Tutorial 6 Industry Application Questions 2017 PDF

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Tutorial 6 – Industry Application Questions Give 2 examples of technological changes that have occurred in your industry within the last 20 years, and briefly describe how that change has benefited firms in the industry. 4 marks Social media in the last decade has benefited and changed the coffee in...

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Tutorial 6 – Industry Application Questions

1. Give 2 examples of technological changes that have occurred in your industry within the last 20 years, and briefly describe how that change has benefited firms in the industry. 4 marks Social media in the last decade has benefited and changed the coffee industry as a whole for marketing and increased awareness of the coffee loving passion that café’s have. Platforms such as Instagram and photo sharing websites have increased the drive and knowledge of coffee, where it comes from and who makes it. As well as being a great marketing tool, it has benefited café’s all over the country in terms of increased guest counts, driving competition between firms for things such as latte’ art, café design and other products. A large following on social media can drive customers to talk amongst themselves, see what café’s serve what coffee etc. Another technological change has been the advancement of coffee machines and grinders, coffee machines have become completely automatic, digital and mechanically adjustable. This means that the barista can work completely well with the machine adjusting the settings to create a better coffee, experience and product for the customer. From old push button machines, to new group head digital machines, the taste, quality and overall experience of the product has increased dramatically. This has ultimately driven a passion for coffee in both barista’s and customers, with the industry finding an easier way to enjoy and serve coffee. An example is McCafe who saw an overhaul of their machines in 2014, from old one press to a new group head machine. Since then the McCafe has seen increased guest counts, better quality coffee and a larger growth, with a 25% increase in sales from Q1 2014 compared to Q1 2015. These capacity and sales increasing technology has changed the front of the industry to a more passion driven, quality loving coffee culture. 2. Describe the method of production in your industry for a typical firm. That is, is the method of production highly capital intensive? Is it labour intensive? Does a typical firm operate on a large scale? 3 marks The method of production in the café and coffee shop industry is through labour intensive work; capital intensity in this industry is low. Production in a coffee shop is purely food and beverage, needing labour to create both products. Although capital is needed, without the labour and barista’s, there would be no production of any coffee’s or food at all. The increased labour does create a special experience for the consumers though, creating customer connections while also creating the products. The barista’s take passion and pride in their coffee’s, which while labour is expensive, can be a profitable aspect for the business. Café’s generally do not operate on a large scale, although there are major players in the industry who operate on a larger scale than smaller family owned shops. This does balance out the industry though, with consumers having a choice in smaller or larger industry holders.

3. Name three fixed costs and three variable costs in your industry. 6 marks Fixed: - Rent on coffee shop - Utilities and maintenance can generally be constant – unless a spike in repairs occurs one month - Taxation and regulation costs Variable - Labour/personnel costs - Food and beverage costs (inventory) - Training costs

4. How can firms in your industry increase production in the short run? 2 marks In this industry, specialized labour and skills are needed for producing more in the short-run. A recruitment drive for these skills can be a short run decision that allows an increase in output; however, entrepreneurs need to be wary of the law of diminishing returns which will take effect. This means that any additional units of labour added will create no more additional output, yet still place variable costs on the business. The output should be covering its own cost, with ATC. MC should be considered as P=MR=MC. This means that the firm should only be producing at a rate where the MC is equal to the cost of the unit....