Production Decisions and Supply in UK Manufacturing (2010-2019)

This report analyzes production decisions in UK manufacturing between 2010 and 2019, focusing on how inputs and costs influence the supply of goods and services. It examines the impact of capital, labor, land, and materials on production processes, as well as the effects of fixed, variable, and total costs. The report also discusses the UK financial crisis of 2010 and its impact on capital availability and supply. Furthermore, it explores the concepts of perfect competition and highly competitive markets, illustrating how these market conditions influence supply, using examples such as agricultural practices and the fashion industry. The analysis highlights the relationship between demand, supply, and pricing, emphasizing the role of innovation in maintaining competitiveness.

Production decisions in UK
manufacturing between 2010 to 2019

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Task 1...............................................................................................................................................1
Inputs and costs influence the production decisions in regards of supply of goods and services.
......................................................................................................................................................1
Task 2...............................................................................................................................................4
Perfect competition and highly competitive markets influence supply of goods and services.. .4
CONCLUSION................................................................................................................................6
REFERENCE...................................................................................................................................8

INTRODUCTION
In the report production decision of UK will be discussed. Production decisions are vital because
it only helps companies in growing and making good profit. Supply is the important thing which
is considered before taking production decisions (Gören, 2018). Production decisions can
monitor complete firm. This report will evaluate that how inputs and costs will affect the
production decisions of the supply of goods and services. Further it will shed light on the
concept of perfect competition and highly competitive market and how will going to affect the
supply of goods.
MAIN BODY
Task 1
Inputs and costs influence the production decisions in regards of supply of goods and services.
Supply is the procedure in which goods and services are offered for sale at the market
place (Behzadi and et.al., 2018). Goods is the physical items example car whereas services is the
activity example accountant providing taxes and accounting related services. There are mainly
four inputs which are used for the production process are:
Capital- it refers to the machinery and equipment which are utilized in the production process. It
comprises all man made elements like factory, building, trucks etc.
labour- it includes physical and intellectual labours both (Tarigan and et.al., 2021). Labours can
be unskilled workers and also skilled workers like lawyers etc. in simple language it means the
hum being which are responsible for the production process.
Land- example in agricultural production land plays vital role as crops are grown at land so that
is why land is the input element.
Material- it refers to the raw materials which are used in the production like oil, grains, tress
etc. raw materials are processed and than covert it into final goods.
Costs are of three types which are total, fixed and variable costs.
Fixed costs- it refers to the cost which does not affect with the quantity of output (Sabouhi,
Pishvaee and Jabalameli, 2018). It is the fixed cost for the organisation which they have to pay
whether they are incurring profit or loss. Example rent of premises.
Variable costs- this cost varies which the quantity of output which is manufactured. As the
name suggests, it varies with the total production and not remain same everytime.
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Total costs- in simple language total costs is the combination of fixed and variable costs.
Total costs= fixed cost+ variable cost.
Inputs and costs both are the important elements when taking production related
decisions of goods and services. If the cost of the input will get increased than company will sell
goods at higher costs which can decreased the demand of goods but if the input cost will get
decreased than company will sell goods at less costs so, eventually that can increase demand of
goods. Input costs are used for determining the price of the items and services. Input costs are
required for production because they are the resources (Seth and et.al., 2018).
As per the law of supply it means that when the input price got increased than it will
increase product price also and eventually this will increase supply. But when the input costs
reduces than that reduces product price and hence it will also reduces supply of goods and
services.
Example, USE financial crisis which took place in united kingdom. It is the situation
when many companies of UK were not able to pay the debt which they have took from the
government bank. It can be observed that financial institutions around the world is connected
with each other as the barriers is removed by the government. In the financial crisis which has
taken place in the year 2010, in that crisis bank run out of money (Rostek and Yoon, 2020). It
can be said that bank does not have sufficient liquid assets and this issue has started spreading
quickly within all the financial institutions. Than later it has become liquidity crisis for the
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Illustration 1: Total cost curve

banks. Due to lack of money banks have started facing difficulty in fulfilling their immediate
needs. It is he problematic situation because all large and small businesses are dependent on
bank for fulfilling their financial requirements but this situation has pull down the economic
growth of the country. This situation has impacted UK badly and also put them into the
vulnerable situation.
Capital is the input which is required for the production process and capital is provided
to the business by banks but this year bank is not in the condition of providing adequate capital
to the business. Low input has reduced the production and this has resulted in less supply of
goods and services (Zilberman, Lu and Reardon, 2019). This financial crisis did not restrict in
UK only but it has causes global recession in the year 2010. in this year there were lots of
business which shut down and also there are millions of people which has to lose their jobs.
GDP of UK has drastically went down and shaken the economy of the country. When the
economy was showing any growth than prices of the houses went down and also unemployment
has rises in the country.
There is the concept of total product curve which means that output quantity is depended on the
total quantity of variable input within the fixed input quantity.
Example- when in the year 2017, the prime minister of the UK made an announcement
that UK will be leaving EU is the major shock for everyone and especially for agriculture sector.
This has started arising agriculture issues. If talking about agriculture than it is the important
industry for UK which is making great economic contribution. The key issue here is the farm
income, farmers are experiencing low farm business in the whole UK. When there is less income
in the farming sector than it grows the difficulty of this industry for long term sustainability.
Infact pig and the dairy sector is also experiencing income volatility. There are number of
factors due to which this situation has arise which are costs of inputs, difference in sterling
pound and Euro. Migrant workers is the key resource for agricultural sector. The supply of
migrant workers has reduced which has caused challenges in the agriculture sector (Garattini
and Padula, 2018). Labour is the important resource for every industry especially in farming
sector. Lack of supply of labour affects the production decisions and also decreases supply of
goods and services. Labour is the category of input and it is mandatory for every production
activity. Shortage of labour can create challenges in the agriculture sector which is exactly what
happened in 2017 in united kingdom.
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Task 2
Perfect competition and highly competitive markets influence supply of goods and services.
Perfect competition-
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Illustration 2: Supply shift
source: Shifts in supply., 2021
Illustration 3: Perfect competition diagram

it means when all the companies sell same products and this does not influence the
prices. In this situation there are no barriers of entry and exit in the industry. Buyers have all the
information and companies can control the prices. This market condition eliminates the chances
of monopoly. In this market condition buyers and sellers have proper knowledge and no one can
control over price. Both the parties buyers and sellers wanted to increase their profits. There are
many buyers and sellers in this type of market. The goods which are sold in the market are
homogeneous or identical. Government have less involvement in the market. Transparency is the
biggest advantage of this market condition because no individual can control the prices so it
helps in preventing corruption. As there are no restrictions in the entry which means that there
are no chances for monopoly (Wu, Wang and Shang, 2019). Monopoly situation is not good for
buyers because they does not have choices and prices are completely controlled by the sellers.
Highly competitive markets-
in this market condition there are many companies which compete with each in order to increase
their market base. In this condition no supplier can control over the market and at the same time
no consumer can also control over the market. So no consumer and firm can influence the price
of the products. Example- agriculture practice. There are many farmers which are undertaking
agriculture activity but none of them can control on the prices and also the quantity which they
are growing. Prices cannot be determined by them as on which prices they wanted to sell their
crops.
In every market the price of the product is fixed by the demand and supply of the
products or services. In the perfect competition, suppliers can manufacture products as long as
they are getting demand in the market and buyers will also purchase the goods as long as they
are getting more satisfaction than the price which they are paying for the product, which can be
referred as the marginal cost of production (Theyel, Hofmann and Gregory, 2018). If the
demand which is receiving by the suppliers reduces than supplier can opt innovation practice to
increase the demand of customers. As customers are always attracted towards innovative
products so innovation can increase demand. If the prices of the products will rise than that will
impact the supply of goods (Chen and et.al., 2018). Supply will increase only when the market
clearing price is reached. If the price of the product decline than those suppliers will drop out
which cannot cover the costs. When the prices are high then suppliers willingly produce more
products to get higher profits but when the prices are less than more consumers will purchase the
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products. There are many reasons which changes the prices like consumer, taste, preference,
technology, weather, climate etc. this market condition also helps in bringing economic
development.
In the competitive market in order to increase profits, company manufacture unit when
the marginal cost of making that one unit of output matches with the marginal revenue. In order
to find out the profit, deduct total costs from the total revenue (Pradel and et.al., 2018). The
supply of goods and services in this market will get affected if customer will demand more or
less. if the customer will demand more for any specific product than company also supply more
in order to maximise their profits but if customer will demand less than company will also
supply less in the market. There is not need to supply more in the market in the demand is less
because that will only waste company's resources. There is the term called industry supply curve
which tells the relationship between total output and the price of the goods. If the prices are less
than company will produce more items because customer will attracted towards less cost
products (Chang and et.al., 2017). The short run industry supply curve explains that the quantity
which is supplied is directly dependent on the market prices within the fixed producers in the
market. In simple language highly competitive market can impact the supply of the goods and
services if the demand of the customers changes (Schmidt and Wagner, 2019). As supply is
completely dependent on demand. With the increase in demand, supply will also increase and
with the fall of demand, supply will also fall. So demand and supply both will go hand in hand.
In the fashion crisis which took place in 2019 was massive which takes place in UK. In
the clothing industry, fashion changes quickly and if company will not cope up with the changes
than they have to shut down. Those companies are getting high profits which manufacture
fashion related clothes which means that clothes of those companies are highly fashionable.
Fashion industry is the highly competitive industry. The profit of fashion industry has also rises
after 2016. as consumers are more attracted towards fashionable clothing (Grodach, O'Connor
and Gibson, 2017). This industry is called as highly competitive because there are many firms
present in this industry and also there are lots of customers. Companies does not have complete
power of the prices of the products. In the year 2019 when fashion crisis has started in that year
only those companies has survived which were providing fashionable clothes to the customers
otherwise company which have old clothing ideas has to shut their business down.
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CONCLUSION
Through this report it can be concluded that inputs which include materials, labour, land and
capital and costs which includes total costs, fixed costs and variable costs are the main elements
which making production related decisions in regards of supply of goods and services. If the
total costs of the products will get increase than company will manufacture less because high
cost products are purchased less but if total costs is less than company can produce more
products because less costly products are purchased more. The demand of less costly goods will
be more so the supply of those goods and services will also more.
Perfect competition is the market condition when there are more suppliers with more customers.
There is transparency in the market because no one can control on the prices. It also decrease the
level of corruption due to the transparency nature. In highly competitive market, there can be
observed high end competition. When the competition will be high in the market than that will
affect the supply of goods and services. Example in UK fashion crisis 2019, there are high
competition in the fashion industry due to which those companies has to sink down which does
not focus on innovation.
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REFERENCE
Books and Journals
Krugman and Wells. 2020. Essentials of Economics. New York: Worth Publishers.
Pages 355-451.
Online
Shifts in supply., 2021. [Online]. Available through: <https://courses.lumenlearning.com/atd-
baycollege-introbusiness/chapter/reading-shifts-in-supply/>
UK Office of National Statistics (ONS), 2020. [Online]. Available Through:
<https://researchbriefings.files.parliament.uk/documents/SN01942/SN01942.pdf>.
UK Government websites, 2020. [Online]. Available Through:
< https://www.investmentmonitor.ai/business-activities/manufacturing/who-killed-british-manufacturing>.
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