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Question:

Discuss about the Micro and Business Economics.
 
 

Answer:

Introduction

In the reported study paper, a basic system analysis of an economic issue i.e. the allocation of effort between producing low-value cow milk and high-value cow milk in New Zealand has been evaluated. In order to complete the entire analysis, causal loop model has been utilised to determine the important elements attached to the system. Moreover, drawing the elements related to the analysis, the linkages between the identified elements have been denoted in the study as well. Evidently, the balancing and reinforcing loops have been illustrated in a diagram representation. Through the investigation of the analysis, a growth archetype has been identified. To finish the report, the intervention of management to improve the system function has been described as well.

Problem Statement

The leading economic issue defined in the study is related to the allocation of effort between producing low-value cow milk and high-value cow milk in New Zealand. In order to understand the economic issue, a systematic analysis has been constructed drawing a causal loop model based on the elements associated with the issue (Clarke, Leuridan, & Williamson, 2013). Precisely, the efforts leading to the production of high-value and low-value cow milk have included elements such as labour, productivity per labour, production of low-value cow milk, and production of high-value cow milk, technology, capital supply, and profitability of firms (Galindo Marti?n, & Nardi Spiller, 2010).

Causal loop model and description of links

In order develop the casual loop model; first of all, the identified elements have been drawn to understand the affecting elements attached to the system analysis. Critically, by describing the linkages between the individual elements, it will be important to denote the positive and negative linkages. In the section below, the entire causal loop model has been drawn as follows:

Figure: Causal Loop Model

First of all, the labours required for both the high-value and low-value cow milk production can be defined as one of the leading efforts in the economic issue. Hence, the linkage between labours and high-value and low-value cow milk production will be positive as denoted in the causal loop model. Alternatively, the relation between production of high-value and low-value cow milk will be positive with the profitability of the firm. Specifically, productivity per workers is an element that creates a positive impact on the production of both types of milk. On a substantial note, during the production of both high-value and low-value cow milk, the labour cost has created a negative linkage with the profit of the firm (Chaudhary, & Upadhyaya, 2015). Precisely, technology has been an instrumental factor in the allocation of efforts to mitigate the identified economic issue. Technology will influence the productivity of labour in a positive way as well as the production of high-value milk from low-value milk. Also, a significant capital supply needs to be added on installing the technology. Reversely, capital supply is one of the substantial elements contributing to the production and managing the cost of labour (Wiseman, 2015). Herein, significant capital supply can create a positive linkage towards labour management.

Admittedly, during the production of low-value milk in New Zealand, the labour cost has to be minimised so that comprehensive profitability can be drawn by the marketers. On the other hand, production of high-value milk requires expertise human resources, technological resources, and other fundamental resources. Hence, capital supply needs to be improved in the case of production of high-value milk (Chaudhary, & Upadhyaya, 2015). In the given causal loop model, the blue positive loops classify the reinforcing loops whereas the red negative loops define the balancing loops (Umbach, 2009). Meanwhile, each of the elements attached to the section needs to be verified accordingly to control the allocation of effort during the production of high-value and low-value cow milk in New Zealand market.

In term of balancing and reinforcing the elements, blue positive loops have denoted reinforcing loops whereas red negative loops determine balancing loops. As per the causal loop modelling, labour units and production of low value cow milk has been reinforced so that profitability will increase. Also, capital supply has been reinforced with productivity per worker to increase the production of high value cow milk. Evidently, capital supply and technology have been engaged in another reinforced loop to increase production. In case of balancing the elements, labour units have been balanced with profit to allocate the fund required for business sustainability. Also, labour units and productivity per worker has been engaged in a balanced loop to support each of the elements leading towards productivity.

 

Identification of limits to growth archetypes

There are several limits to growth faced by the milk production industry of New Zealand in terms of the elements of archetype. The limits to the growth archetypes are presented herein below:

Limits to growth for low value cow milk: ↑ labour, ↑ production, ↑ crowding, ¯ productivity

By considering the figure presented in the causal loop model, it can be seen that the labour units implied in the production of low value cow milk are too high. On the other hand, with high number of labours the production in the low value cow milk industry increases. Additionally, the low value cow milk production system faces high crowding that result in low per capita production (Rae, 2017). In other words, the primary limit to the growth archetype of low value cow milk is low productivity. Hence, there is a lack of optimal usage of resources.

Limits to growth for high value cow milk: ↑ capital, ↑ technology, ↑ productivity, ↑ costs, ¯  profit

Meanwhile, the limits to growth archetypes faced by the high value cow milk production system are the high level of cost and low profitability. The management inputs high capital in the production of high value milk to improve the technology. On the other hand, the technology results in the enhancement of per labour productivity resulting in an increase in the costs (Norton, & Berckmans, 2017). Hence, a fall in the profitability can be evident in this case. The management lacks to achieve the business objectives of higher profitability due to high cost of production.

Intervention of management to improve the system function

The intervention of the management to improve the system functions are presented herein below:

  • The management must explore options to enhance the time of working by introducing shift work. The working in shift will reduce overcrowding in the low value milk production without reducing the labour input (Galindo Marti?n, & Nardi Spiller, 2010).
  • The labour input in high value milk production must be reduced by analysing the chain of production and identifying the points of inefficiency.
  • Collective bargaining can be helpful in reducing labour cost.
  • Adopt capital options that are quick to put in production system and cheaper to acquire in the high value milk production (Dietz, 2017).
  • The management must reflect on the goals to increase profitability and productivity by making optimal usage of resources available to the milk production industry.

Conclusion

By considering the above analysis of the economic system of allocation of efforts in the low value cow milk and high value cow milk, every factors of production are connected to each other leading to high productivity and profitability. The limitations in the growth archetypes influence the optimal utilisation of resources.  Conclusively, the management must identify the points of interventions in order to achieve the business goals of increasing profit and productivity.

 

References

Chaudhary, B., & Upadhyaya, M. (2015). Socio-Economic Impacts of Dairy Cooperative. Economic Journal Of Development Issues, 15(1-2).

Clarke, B., Leuridan, B., & Williamson, J. (2013). Modelling mechanisms with causal cycles. Synthese, 191(8), 1651-1681.

Dietz, M. (2017). Dairy prices rise again at Global Dairy Trade auction - The Country - The Country News. The New Zealand Herald. Retrieved May 2017, from https://www.nzherald.co.nz/the-country/news/article.cfm?c_id=16&objectid=11848983

Galindo Marti?n, M., & Nardi Spiller, C. (2010). Issues in economic thought (1st ed.). New York: Nova Science Publishers.

Norton, T., & Berckmans, D. (2017). Developing precision livestock farming tools for precision dairy farming. Animal Frontiers, 7(1), 18.

Rae, S. (2017). Dairy prices rise again at latest auction - The Country - The Country News. The New Zealand Herald. Retrieved May 2017, from https://www.nzherald.co.nz/the-country/news/article.cfm?c_id=16&objectid=11850082

Umbach, E. (2009). Socio-economic systems as causal factors in the dynamics of ecosystems. Ecological Modelling, 46(3-4), 305-310.

Wiseman, A. (2015). Economic issues (1st ed.). Washington, D.C.: Bureau of Economics, Federal Trade Commission.

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