Basic Economic Problem of SteamScot

Subject: Economics
Pages: 2
Words: 540
Reading time:
2 min

The economic problem is the scarcity of vital resources used to satisfy needs and wants. It can also be viewed as the wrong use of scarce resources in society. SteamScot is currently facing an extremely low demand for higher-value tickets. SteamScot has used all its resources to capitalize on its customers. As a result of the scarcity of travelers using the lower value tickets, SteamScot has resorted to capitalizing on the lower price since they have exceptionally high demand. The profit the company made in the past year was enough to cater for the substantial development of this company. However, the choice of which development to initiate first is the main issue to the board of SteamScot Company. Both developments are to satisfy the wants and needs of the company. Any choice made by the board has a cost that comes with it. Steamscot needs to apply opportunity cost in order to determine whether to fund vital repairs to its current line or to open a new line. Opportunity cost is an alternative course of action taken in order to evade another action that might have been quite costly. The fund to cater for these projects was to be drawn from the profits made in the previous year. Both alternatives are exclusively mutual to one another.

The opportunity cost would help the board to make the decision on which project to initiate first. Opportunity costs are best achieved; all costs to be incurred by both projects are assessed. Then the project with the lowest cost is usually selected to save the company from high expenses. The decision was taken by the board largely depends on the production possibility of the company. The possible next best option for Steamscot Company is to carry out replacement and repair. In the next year, Steamscot opts to begin the repair and replace plan for its current operational routes. Handling replacements and repairs will automatically lead to providing better and improved transport services to its customers. This will thus be translated to produce a profit of £2.5 million in the next year.

The replacement and repair program is estimated to cost a total of £2.5 million. The opportunity cost of replacement and repair is £2.5 million. This is equal to the amount the company sacrificed not to establish a new line. Even though the company has limited resources, the production of transport services within these tough boundaries proves to be a tall order. The initiating of opening a new line of operating between Inverness and port Williams involves the opportunity cost of replacement and repairs of current lines. SteamScot has the capital and labor it needs to undertake the replacement and repair. These resources are scarce since the human workers are limited to the production level of the previous year. Opening up a new line would intend to stretch out the labor force to increase productivity. The land which SteamScot has at the moment is limited not to hold any extension of the line but rather just maintenance of the current line. The enterprise of the resources will also need a lot of tactics to ensure that they are allocated evenly for more productivity.