• Businesses often decide between using automation and labor in production. An automotive environment may have high fixed costs and low variable costs, and an industry that utilizes manual labor for production will have low fixed costs and high variable costs. How would you describe the balance between the costs of automation, or fixed costs, and the costs of labor, or variable costs? How has technology changed the balance between automation and labor? What type of industry benefits the most from technological innovation


Choose an organization that has a high fixed cost and low variable cost balance to run its operations. Discuss the balance of fixed and variable costs for the organization. How can the organization use technology to change this balance for an advantage?

• As a student, what opportunity costs do you confront by enrolling in University’s MBA program? Does your organization or an organization with which you are familiar consider opportunity costs when evaluating strategic opportunities? For your organization, are opportunity costs fixed costs, variable costs, both, or neither

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To understand the balance between the costs of automation (fixed costs) and the costs of labor (variable costs), let's break it down and explain how to get the answer to these questions.

1. Business Decision: When businesses decide between automation and labor in production, they consider the trade-off between the upfront investment in automation (fixed costs) and the ongoing expenses of employing and managing labor (variable costs).

2. Impact of Automation on Costs: An automotive environment, for example, may have high fixed costs due to the significant investments in machinery, equipment, and systems required for automation. However, it also has low variable costs because once the automation is set up, the costs associated with producing each unit decrease significantly. This is because the cost of labor per unit is reduced or eliminated with automation.

3. Impact of Labor on Costs: On the other hand, an industry that relies on manual labor for production will have low fixed costs because it does not require significant investments in automation. However, it has high variable costs due to the ongoing expenses of hiring, training, and managing a workforce.

4. Role of Technology: Technology has played a crucial role in altering the balance between automation and labor. Advancements in robotics, artificial intelligence, and other forms of automation have made it more cost-effective for businesses to rely on automation for production. This, in turn, has reduced the need for manual labor and shifted the balance towards higher fixed costs (automation) and lower variable costs (labor).

5. Industries Benefiting from Technological Innovation: The industries that benefit the most from technological innovation are those where automation can significantly reduce variable costs associated with labor-intensive processes. This includes manufacturing, assembly, logistics, and repetitive tasks that can be easily automated. High fixed costs of automation are justified when the savings in labor costs outweigh the initial investment.

Now let's apply these concepts to an organization with a high fixed cost and low variable cost balance.

• Organization with High Fixed Cost-Low Variable Cost Balance: One example could be an airline company. Airlines have high fixed costs due to the expenses related to aircraft, maintenance facilities, airport leases, and other infrastructure. However, their variable costs are relatively low since each additional passenger carried only incurs marginal expenses, such as food, fuel, and crew costs.

• Using Technology to Change the Balance: The organization can use technology to change the balance of fixed and variable costs for an advantage. For instance, implementing self-check-in kiosks can reduce the variable costs associated with hiring and managing check-in staff. Similarly, using automated baggage handling systems can streamline operations and reduce labor costs. By investing in technological solutions, the organization can lower its variable costs, increase efficiency, and potentially improve profitability.

Moving on to opportunity costs and their consideration in decision-making:

• Opportunity Costs for Students: Enrolling in a university's MBA program has several opportunity costs, including the financial investment in tuition fees, the time commitment required to complete the program, and the potential loss of income from not working full-time during that period.

• Consideration of Opportunity Costs in Organizations: Organizations, including my own, do consider opportunity costs when evaluating strategic opportunities. This involves assessing the potential benefits of pursuing a particular opportunity against the costs (both explicit and implicit) associated with it, including opportunity costs. Understanding opportunity costs helps in making informed decisions and prioritizing the best opportunities.

• Classification of Opportunity Costs: Opportunity costs can be thought of as both fixed costs and variable costs, depending on the context. For example, the financial investment in tuition fees for an MBA program can be considered a fixed cost since it remains the same regardless of the program's duration. On the other hand, the potential loss of income from not working full-time is a variable cost that varies based on the length of the program.

In conclusion, understanding the balance between fixed costs and variable costs is essential for businesses making decisions regarding automation and labor. Technology has significantly changed this balance, reducing the need for labor in some industries. Additionally, organizations consider opportunity costs when evaluating strategic opportunities, which can be categorized as either fixed costs, variable costs, or both, depending on the specific context.