You run a small bakery that makes about 1,000 muffins per day. You get offered a large contract that needs you to make 3000 to 4000 muffins a day. You know the bank will lend you the money to buy the ingredients and that is not a problem. Should you accept the contract? What things do you need to consider? In the discussion give one or two points of what a company considering this offer must think about in the short run.

When you are in contract, you should ensure that the marginal cost of production is not too high. by so it will increase the profit margin which results to gains in business.

Step-by-step explanation

There are quite a few things to you have to think about first before accepting a certain contract. Capital can be a problem but the bank is always ready to give out when you are in need of. But then, the borrowed money should be repaid with an interest. Therefore you have to be careful as the interest rates charged shouldn't be too high because of increasing the costs of borrowing. The profits would have to be higher for you to gain as well. In the short run, it requires to be realized if this order can be prepared. The main contract expectations are to increase the production size 3-4 times. This involves similar increase in the required inputs used for production. Not every available resource can be increased in the short run. As one can be required to go for more piece of land for setting up a bigger bakery company which may not be possible acquirement in the short run. Hence, the scalability for inputs is one of the major issues to be addressed in the short run. We are required to make sure that the marginal cost of production (MC) is not that much higher as it will reduce the expected profit margin making it to be less attractive as to accept the contract.