Chapter 4: The Business In Me PDF

Chapter 4: The Business in Me pages 83-101 The Theory of Consumer Behavior Consumer Theory-it describes how consumers make decisions on what to buy. Consumption-it refers to the use of goods and services to satisfy human wants directly. https://time.com/5562488/burger-king-meatless-bur...

Chapter 4: The Business in Me pages 83-101 The Theory of Consumer Behavior Consumer Theory-it describes how consumers make decisions on what to buy. Consumption-it refers to the use of goods and services to satisfy human wants directly. https://time.com/5562488/burger-king-meatless-burger/ The Utility Function Utility-it is the term used for satisfaction. It is something intangible, so it is not easy to measure. A util is one unit of satisfaction. U=f(C) (utility is a function of consumption) Total Utility-it refers to the combined utility derived from consuming certain units of a good. Marginal Utility-it refers to the additional utility derived from consuming an additional unit of the good. https://www.youtube.com/watch?v=UnX8RPB5vFM Hypothetical Utility Schedule of Marvin for Chocolate Candy Quantity of Total Utility Marginal Consumption Utility 1 8 8 2 15 7 3 21 6 4 26 5 5 30 4 6 33 3 7 35 2 8 36 1 9 36 0 10 35 -1 Law of Diminishing Marginal Utility -It states that as additional units of a good are consumed, the additional utility derived from each additional unit tends to diminish. Production Theory Production-it refers to the use of economic resources to create goods and services that will be used to satisfy human wants. Input-it refers to the resources used to produce goods and services. Output-it refers to the product created as a result of the combination of input in the production process.  Input and output are measured in physical rather than monetary units: Output=f (input); thus O=f(i) where O stands for output and I for input. Output depends on the quantity of land, labor, and capital available. O=f(Ld, Lb, C) https://www.youtube.com/watch?v=Cs4DX62UK9Q Production Schedule for Output X with Variable Labor Input Quantity Total Marginal Average of Labor Product Product Product Input 1 10 10 10 2 22 12 11 3 37 15 12.3 4 55 18 13.8 5 69 14 13.8 6 77 8 12.8 7 80 3 11.4 8 81 1 10.1 9 81 0 9 10 80 -1 8 Law of Diminishing Marginal Returns It states that additional output starts to diminish at a certain point as additional units of a variable input are combined with one or more fixed input. Socioeconomic Impact of a Business Socioeconomic Impact Impact on the Consumer Consumer is the main source of income of businesses. -people or entities that acquire goods and services for a fee. Innovate product; come up with new features that are not found in the existing competing goods. A new business means new products/services available to the buyers giving them more choices. Socioeconomic Impact Impact on Suppliers/Investors Supplier- a person or organization that provides something needed such as a product or service. Investors-invest resources in the business hoping to earn decent returns because they may win or loose in their investment. A new business will provide opportunities for suppliers/investors. Demand for the goods provided by the suppliers will increase. Socioeconomic Impact Impact on the Government Government-regulates the businesses in the economy. A new business will mean revenues earned on fees collected by them and on taxes imposed on the incomes of the businesses. Socioeconomic Impact Impact on Households Household-a group of people, often a family, who live together New businesses mean employment opportunities for the Filipinos. Acquisition of wealth and assets can now follow both for the business owners and the employees they hire. Profits earned by the owners can be invested back into the business for expansion, or some can be withdrawn by the owners which they use to buy new cars or houses. Socioeconomic Impact Impact on the Community Corporate Social Responsibility (CSR) is a managemement concept whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders. It could be projects that provide scholarships to poor but deserving students, allocating budgets for housing for low-income families, and many others.  Socioeconomic and Government Impact on Business Government Impact on Business -size and inadequate infrastructure and support services limit the growth opportunities of micro enterprises -poor road conditions -high taxes -costly registration -bureaucratic corruption Household Impact on Business Household Impact on Business Herfindahl-Hirschman Index (HHI)-it is a commonly accepted measure of market concentration. It is calculated by squaring the market share of each firm competing in a market, and then summing the resulting numbers. HHI=MS2 of firm 1 + MS2 of Firm 2 +MS2 of firm 3…+MS2 of firm n The closer the market is to being a monopoly, the higher the market’s concentration. https://www.youtube.com/watch?v=W8007KpLeRM Results of the HHI would indicate: HHI below 100 means a highly competitive market HHI below 1000 means an unconcentrated market HHI between 1000 to 1800 means a moderate market concentration HHI greater than 1800 means a high market concentration The business proponent should therefore seek to enter an industry where HHI is greater than 1800 since the market is not characterized by too many firms. Practice computing for the following: Consumers Theory Production Theory HHI  Hypothetical Utility Schedule of John for Donut Quantity of TU (Total MU (Marginal Consumption Utility) Utility) 1 20 2 31 3 39 4 42 5 43 6 42 7 40 8 30 9 20  Hypothetical Utility Schedule of John for Donut Quantity of TU (Total MU (Marginal Consumption Utility) Utility) 1 20 20 2 31 11 3 39 8 4 42 3 5 43 1 6 42 -1 7 40 -2 8 30 -10 9 20 -10 Production Schedule for Donut with Variable Labor Input Quantity of TP (Total MP (Marginal AP (Average Labor Input Product) Product) Product) 1 30 2 50 3 75 4 105 5 115 6 129 7 130 8 129 9 129 10 125 Production Schedule for Donut with Variable Labor Input Quantity of TP (Total MP (Marginal AP (Average Labor Input Product) Product) Product) 1 30 30 30 2 50 20 25 3 75 25 25 4 105 30 26.3 5 115 10 23 6 129 14 21.5 7 130 1 18.6 8 129 -1 16.1 9 129 0 14.3 10 125 -4 12.5 Determine the Market Concentration using HHI. Business Market Share Square 1 22% 2 14% 3 16% 4 26% 5 9% 6 5% 7 5% 8 3% 100% HHI= Interpretation: Determine the Market Concentration using HHI. Business Market Share Square 1 22% 484 2 14% 196 3 16% 256 4 26% 676 5 9% 81 6 5% 25 7 5% 25 8 3% 9 100% HHI=1,752 Interpretation: Moderate market concentration Reference: Applied Economics (2017) by Rosemary P. Dinio and George A. Villasis