If I learn piano today, I cannot watch tv at home. Tv becomes the opportunity cost.
The company decides to buy Machine A, so Machine B becomes the opportunity cost.
Summary: The Economic Problem Value Added
Land, labour, capital, enterprise -It's no the same as profit, it's the difference between
the selling price of a product or service and the cost
Limited resources of bought in materials and components.
-This is not profit because in a profit, other costs and
Economic problem expenses have to be taken into account too.
How can a business increase value added?
Unlimited wants - A retailer such as a jeweler could present items in
a more attractive way to create a luxury feel and
Scarcity the costumer will be willing to pay more for it.
Choice is necessary
leads to opportunity cost
- Business Activity
1.1.1 Explain the purpose of business activity in terms of the objects of non-profit making activity, private enterprise and public enterprise.
- Demonstrate an awareness that different business activities pursue different goals.
- Understand the reasons for the existence of these different goals.
Business Objectives
- Corporate objectives: “The overall aim of a company.”
Why have objectives?
- Give employees something to work towards, therefore improving motivation.
- To measure performance.
- To prioritize effort, to know what is the most important thing to work towards.
Example of Private Sector Objectives
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Profit maximisation – When a business is owned by private individuals, rather than gov. , it's usually the case that the bus is run to make profits. The bus will try to make as much profit as possible, profit is the heart for many business, it covers the cost and use to pay dividend to the owners, without profits, owners are likely to close their business. However satisfactory profit is best because if the owners try to increase more profit by putting up the prices too high, they may find that consumers stop buying their goods. Satisfactory profit also can save long hours of work and too much tax to the gov.
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Growth : Reasons for growth: -More profit in the future
– Survival, Beat competitors
- More market share (ur sales/market sales X 100)
- To gain economies of scale (cheaper), Cost of savings of being large
buy more is cheaper.
- Reduce risk, make job more secure
- increase dividend
- increase reputation, ego needs (feel important and well known)
- Increase the salaries and status of managers as business expands.
Growth will only be achieved if the business's consumers are satisfied with the products or services being provided.
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Survival : - When a firm has recently been set up or when the economy is moving into a recession, a business could be more concerned with survival more than anything else.
- New competitors also an make a firm feel less secure, the manager may decide to lower prices to survive even though there will be less profit.
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Sales maximisation – Selling the products as much as you can, hoping that you can eventually get more profit.
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Increase market share - make you feel more important as you can control more of the market, beating your competitors, your business become larger, you have more sales, increase your reputation.
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Maximise shareholder value – Make the shareholders feel confident about the business and getting more dividend, more people will want to invest in the business.
Even though mostly firms want to get larger, we still have small firms left,,,why??
- No motivation to grow – New companies – Flexible (can do what you want)
- Niche markets -- Less costs -- Personal service – Less paperwork, headache
Survival of small firms
Small firms are able to compete with large firms because:
- Some products cannot be mass produce. E.g. Contact lenses.
- Some products have only a limited demand, e.g. Yacht
- Some products require little capital, e.g. Window cleaning (big firms don't want to waste time to deal with these small work)
- Small firms receive grants and subsidies from the government, the gov do this because they want them to get bigger and employ more people: to help the economy.
- Public Sector Objectives
A business is in the public sector if it's owned by the government. Government business will attempt to – Provide service to the public – Reduce unemployment levels
-- Keep prices low so people can afford it. - support small bus.
*Profit is not an important objective in the public sector.
E.g. Water, bus company, gives low prices that people can afford.
- Factors that affect Objectives
- Private or public sector 2. Ownership type 3. Company size 4. Market
- Personality of key decision makers 6. Culture
- Privatisation: “The transfer of public resources to the private sector”
Disadv, may not care about providing services, just wan to make as much profit as possible so raise prices too high that people can't afford.
Adv. More capital invested to improve the technology, could make it more modern.
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