In 1955, Akio Morita, founder of Sony, came to the U.S. to drum-up sales for a n
ID: 1093428 • Letter: I
Question
In 1955, Akio Morita, founder of Sony, came to the U.S. to drum-up sales for a new product his company had recently developed. Morita anticipated that Sony would sell approximately 30,000 transistor radios per year to get started. A chain store executive was stunned when Morita spurned his offer to immediately buy 100,000 units. Morita politely sketched a unit costing diagram to explain why 5,000 was too small of an order but 50,000 units was at the same time too big.
a) What was Morita drawing
and what did he know about costing that the chain store representative was overlooking? Be sure to describe or chart the shape of Morita's costing sketch in your answer.
b) How is timeframe important to your explanation?
Explanation / Answer
In 1955, Akio Morita, founder of Sony, came to the U.S. to drum-up sales for a new product his company had recently developed. Morita anticipated that Sony would sell approximately 30,000 transistor radios per year to get started. A chain store executive was stunned when Morita spurned his offer to immediately buy 100,000 units. Morita politely sketched a diagram to explain why 5,000 was too small of an order while 50,000 units was simultaneously too big. He would be happy to accept such an order at a future date, he explained.
Morita was referring to the short run cost curve for Sony. This curve is U shaped, SAC reduce initially as output rises, to reach a minimum and then start rising. An output of 5000 lies on the declining part of the SAC for Morita, so he can reduce average costs if he gets a larger order. But 50000 lies on the rising part, so Sony would like to produce less to minimise costs. The output level at which costs are minimum would lie between 5000 and 50000