Vela Appliances makes coffee machines. Its research shows that a worker in Rovina can assemble 12 machines per day, while a worker in Sondar can assemble 7 ...
Question 1 Report
Vela Appliances makes coffee machines. Its research shows that a worker in Rovina can assemble 12 machines per day, while a worker in Sondar can assemble 7 machines per day. Rovina has higher wages, but its port is close to the company’s main export market. The business is considering making machines in Rovina and exporting them to several countries.
(a) State two factors, other than output per worker, that Vela Appliances should consider before choosing Rovina. [2]
(b) Calculate how many more machines per day one Rovina worker assembles than one Sondar worker. [2]
(c) Explain two reasons why specialising in coffee-machine assembly in Rovina could increase Vela Appliances’ international trade. [4]
(d) Give three difficulties the company could face when exporting the finished goods to several countries. [6]
Answer Details
(a) Two relevant factors are wage costs [1] and port or transport costs [1]. Availability of skilled workers, taxes, political stability and exchange rates are also valid. Higher productivity alone does not guarantee the lowest overall cost.
(b)
\[12-7=5\]
One Rovina worker assembles 5 more machines per day [2].
(c) Higher output per worker can reduce labour cost per machine, allowing a more competitive export price [2]. Producing larger quantities in one location can create economies of scale, so Vela can supply more overseas orders and compete in more markets [2].
(d) Tariffs or import taxes can raise the final price in an overseas market and reduce demand [2]. Exchange-rate changes can reduce profit or make prices uncertain [2]. Different safety rules or technical standards may require product changes and testing [2]. Other valid developed difficulties include language and advertising differences, long shipping times and costs, and difficulty checking overseas customers’ creditworthiness.
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