Monday, July 20, 2009

Harley-Davidson

Last week Harley-Davidson announced that it is idling four plants and laying off about 1000 employees due to the decreased demand for its motorcycles. The decease in consumer demand is shifting the demand curve for high end motorcycles to the left, and this means that Harley-Davidson needs to produce fewer motorcycles. As demand decreases, and output starts to fall (so should prices), then revenues drop (27%) in Harley-Davidson's case. Without a decrease in the firms cost, the firm will be making substantially less than it could; hence the culling of 1000 employees. This should lower Harley-Davidson's variable (and marginal) cost and make the firm more profitable (or reduce their losses) than not reducing the number of employees.

Update: A careful reader noted that I originally wrote the word in red above as "right", which is wrong.

2 comments:

bmishkin said...

Reduced consumer demand - curve shifts to the left, no?

Stacey said...

bmishkin - you of course are correct. I am changing the blog to say reduced consumer demand shifts the demand curve to the left.