Food-Processing-Plant-Design-layout

Food Processing Plant Design & layout
11.1 Introduction
Lesson 11. Food processing enterprise
Imagine a food processing enterprise that competes with several others. The enterprise
produces a single product, has some control over the price it will charge and is primarily
devoted to making a profit. Imagine further that the major characteristics of the market, the
competitors, and enterprises own internal technology are well known to management and
essentially static in time. Under these conditions one may explore some of the major
economic decisions that might be made. One may start with the environment in which the
enterprise exists and work inward, eventually reaching the level of decisions at which the
analyst often works.
In studying the enterprise's environment one might wish to study in detail the customers,
competitors, suppliers, and the legal, political, social and geographic factors which bear
upon its operations. To avoid some of the chaos this might involve, it is assumed that all
these things can be expressed by the demand curve of the enterprise. The demand curve
expresses a part of the relationship of the enterprise with its market by simply giving the
amount of product that can be sold as a function of the price charged for it. In this simple
model, price is taken to be the major determining factor in the amount the enterprise can
sell; and such obvious other factors as quality, advertising, sales effort, reputation, and
service are left out of the picture. Thus the relationship between the price and the amount
of product that can be sold is given by:
P = a – b D for 0 ≤ D ≤ a/b
= 0 otherwise
Here P is the unit price, D is the amount of product sold, and a and b are positive constants.
It is assumed that the amount of product, D, is a continuous variable. The straight-line
example, which has been given, might have been a curve; but the point is that one usually
expects large volume to be associated with low price, and small volume to be associated
with high price (Figure 1).
The analyst who knows the demand curve may then decide what price one will charge, and
the curve will tell how much one can sell; or, one may decide what volume to produce and
the curve will indicate the highest price at which one will be able to dispose of the
production. Ultimately one will make the choice so as to maximize profit, and profit may be
defined simply as the difference between total revenue or gross sales (TR) and total cost
(TC),
Profit = TR - TC
The total revenue resulting from any price-volume choice may be computed directly from
the demand curve.
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