Johnson Scooter Company Is Considering Whether or Not to Expand

question 178

Essay

Johnson Scooter Company is considering whether or not to expand into a new area of the United States. They produce high-performance gas scooters with moderate gas mileage, but have developed a new battery technology that combines a small amount of electrical energy with the existing gas power. This new technology will significantly increase the fuel economy of their bikes. They will need to spend $5,075,000 to retrofit a building to incorporate the new fuel-saving technology. New worker training will cost $1,984,000. Other expenses involved to set up and run the new plant are $332,000. The CEO anticipates that, with gas price increases, the profit potential of this expansion is $7,588,000. Do the benefits outweigh the costs, or do the costs outweigh the benefits, and by how much?

Apply the principle of marginal analysis to determine optimal levels of activity.

Understand the role of opportunity cost in comparing the value of alternate choices.

Recognize the importance of opportunity costs in resource allocation in both personal and organizational contexts.

Understand the basic concepts of motivation theories including reinforcement theory, need-based theories, and process theories.

---

Definitions:

U.S. Organizational Markets

Markets within the United States consisting of businesses and institutions that purchase goods and services for use in the production of other goods and services, for resale, or for operations.

Segmentation Base(s)

Criteria used to classify and divide a market into distinct groups, based on characteristics like demographics, psychographics, or behavior.

Segmentation Variable(s)

Criteria or characteristics used to divide a market into distinct groups of buyers based on needs, behaviors, or demographics.

Outback Steakhouse

An Australian-themed American casual dining restaurant chain, serving American cuisine, based in Tampa, Florida with locations internationally.