Firms’ costs, revenue and objectives — practice question

China is now even more influential in the world shipbuilding industry. In 2013, it made up 45% of ships produced by tonnage. Its main focus is especially on container ships. In 2012 China constructed six of the biggest container ships at a total expense of US$870 million. In 2013 it made eight container ships of the same capacity, while total cost increased by a smaller proportion to US$1040 million. South Korea is the second-largest ship producer. One of its companies has built the biggest container ship in the world. That company is encountering growing rivalry from another major firm in the same country. In 2014 the two firms said they intended to merge, provided their shareholders approved. Both companies are quoted on the country’s stock exchange. A shipbuilding firm’s share of the world market is affected by several influences. These include the quality and size of the labour force employed. In 2013 China’s total labour force was 800 million, compared with South Korea’s 26 million. China’s unemployment rate of 3% was slightly below South Korea’s rate of 4%. Exchange rates also affect how many ships are produced and sold. In 2012 the South Korean currency, the won, was worth 1126 won per dollar. By 2013 this had changed to 1107 won per dollar. It was predicted that this movement in the value of the won would carry on into 2014, along with changes in the relative price of South Korean ships and a possible alteration in South Korea’s economic growth rate. Although shipbuilding is expanding in some countries, including China and South Korea, it is shrinking in others such as the UK. Some economists approve of the fall, arguing that making fewer ships has cut noise pollution in several cities and reduced traffic congestion in the places where the shipyards once worked. Other economists lament the decline in the shipbuilding industry, claiming that it is caused not only by UK shipbuilders failing to adapt to change but also by subsidies paid by foreign governments to their shipbuilders.