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Nature of Firm and Product line:

AM Wire Nail is a sole proprietorship business which produces different size of nail in its

product line. The wire nail is known by its number in the market, it produced nail sizes are: 13

size nail, 14 size nail, 17 size nail, 18 size nail and 20 size nail.

Horizontal Boundary of the Firm and its Determinants

The horizontal boundaries identify the quantity and the varieties of products a firm produces.

The determinants of the horizontal boundaries of the firm are economies of scale, economies of

scope and learning economies. AM wire nail daily use nearly 1 ton process steel wire by its

production line consisting of 2 mini drawing machine and 8 nail making machine. Its economies

of scale are the result of physically combining inputs to form outputs that continually reduce

producer unit costs over the relevant range of demand which can be achieved in terms of volume

produced with limited fixed manufacturing and administrative overhead costs (only 11 employee

and worker cost around Tk. 70 thousand, rent fee costs monthly Tk. 23500 along with minimal

utility costs). Its marginal cost in producing extra unit is also minimum since its produces nail in

different sizes in large scale production with minimal wastage. Economies of scope result from

physically combining inputs to form outputs that produce two or more related outputs within the

same firm. Learning economiesare present where costs fall with experience. Learning

economies do not directly expand the firm, but they contribute to its success. A closer look to the

operation of AM Ware Nail reveals its economies of scope because the same employees produce

different sizes of Nail through utilizing same setting and resources (same machines, required raw

materials, different sizes of nails are producing at the same time by same employee etc.).

Vertical Boundary of the Firm and its Determinants

This firm is vertically integrated in some extent in downstream value chain, more specifically in

production and further distribution to retailer. Raw material procurement and logistics are

collected from market firm which are readily available and abundant in number. But the owner is

think to expand the factory with a downstream integration by installing a new drawing machine

to processed raw rod to 12/13 no wire, which is the main raw material for the firm. As its a

construction material, its demand can be easily predicted. Combining all aforementioned things,

the firm is vertically integrated in downstream.

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Industrial Organization of Global Economy

Term Paper (IB-504)

Information about AM Wire Nail

Name of Firm: AM Wire Nail

Address of firm: 296 East Nakhal Para,Tejgaon ,Dhaka

Phone:02-9020905

Established:06 September 2004,

Number of employee: Eleven

Owner of firms: A) Md. Shahidul Islam

Annul size of business: 1,38,00,000.00 Taka

Submitted By:

Md. Sabbir Ahmed Akash

Roll:46

Department of International Business

University of Dhaka

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Price Determination Process

AM Ware nail set price in a traditional way, they never done any type of economic calculation or

advanced calculation to determine the price. Generally they determine price by comparing the

demand and supply, market condition and the running price in the market. But though the firm

determine price by market forces but also compare with the price and the expanses has beenoccurred in the production process line. The firm add all the cost including variable cost and

fixed cost and add a revenue to conclude a price.

There are many fixed cost which occurred in the production line is given below:

Variable cost calculation:

The firm buy per ton processed wire named 12/13 size wire, which cost 55,500.00 tk. To get

required size of wire for example 13, 17,18 or 20 size wire, firm processed wire more through its

drawing machine which add more variable cost.

Per ton variable cost will be add with 13 no wire per ton price 55,500.00 tk.

Its pricing method can be said as a mark-up pricing which include the required profit with the

total per unit cost. As this firm supplied it to the supplier their unit is per ton price.

Sector of expanse Tk Tk

Salary of worker and employee 70,000.00

Rent (office and Factory) 23,000.00

Electricity bill 45,000.00

Others cost 30,000.00transportation 35,000.00

Fixed cost 2,03,000.00

Number of

product

Marginal cost per

ton

Average cost Per ton cost

13/14 size nail 3500.00 3500.00*0.33 1155

17/18 size nail 8000.00 8000.00*0.33 2640

20 size nail 15000.00 15000.00*0.33 4950