Civil Engineering Reference
In-Depth Information
working at capacity. In Shash's words (1993: 111): 'A contractor must secure a
designated business volume…to cover operating costs and to realise a reasonable
profit.' In other words, the more desperate a firm is for work, the lower its bid
price and we will revisit the most desperate of bids - the so-called 'suicide bid' -
in
Chapter 8
.
2
Number of competitors
- Firms operating in a crowded, competitive situation
have to accept a fair price dictated by others in the market. In contrast, if only a
few firms dominate the market, a firm will be able to 'administer' its own price.
This comparison between firms 'taking' a price or 'administering' a price will
become clearer after the next chapter.
3
Experience in similar projects
- The degree of complexity in the work required,
compared to the firm's experience, is obviously a major determinant. (Shash's
research related to the top 300 contractors, and had it broadened out to
the lower end of the industry, location of the project would also have been a
significant factor in deciding whether to bid.)
Key Points 7.3
❍
The short run is that period of time during which a firm cannot alter its
existing plant size.
❍
Total costs equal total fixed costs plus total variable costs.
❍
Fixed costs are those that do not vary with the rate of production; variable
cost are those that do vary with the rate of production.
❍
Average total costs equal total costs divided by output, that is
ATC = TC ÷ Q.
❍
Average variable costs equal total variable costs divided by output, that is
AVC = TVC ÷ Q.
❍
Average fixed costs equal total fixed costs divided by output, that is
AFC = TFC ÷ Q.
❍
Marginal cost equals the change in total cost divided by the change in
output.
❍
The marginal cost curve intersects the minimum point of the average total
cost curve and the minimum point of the average variable cost curve.
❍
A bid price has two components: an estimate of the costs, and a mark-up
for profit.
❍
Contractors consider more than 50 factors in deciding whether to bid for a
project. Three important factors are: need for work, number of competitors
and the contractor's experience in similar projects.
