Dear Ms. Doe,
REF: ECONOMIC CONCEPT
I am writing this letter in reference to your request for the submission of a personal key economic concept needed to solve the current economic problem in your company.
I am well versed in economic concepts from my coursework and personal practical experiences that I have encountered. It is my belief that the utmost distinct economic concept to be observed and practiced is the law of diminishing marginal returns. It refers to the phenomenon that as additional units of variable resources say labour used in production are added to fixed factors of production (capital), the marginal productivity of labour will decline with each addition and could even be negative.
In light of the economic problems in the company, my knowledge in economics coupled with an understanding of the diminishing marginal returns will come in handy. The company should possess the ability to balance its factors of production to ensure that maximum yields are obtained. In this sense, productivity of a single employee should be maximized at all times so as to ensure there is an increase in the total production with a rise in the number of workers.
The company might be operating with a large number of workers whose marginal productivity is low. This makes the company’s profit margins to reduce since the more employees earn salaries that are not backed by productivity. Application of the knowledge of the diminishing marginal productivity of labour will ensure that the optimum number of workers are matched with the available capital and therefore eliminate the excess and unnecessary employees in the company. The inefficiencies are created out of this phenomenon since the workstations are overcrowded and the incentive to exploit/tap the full potential of at least all the employees becomes impossible.
A complete overhaul should be done in order to determine the optimum number of employees that can operate best at the available resource endowment. The laying off of all workers will commence, and fresh recruitments are done. As the workers are added to the departments, the marginal productivity will keep on increasing until the point when it starts to decline. The employment level is, therefore, maintained at this point since it will be the optimum level based on economic thinking i. e. the correct decision making criteria.
As a consequence, the money saved from the elimination of the excess workers can be used in the expansion of the company and improve the efficiency that was initially unachievable. Also, the company will now be able to generate more profits due to a reduction in cost of production i. e. the reduced wage bill. Valuation of profits is done by summing up all the revenues generated by the sales of the final products to the consumers and subtracting the total costs of production. With all this factors taken into consideration, it is clear that the financial position of the business will substantially increase.
Based on my expertise in economics, I will undertake the process in all the departments and improve on the utilisation of the factor inputs available in the company. In am confident that your desired results for the company will be attined if given a chance to put my economic idea into practice within your company.
I beg to remain under your kind consideration as I look forward to hearing from you.