2 Mohammed owns a bakery. He makes bread and cakes. He employs three workers who help him mix the dough for the bread and cakes, put the dough into tins, bake the bread and cakes and serve customers. Mohammed has calculated that the 'added value' of his business is low. His customers complain when he tries to put up prices. "We can buy the same bread and cakes at lower prices' they tell him.
a) What is meant by 'added value?
b) Mohammed has just bought a new oven. Explain 'opportunity cost' to Mohammed
c) Identify and explain two benefits to Mohammed's business of all of his workers being able to do all of the jobs in the bakery.
d) Identify and explain two ways in which Mohammed could increase the value added of his bakery business.
e) A friend told Mohammed 'Your business would be more successful if you only served in the shop and let your workers make the bread and cakes'. Do you agree? Justify your answer.
a) 'Added value' refers to the increase in worth or value of a product or service as a result of modifying or transforming it during the production process. It is the difference between the cost of inputs (raw materials, labor, etc.) and the higher price the final product can be sold for.
b) 'Opportunity cost' refers to the value of the best alternative that is forgone when a particular choice is made. In the case of buying a new oven, Mohammed needs to consider the potential benefits or profits he could have gained by using that money for other purposes, such as investing in new ingredients or marketing his bakery.
c) The benefits of all workers being able to do all the jobs in the bakery are:
1. Flexibility: In case one worker is absent or unable to perform a certain task, other workers can step in and cover for them. This ensures that the production process is not disrupted, and customers' needs are still met.
2. Efficiency: When all workers are trained to perform multiple tasks, it increases the efficiency of the bakery. There is less specialization and dependency on specific workers for specific tasks, allowing for better coordination and smoother operations.
d) Two ways Mohammed could increase the value added of his bakery business are:
1. Product Differentiation: Mohammed can introduce unique or specialized products that are not easily found elsewhere. This could be specialty bread or cakes with unique flavors or ingredients, catering to a niche market. By offering something distinct, he can justify higher prices and increase the perceived value of his products.
2. Customer Experience: Mohammed can focus on improving the overall customer experience by providing excellent service, creating a pleasant ambiance in the bakery, and offering personalized recommendations. By making the customers feel valued and enhancing their experience, he can differentiate his bakery from competitors and justify higher prices.
e) Whether or not Mohammed should only serve in the shop and let his workers make the bread and cakes depends on several factors, including the size and nature of his business, the skills and reliability of his workers, and the level of customer demand.
If Mohammed's bakery is small and he has experienced and talented workers, it may be more efficient for him to focus on customer service and management, allowing his workers to handle the production process. This way, he can better invest his time and efforts in growing the business, marketing, and creating a unique experience for his customers.
However, if the quality of the products heavily relies on Mohammed's skills and expertise, or if the customers specifically appreciate interaction with him, it may be important for him to be involved in the production process to maintain consistency and customer satisfaction.