The real Gross Domestic Product (GDP) has a significant influence on the decisions made by firms. GDP indicates the total value of goods and services produced by firms within the country in a given period, precisely one year. The GDP indicates the economic status of a country that is the growth and health of the economy. The GDP analysis in 2000 indicated that the economy was growing at a slow pace (St. Louis Fed FRED, 2017). Therefore, if Bata Corporation were operating in such an economy, it would slightly adjust the prices. The company would increase the prices at a slower rate as the aggregate demand increased. However, the firm would consider other factors such as competitors' pricing levels, Bata's production costs, and government regulations.
Also, it would be necessary for Bata Corporation to increase its output levels, but prudently. The move to increase the output would be desirable since the increasing GDP indicated increasing aggregate demand. Therefore, the market needed an extra supply of goods. However, the growth in GDP was unsteady. Hence the company should make the decisions on increasing price and output levels cautiously. Other factors which affect the profitability of a firm include government regulations, such as taxation (Coccia, 2018). Competition from established firms that significantly influence the consumers has critical impacts too. Competing firms may result in sophisticated marketing strategies, lowering prices to extreme levels, and other competing measures that lower Beta corporations' profits. Also, the availability and prices of raw materials and total production costs affect the final prices, affecting profitability.
Delegate your assignment to our experts and they will do the rest.
In 2005 the GDP was rising steadily, indicating fast economic growth. Consequently, there was increasing demand for the money supply to enable consumers to purchase the goods supplied in the market. An increase in the supply of goods to the market is provoked by increasing market demand. Also, the increased demand attracts higher prices, hence more demand for money supply. Therefore, if Bata Corporation were in this kind of economy at such a period, it would be necessary to increase the prices steadily, as per the economic growth and demand rate. However, the increased prices and higher demand for money attract a surge in inflation rates (Balcilar et al., 2017). The government may interrupt the market and regulate the prices to keep healthy economic growth. Also, the company would increase the production rates as the demand increased in the economy. Since the increasing GDP indicates an increasing aggregate demand, the firm would be striving to increase the output to earn more revenues.
From the graphical statistics, in 2009, the economy was in a recession. The aggregate demand was low, and returns on investment were minimal. Notably, the economy shrunk in the first three quarters and started recovering in the fourth quarter. Therefore, for the better part of the year, Bata Corporation would not focus on gaining many profits like before. A recessing economy leads to the death of firms due to the unfavorable economic situation. A prudent idea for the company would be to strategize on keeping the business afloat, rather than investing many resources, which would drain its ability to sustain the financial needs and recover when the recession ends.
Bata Corporation, in 2009, would adjust prices downwards to attract more clients. Also, the company would adjust its output downwards just enough for the market demand. This decision is essential to keep the business moving, rather than investing many resources, which would be costly and earn fewer returns (Groshen et al., 2017). During the recession, businesses need to lower the production costs and investments and save resources for the boom period.
References
St. Louis Fed FRED. (2017, September 28). Real Gross Domestic Product (DISCONTINUED) . FRED. https://fred.stlouisfed.org/series/GDPC96.
Coccia, M. (2018). Optimization in R&D intensity and tax on corporate profits for supporting labor productivity of nations. The Journal of Technology Transfer , 43 (3), 792-814.
Groshen, E. L., Moyer, B. C., Aizcorbe, A. M., Bradley, R., & Friedman, D. M. (2017). How government statistics adjust for potential biases from quality change and new goods in an age of digital technologies: A view from the trenches. Journal of Economic Perspectives , 31 (2), 187-210.
Balcilar, M., Gupta, R., & Jooste, C. (2017). The growth-inflation nexus for the US from 1801 to 2013: A semiparametric approach. Journal of applied economics , 20 (1), 105-120.
