TO: John Sunkist, President
FROM: John Doe, Chief Operating Officer
DATE: May 19, 2005
SUBJECT: Cost and Revenue Curves at Fresh Farm Orange Juice Company
I have had the opportunity to analyze the cost and revenue structures from the three years of production in California, Texas, and Florida. Marginal and average cost curves will be discussed and I will discuss why the costs are lower in some states and not in others. Shut downs and short runs in the orange juice industry will also be discussed. Lastly, some additional strategies will be given so that Farm Fresh may use these to benefit and profit from.
Marginal and Average Cost Curves
Despite the marginal and average cost curves being alike in California, Texas and Florida, costs are lower in some states than others. The optimal production site in the simulation recommended California as the prime site for the company to process.
However, three main factors come into play while producing orange juice and supplying oranges to other parts of the country, they are; weather, state and local taxes, and logistics. Companies need to understand these factors when deciding on how and where they want to do business.
Weather plays a major factor in this industry, as it varies from year to year. While the optimum state may be California in this case, the fact is that citrus companies need to divest there interests in the two other states, to ensure they are not totally affected by a negative growing season. Companies use past weather patterns and future weather predictions to make these decisions, and the successful companies are those that can make that change without impacting production.
While balancing weather factors, companies also need to be cognizant of state tax rates and the cost of delivering product across the...