The paper 'Managerial Economics - BP Oil Company Limited " is a great example of a management case study. The Company we are giving our services BP Oil Company Limited which deals with the drilling, distribution, and selling of petroleum products. It is one of the biggest oil companies in the world because it accounts for over 17% of the total world oil distribution. The company has been incurring high production costs in the past few years and this has been leading the company into losses. The company has not been able to expand and serve the growing world market.
The high cost of production has been a result of high fixed cost and static variable cost, therefore, there is a need for the company to find a solution so as to lower its production cost. This will help the company to be able to maximize profits by cutting its costs. Year Cost in billions USD 2009 10 2010 15 2011 20 2012 25 2013 30 According to the table above the cost of BP oil company has been experiencing an increase in the cost of production from the year 2009 where the increase has been around USD 5 billion and this has been the trend all through.
This means that there has been a reduction in profits for the company. The increase in cost has been influenced by increase cost in drilling and where it has been forced to pay millions in damages for oil spills. In the last financial year, the company profits were USD 150 billion down from USD 180 billion. These reduced profits mean that the company cannot properly plan for its future activities because they are not aware of the profits they will earn in the coming years. According to the above graph, it is evident that company costs have been continuously increasing in the past few years.
This is not a good trend for a company because it will not allow the company to grow and expand its market share. This is a large share of the company profits. Solutions to the problem Economies of scale The problem of cost production can be solved through the use of economies of scale. Economies of scale can be defined as the cost advantage a company gains when it increases the output of a product.
The advantage arises because of the relationship between the quantity produced and fixed costs incurred per unit. This means that they move in a different direction.
ReferencesPug, I and Lehman, D. (2013). Managerial Economics. London; Blackwell Publishing.