Belt Auction

Excess capacity issue in setting competitive bid price?

Public Comments

1. Please be more specific. Excess capacity and overhead factors are very different from industry to industry. In general, competitive bids in many fields may require covering a much larger amount of fixed cost, and put you at a disadvantage compared to larger businesses with more flexibility in cost allocation. If you want specifics on the construction business email me for more information.
2. When a firm has excess capacity, there is no opportunity cost in accepting an additional production job, Therefore, it is not necessary to reflect such an opportunity cost in setting a bid price. On the other hand, if the firm is already at full capacity, there os an opportunity cost to accepting another production job. In this case, it is appropriate to include in the price an estimate of the opportunity cost associated with the job for which the bid is being prepared.