Over time, the costs of processing go down because as organizations le
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12 Apr 2020, 06:55
Prompt- The following appeared as part of an annual report sent to stockholders by Olympic Foods, a processor of frozen foods:
"Over time, the costs of processing go down because as organizations learn how to do things better, they become more efficient. In color film processing, for example, the cost of a 3-by-5-inch print fell from 50 cents for five-day service in 1970 to 20 cents for one-day service in 1984. The same principle applies to the processing of food. And since Olympic Foods will soon celebrate its 25th birthday, we can expect that our long experience will enable us to minimize costs and thus maximize profits."
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The provided statement comes with multiple logical inaccuracies which seriously hampers the given conclusion. The prompt begins with multiple unjustified assumptions that reduce the convincing power of it's arguement.
Firstly, the author assumes that the only or primary factor responsible for organisations to be able to cut cost is that they learn how to do things better. This in itself is very vague- why does it get efficient? how do they learn to do things better? It completely ignores other possible economic reasons like- economies of scale that would reduce the cost of products as the organisation brings in more raw materials, or deflation or cheaper processes, or new technology. Secondly, it states in it's example that the cost of a 3-5 inch print fell from 50 cents for five days which is 10 cents a day to 20 cents for one day. The numbers have been put in confusing numbers so to misinterpretate a reduction, whereas per day there is an increase in cost. Another flaw is that between 14 years from 1970 to 1984 multitude of things can change in an organisation as well as it's economy. Comparing two years so far apart is not an accurate representation of decrease in price due to efficiency. It could be a result of different things.
Third of all, a color film processing organisation is not an apt comparison for a food processing company. Everything from their raw materials to their final product to even its customer base differs significantly. Even if everything stated above this statement was assumed to be true the second we compare two companies from two different industries entirely the base of comparison shatters completely. Had similar types of companies been compared, or more concrete data had been provided with reasons for increased efficiency over years like- Recruitment of more trained professionals, acquiring more relevant technology, or even increase in knowledge data base or increased clients and suppliers or building relationships or any of these arguements had been given, the arguement would have been far more convincing.
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