Revenue, Cost Concepts, and Market Structure Proposal

Revenue, Cost Concepts, and Market Structure Proposal

Adam F. Harrer

ECO 561

9 September 2010

Professor Kate Stowe

Revenue, Cost Concepts, and Market Structure Proposal

Thomas Money Service (TMS) originated as a consumer finance company in 1940, granting small loans to individuals for household needs. Over time, its services expanded to financing business loans and commercial real estate loans.   In 1946, TMS decided to embark upon equipment financing and a subsidiary named Future Growth Inc. was born. In 1951, an equipment manufacturing company was bought because of the high demand of forestry and construction equipment. This purchase allowed FGI to build, sell, and finance their own brand of building and forestry equipment; therefore, they withdrew from financing other brands. For 67 years, Future Growth Inc.’s profits grew. Recently, the economic struggle in America has dropped their profits down 30% and caused a layoff of one-third of their employees. Home sales have declined as well as business within the construction industry altogether. One area that still remains strong is the demand for new hospital and nursing home buildings.

The purpose of this proposal is to provide TMS and FGI with some recommendations for increasing revenue, obtaining ideal production levels to maximize profits, and reducing costs while taking into account the changes the industry has seen in demand over the last year of declining business.

Increasing Revenue and Ideal Production Levels

Because of the economic downturn, FGI has repossessed more than 500 pieces of equipment in the last year. Currently they are bundling the equipment to sell at an average price of $1732 per item. According to the demand data, FGI will only be able to sell 182 pieces of equipment at that price, generating a profit of $315,224.

|Price ($)       |Demand (Units) |Revenue ($)      |

$1,990.10 123 $244782.30

$1,732.00 182 $315224.00

$1,634.30 350...