL =4 and MPk= 400. This firm is at the first stage where there are increasing returns where its MP has not reached maximum since there is still room for the firm to increase labour and thus the total product and in turn increase the profits. Thus it is inefficient. b) The firm is at its first Stage where the marginal product continues to increase making total product increase at an increasing rate. The increasing returns are because output increases as labor is increased.
Here fixed factor (capital) is underutilized. That is why as more and more workers is added utilization of machine (capital) increases and productivity of additional worker increases. It would be inefficient for firm to operate since there is still room for increased output and hence high profit. Thus it should increase the quantity of labour relative to capital because capital is high in ratio (1:100) compared to labour. And Capital is assumed to be fixed. Thus in order to increase a given output labour should be increased.