February 25, 2013
Thomas Money Service Inc. is a company that has been in business since 1940. The business started as a consumer finance company providing small loans for household needs. With time, Thomas Money Service Inc. expanded its business and grew into a company that was providing its services by issuing business loans, providing business acquisition financing, and commercial real estate loans.
In 1946, Thomas Money Service Inc. decided to branch out into equipment financing creating a subsidiary named Future Growth Inc. (FGI). This changed turned out to be very profitable because it was after the end of World War II were society had a demand for construction and forestry equipment. FGI had been able to see increased profits throughout the years, even through difficult times; however, with the current global downturn has caused the American economy to suffer. As a result of the current economic situation, FGI has seen a 30% drop in sales, and have had a reduction in the work force.
FGI’s market structure is based on facilitating forestry equipment. Since this was a success, FGI incorporated a new into its business model the build, sell, and finance of its own products and ceased the support and financing of other brands.
This paper will discuss how to increase FGI revenue, determine the profit-maximizing quantity, how to utilize the concepts of marginal cost and marginal revenue to maximize profit, suggest mix of pricing and non-pricing strategies, how to increase product differentiation, and analyze other forms to minimize costs for the products.
In today's market, many businesses are focused on cost management; however, there is a potential to increase revenue and profitability. According to Small Business Digest, there are six rules for increasing revenue and profits. First by "Functionally satisfy at least the minimum; emotionally satisfy the maximum. Second, Don't compete on price. Third, Drive expectations. Fourth, Measure causes over outcomes. Fifth, Critical change occurs once competitors start to follow the company's lead. Last, Deep, sustainable strength takes time." (Information Strategies, Inc. 2013).
By following the six rules for increasing revenue and profits, FGI should look at investing into another subsidiary within the medical industry. Even though there has been a decline in the construction business, there are needs in other places where FGI can take advantage from and concentrate on new construction projects such as hospitals and retirement homes. The ability to enter into a new market will allow FGI as an organization to increase its revenues and add third market financial services. Considering the goods and services FGI contributes to the economic market one of the concerns would be the productivity quantity in association with the variable costs and a specified quantity of output. When analyzing the data provided for the production levels, the fixed costs and variable costs are some of the concerns that need attention.
Determine the Profit-Maximizing Quantity
As part of its new strategy, FGI should look at the current demand and shift its consumer target from purchasing new equipment as the primary option to also incorporate used equipment for customers to choose from; thus, creating a market profit and increase in revenue. As part of this change, FGI can take the 500 units of equipment it repossessed and liquidate them will increase its revenue because in one way or another, the equipment's cost in not existent as they already sold it and made a marginal profit on the units. By liquidating the 500 units it will gain FGI a marginal benefit of increased revenue. However, the production of the equipment needs to continue; but at a pace that would allow the economy to sustain the output of the products.
Concepts of Marginal Cost and Marginal Revenue to Maximize Profit
Marginal revenue is the result of the sale of one additional