Principle Of Business PDF

THE DEVELOPMENT OF ECONOMIC ACTIVITIES Man as an economic animal Man has basic instincts to provide himself and his family with the basic necessities of life. Example: Food, clothing and shelter. In order to carry out this function he engages in production, consumption (trade) and exchange (barter...

THE DEVELOPMENT OF ECONOMIC ACTIVITIES Man as an economic animal Man has basic instincts to provide himself and his family with the basic necessities of life. Example: Food, clothing and shelter. In order to carry out this function he engages in production, consumption (trade) and exchange (barter), thereby creating economic activity. Direct satisfaction of wants When man engages in production in order to satisfy the wants of only himself and his family, he is said to be satisfying his directly through subsistence (lower level) production. Indirect satisfaction of wants When man is unable to satisfy his wants directly, he must do so indirectly by engaging in trade. NB: Trade may take the form of barter, local and international money exchange. Barter Barter is an example of the indirect of wants. It is the exchange of goods or services for goods or services without the use of money. NB: In order for barter transactions to take place two conditions must exist: 1. Double coincidence of wants- person ‘A’ must want what whatever person ‘B’ is offering and person ‘B’ must want whatever person ‘A’ is offering. 2. Agreement on the rate of exchange- there must be an agreement on the number of whatever person ‘A’ is offering which is to exchanged for whatever person ‘B’ is offering. Disadvantages of the barter system 1. Only a limited range of wants can be satisfied using this method of trade. In order to exchange anything you must find someone with something you need. This can lead to very lengthy searches and much delay before someone is found who is willing to trade. 2. Divisibility of the merchandise being trade- it may not be possible to divide the merchandise being trade into the amounts required to complete the transaction. This is also known as the possible of unequal value. 3. The problem in deciding exactly what the rate of exchange should be. 4. Goods offered for exchange maybe perishable and cannot be stored for use at a future date.  Money Money is anything which is generally accepted as a means of settling debts, It consists of notes and coins issued by the central bank and deposits in the bank. -Characteristics of Money *Acceptability- It must be readily accepted by everyone. *Durability- Money should not wear out quickly. *Divisibility- Money must be able to be divided into smaller units *Portability- notes and coins are usually easy to carry around even in the form of written cheques. *Homogeneous- this means that money should have identical features. -Functions of money *Medium of exchange- Money is use to pay for goods and services because its value is certain. *Unit of Account- The unit in which money is measured for e.g. dollars and cents are generally use as the unit in which prices, accounts, debts and financial assets are measured. *Store of value and standard of deferred payment- Money can be accumulated and stored over a period of time for future expenditure and therefore become a store of wealth.  Money and Capital Market The money market Institutions and individuals who borrow and lend large sums of money for short period of time are engage in the money market. The operators in the money market are commercial banks, merchant bank and finance house. Capital Market The capital market is concerned with providing long term finance such as the purchasing of stocks and shares, home loans. It is more widespread than the money market. Commercial and merchant banks, building society and development banks are operators in the capital market.( Write on the above).  Insurance Insurance deals with compensation for losses of property in events such as fire, hurricanes and motor vehicle. Assurance Assurance refers to compensation that must happen just as death. NB: Insurance is based on the principle of the fortunate assisting the unfortunate. Example; It is a known fact that a number of homes will burn down in any given year. What is not known are the particular ones. Therefore home owners run risk of loss through fire. Hence, instead of one (1) individual bearing the loss, it is shared by several persons. This is referred to the pooling of risks. NB: A premium is the amount paid to insure the property. NB: The policy, this is the agreement that enables the insured to promise to do this and the insurers promise to pay as certain sum if a certain event happens. Principle Insurance * Indemnity- The insurance company will only refund in case of a loss to restore the insure to the position in which he\she was in before the loss occurred, in other words if you own an old house and you burnt it to get money the insurance company, will first estimate the value of the house at the time of the lost and base on the insurance settlement on that value. * Insurable Risk- This means that the insurer must have an interest in the person or object being insured, i.e they must stand to suffer losses if a loss does occur. Therefore you can insure your house, your car, yourself, your bitch but not your neighbor's house. Car, nor his bitch * Utmost Good Faith (be honest)- This principle means that you must tell the insurance company all it needs to know in order for it to assess properly the risk of providing you with the insurance you require. All questions on the insurance proposal form must be answered accurately. *Contribution- If an item is insured with one or more insurance company or under more than one insurance company, each company or policy will refund to the insured a proportion of any loss suffered to make up the full amount of the loss. No one is allowed to profit from any loss suffered. * Subrogation- A person who suffers loss because of the action of another person can bring an action or lay a claim to recover his losses from that person; however they cannot claim damage from both their insurance company and the person who cause them loss. * Cancellation- In several insurance policies there is a clause which is allowed both the insured and the insurer to cancel the policy with due notice to the other party. * Legality- You cannot take out insurance to be compensated for the results or efforts of your actions if those actions are illegal. In other words you cannot contract outside the law. In cases where a claim against an insurance company * Arbitration- In cases where a claim against an insurance company cannot be settled the policy may provide for a neutral person an (arbitrator) to be appointed by both parties in the dispute where decisions on the settlement is final. *Average Claim- This clause is a policy which states that losses will be compensated or refunded according to the proportion of the insurance covered to the total value of the insured item. For example, if you own a car valued at fifty (50) thousand dollars but it was insured for forty (40) thousand dollars, should you have an accident and the vehicle is a write off, the company will only refund you up to $40,000 in such a situation. *Proximate Clause- The loss you suffer must be caused by that which it was actually insured and not something else. In other words, if you own a boat and you insured it against lost due to hurricane, you can claim against the company if it is destroyed during a storm. However, suppose a ship accidentally rams your boat and destroy it you will not be compensated by the company; however, you can sue the owner of the ship.  Types of Insurance There are two (2) basic types of insurance: * Life Assurance * Non- Life Insurance * Life Assurance Assurance refers to the event that is certain such as death. Life assurance coverage aims at paying claims to the beneficiaries of the policy owner upon a certain time for insurance during a period of a mortgage. * Non-Life Insurance Unlike assurance non- life insurance provide coverage if an unexpected event occurs. * Marine Insurance Usually taken by persons engaged in overseas trade. These include ship owners and person shipping cargo. * Fire Insurance This covers the loss of property and its contents such as furniture due to fire. * Consequential losses\loss Arises due to fire that maybe other than damage to property itself for a businessman may be compensated for loss of profit arising from a fire. Types of Assurance * Whole- Life- Payable upon death of the assured. *Mortgage Guarantee- Taken by financial institution against the life of a person to whom they are lending money. *Annuities- This is a kind of pension agreement payment that are made to an insurance company over a period or a distinct lump sum. This money is placed in a fund and invested so that after a specified number of years, the insured become entitle to a regularly weekly or monthly income. *Endowment- The insured is guarantee a certain sum either at death or in a specified day e.g. on retirement, accident etc. Workmen compensation policy is an example of such policy. The insured is compensated for the loss of a limb or other damages resulting from an accident. *Public Liability- Taken out by some companies to meet the claims made by the public arising from the use of its property or product. Source Documents Documents used in business A business document is a document which provides information relating to a business transactions and activities. These documents could be refer to as source documents and\or records. Importance of a Business Document * They enable records to be kept for future reference. *These documents are evidence of an occurrence in the business and can be regarded as the proof of the transaction taking place. *Source documents provide important accounting and statistical information which enable the measurement of how well the business is doing. Create a scrap book of the documents named in the notes. Documents used in general trade Documents used in trade generally * Catalogues- These are reference booklets. The aim of a catalogue is to make buyers aware of available goods in pictorial form. * Quotations- These are also referred to as estimates. They give customers the price for the item to be sold. It may include a description work. * Tenders and Estimates- A tender is a competitive bid which is usually invited by a private company or government agency for work to be done. A tender must be submitted as a sealed document. NB: Tenders are common, these are common in the construction industry. * Purchase Requisition- This is a document used ti request items needed and are not in stock. * The Order\ Order Form- This is the document prepared to present to the suppliers for the purchase of the item requisition. NB: The order is usually made after the customer is informed of the availability of the goods and the price. *Invoice- This is known as a bill it is a replica of the order which has been filled stating the quantity and price charged. It may also include the term of the sale. * Credit Notes- The credit notes which may be sent from the wholesaler to the retailer for adjustment in quantities and\or price of the goods on the order. * Statement of Account- This is a document which shows the business transaction over a specific period (usually a month) is use primarily when the transactions are of a credit nature receipts and payments and a balance. Documents used in international trade * Proforma Invoice- This is a bill sent to a customer (importer) for payment in advance. * Import and Export Licenses- These are licenses which must be granted by government agency (custom) as permission to import or export goods, usually the importer or exporter will be required to disclose details of the goods. *Certificate of Origin- This document contains the necessary information officials importing countries need to know about the contents (the things that are being held) being imported so as to determine if the product will be allowed or not allowed in the country. *Shipping Notes- These are directed to the custom official and they give details of destination, description, quantity and price of goods being exported or imported. * Letter of Credit- These are sent by the bank to overseas sellers on behalf importers using the banking service basically guarantees payment by the buyer to the seller with the buyers bank being the guarantor. -A letter issued by a bank to another bank (especially one in a different country) to serve as a guarantee for payments made to a specified person under specified conditions. * Bill of Lading- Is a document of title it is pass between shipping company and the exporter or agent. The information on this document includes the destination, port of origin, name of the shipping vessel, the route to be taken, description, quantity and weight of cargo. * Insurance Certificate- This is the document receive has proof of insuring the good during travel. *Bill of Exchange- Is a document, it is given in exchange for cash of lesser value. It involves three parties. The receiver, creditor and the debtor with the bill of exchange, one party to whom money is owed can hand the bill to a party for a lesser amount while the acceptor will seek to collect the full amount. *Airway Bill- This is similar to the bill of lading but it is not a document of title. It is utilize by airlines as a consignment note (for delivery at a destination and specially in inland transport) in which the consignor (sender- is the person sending a shipment to be delivered whether by land, sea or air) provide information about the consignee (receiver- the person or company something is sent to). * Debit Note- Maybe sent from the wholesaler to the retailer for goods not included on the invoice by mistake or other reasons. Instrument of Payment *Legal Tender- Is anything which the state declares as a method for payment this includes notes and coins. *Promissory Notes- This is a letter written to pay a person at a particular time from the date of the note. This is a legal document and can be enforced by law, if the debtor refuses to pay. *Postal Order- These are documents printed by the post office. They are usually bought and send locally and can be cash at any post office. *Money Order- These are bought for much larger sums tan postal orders and are issued by post offices as well. The sender normally fills out an application form given details of the addressee. The sender then sends a receipt to the payee the while the post office sends a copy to the receiving post office. *Telegraphic Money Order- These are money orders sent overseas where quick transactions are needed. *International Money Order/ Bank Drafts- These can be sent through the mail and address to the payee and is cash at a foreign bank chosen by the sending bank.  Cheques (a) Personal Cheques- are drawn on current accounts at commercial banks where payee can either cash or deposit Cheques. (b) Manager Cheques- these are Cheques made out by the bank in a person’s name in exchange for cash. NB They are usually done for large sum of money. (c) Cross Cheques- Signifies that the payee’s whose name is written on the cheque cannot encash that cheque but must instead deposit this amount. This protects the payee from having the cheque cash by someone else if stolen or loss. (d) Certified Cheques- There are personal or company Cheques which bank certify that the signature name and amount are valid. (e) Travelers Cheques – These are cheques issued in specific amount which are change by the traveler at the bank in the country to which they had travel. Travelers must sign the cheque in the presents of the bank clerk and sign again in the presence of the person to whom it is being paid. (f) Credit Card- These are issued by banks and finance companies to users who do not have to pay cash for goods/services. They are bill monthly by the credit card company which makes its profits by the interest charged. (g) Standing Order- This is an authority giving to bank by its customers to pay regular payments on specific days on the customer’s behalf. Contract A contact is an agreement enforceable by law between two or more parties to do or not to do an act that is legally binding or enforceable by law. In order for a contract to be valid there are seven basic elements that must be present: 1. Offer and Acceptance 2. Consideration 3. Genuineness 4. Capacity to contract  5. Legality 6. Good Faith 7. Possibility *Offer and Acceptance- An offer mu st be clearly communicated, the person making the offer is called the offerer and the person accepting the offer is called the offeree. NB The difference between an offer and an invitation to treat or to trade are: 1. An offer can be made to a specific person or to the world at large 2. An offer must be communicated to the offeree. 3. An offer can only be revoked or withdrawn before acceptance by the offeree. In an invitation to treat or to trade the offeree invites the offeree to make him/her an offer which maybe either accepted or rejected e.g. of invitation to treat or to trade are: a) Goods displayed in a shop or store with a price tag. b) Property advertise for sale. *Acceptance- An acceptance exist when the offeree or his/her agent agrees to all the terms or conditions lay down by the offerer of his/her agents. *Consideration- This is pass from one party to another as part of a contract. It maybe monetary or non- monetary. They are two (2) types of consideration are: i. Executed Consideration ii. Executory Consideration i. Executed Consideration- Performed by one party of the contract at the time the contract is enter into. For e.g., a customer who pays for an item beforehand because there is a pay first system in effect. The customer as therefore performed his part of the contract. ii. Executory Consideration- This as an undertaken to confer a benefit to suffer a detriment in the future. In the previous e.g. the consideration due from the business place is executory because they have not yet deliver the good to the customer but they have received the customer’s money. *Genuineness- There must be mutual agreement between both parties. Each party entering into the contract must do so with free will and should not be under any  dourest. One cannot force someone to sign a contract for the sale of his/her home, there must be consent to sell. *Capacity to Contract- The parties entering into the contract must be adults of sound mind and should not be in incapacitated in anyway e.g. by drugs or by alcohol. *Legality- Whatever is up for consideration must not be contrary to the law. This means that you cannot contract outside of the law. *Good Faith- This means that both parties should trust each other. *Possibility- Parties offering consideration must be in a position to be able to carry out their side of the contract. If one party is unable to carry out his/her side due to impossibility and can use another means then he/she should carry out his/her side using the method. Types of Contracts Simple Contract These contracts can either be written, oral or implied by conduct. They are the simplest form of contract and are undertaken everyday by most people for e.g ; hiring a taxi. By law some simple contracts must be in writing for e.g. contracts for life insurance, promissory notes, bills of exchange and the assignment of copyrights. Contracts that must be under seal includes leases, conditional bills of sale etc. Contracts by deed or specialty contract These contracts must be both under seal and signed by the contracting party in the presence of others where is possible. Such contracts include lease of land for periods over three (3) years, sale of goods, hire purchase agreement, mortgage, sale of land and insurance. Contracts of record These are obligations imposed upon a person by the court. For example an order imposed upon a man for child maintenance or for alimony. Ways by which a contract can be terminated or discharged by: 1) Performance 2) Breech 3) Impossibility 4) Lapse of time 5) Mutual agreement 6) Merger 1) Performance- this is when the contract has been executed in every aspect. 2) Breech- this is when one party fails to do what he/she has promise to do in the contract. 3) Impossibility- a contract is terminated if it is required by one party to do something prohibited or unlawful or if the undertaken is unrealistic or unacceptance. 4) Lapse of time- if the deadline of the contract is not met the contract is terminated. 5) Mutual Agreement- the parties may agree to cancel the contract. 6) Merger- this refers to the creation of a higher grid of contract to update the present contract. Her parents were present when Monyka’s uncle promise to give her one of the most up to date cellphones on her 18th birthday. On that day however, her uncle refuse to deliver the cellphone. Monyka was so disappointed that she threatened to sue her uncle for breach of contract. Que: a) Define the term contract b) State the essential features of a valid simple contract. c) Explain the term breach of contract d) State whether Monyka would succeed if she sue her uncle. e) Give a reason to justify your answer. Shem display a ‘for sale’ sign on his second hand motor Toyota car. A telephone contact number was also included. Monique saw the sign and call Shem. -Monique: Do you have a Toyota car for sale? -Shem: Yes I do -Monique: What’s the lowest price you would take for it? -Shem: $30,000 The next day Monique brought $30,000 to Shem and demanded the keys to the Toyota car. Shem refuse to take the $30,000 or to hand over the car to Monique. Monique threatened to sue Shem for breach of contract. Que: a) Define the term contract b) State five (5) features of a valid contract c) i. Did Shem make a firm offer by saying that the lowest amount he’ll accept for the car is $30,000? ii. Give one reason for your answer d) i. Explain the term breach of contract ii. Give one remedy for breach of contract e) State four(4) ways by which a contract can be terminated or discharged f) i. Advice Monique whether she will succeed in a court against Shem. ii. Give one reason for your advice. Production and Productivity Production Production is the act of creating or manufacturing something Productivity This is efficiency. This is how well the business is using its resources. In other words, productivity is the relationship between the amount of human and other resources use and the amount of output that its produce. Formula for productivity Productivity = Output (Good and services) Input (workers, money, machine, raw materials) In a business that produce (100) chairs in a particular week they were then (10) employees. The labour productivity will be calculated as follows: Productivity = 100 10 = 10 chairs per workers Productivity level/ Level of Production There are there (3) levels of production -Subsistence -Domestic -Surplus -Subsistence This the lowest level of production at which output is barely sufficient to meet the need of the producer or the country to enable them to survive. Example, a kitchen garden planted at the back of a house to supply a family with vegetables. -Domestic This is production which makes use of material available at home or within the country without having to resort to foreign input. At this level production exceeds the needs of the producer and so the excess is traded on the local market. -Export/Surplus level When domestic production exceeds the need of the country the surplus can be exported to other countries that are not so fortunate and have a demand for the items produced. Branches of Production/Types of Production 1) Primary Production 2) Secondary Production 3) Tertiary Production -Primary Production Primary (extractive) production is an activity that involves extracting from our natural resources. It is the first stage of production. Examples of primary productions are:  Fishing  Quarrying (extract stone or other materials)  Mining  Forestry -Secondary Production Secondary (manufacturing) production is the second stage of the production. This activity involves converting raw materials into finish goods. The caning of fish is regarded as secondary production since it involves using raw material to produce can fish. Other examples of secondary production includes: - Construction of buildings, roads and bridges. -Tertiary Production Tertiary (constructive) production can be grouped into direct services which are personalize services, and commercial services involving trade and other activities relate to trade. NB: Serving fish in a store or restaurant and transporting the fish are part of tertiary production. Other examples of tertiary productions include: *hairdressing *babysitting *Secretarial Work (direct services) * As well as banking, insurance and advertising, these are indirect services. Organization of Production Production can be grouped into two basic ways: Capital Intensive Production Labor Intensive production CIP Uses mainly machines along with a limited number of workers. Advantages of CIP Output can be extensively increase when machines are use. Labour cost including: (pension, health and insurance are saved. They are no major strike to encounter as in labour intensive production. Disadvantages of CIP The mobility of capital e.g. the number of uses is limited Many machines are expensive to maintain. LIP Uses mainly manual labour with a limited amount of capital equipment. Advantages of LIP Labour is more mobile e.g. they can be move to different locations more easily than machines. In highly populated regions labour is cheaper to employ than capital equipment. Disadvantages of LIP It may be expensive as capital because of high wages, insurances, pension scheme and bonus. There is need for good personal management and general relationship skills to motivate workers. Labour migration an cause some sectors to collapse Mechanization and Automation Mechanization- is the partial replacement of human labour and animal muscle power with machines. Automation- is a further stage of mechanization in which the production process is carried out automatically with little or no input. Advantages of Automation - It reduces time taken to complete production. - It reduces labour cost and avoid industrial unrest.  - Any savings experience by the firm may be transferred by the customer in the form of cheaper prices. - Machines may run for long period without the need for higher payment, thereby reducing overhead cost. Disadvantage of Automation - Labour is replaced resulting in unemployment. - The technology maybe in appropriate for the Caribbean. - Spare parts maybe expensive and needs to be imported. Advantages of Mechanization - It can improve the competitiveness of goods produced because of improve efficiency in terms of a lower unit cost of production. - Productivity in terms of output is usually improve when machines are used instead of human labour. - Better quality of goods are produce as these is less room for human error and greater scope for quality control. Factors of Production Provides the means by which production can take place. There are four (4) factors of production: - Land - Labour - Capital - Entrepreneurship *Land- refers to the natural resources on the earth including those of the sea. It includes mineral deposits such as bauxite, oil, iron ore, gold and diamond The major role of land as a factor of production. - It is use in primary production upon which secondary education depends. - Its endowment of the country often indicates the wealth and economical development status of the country. *Labour- Human Resource Human resource consist of all the personnel available for the workforce. It compromises the labour force which is all the mental and physical efforts use in the creation of goods and services. Major roles of labour as a factor of production. There is an increase of national income or production with an increase of labour productivity.  When labour productivity is increase the economy benefits because the levels of output maybe increase without increasing the other factors of productions. *Factors affecting the supply of labour 1. Rate of growth of the population 2. Cultural patterns and religious reasons 3. Mobility of labour 4. Migratory patterns 5. Quality of the labour force Effects of internal migration on the labour force of a country - Decrease in the labour supply of the community from which migrants move. - The loss of more qualified person who moved out of the community thus, hindering social developments. - Overcrowding of towns, resulting in poor housing, slums and health problems. Effects of external migration - It cause a brain drain- this is the migration of skilled professional persons from a community or country. - More money would have to be spent to train other people for those jobs. Capital of the factors of production Capital refers to the money and all other asset that are employed in the process of production. Capital includes the building, machinery equipment, money and stocks used in the production of goods and services. The roles of capital as a factor of production - It can be use has security for loans. -It can be used to increase productivity of the factors of production. -It must be used to establish a business. -Enterprise or Entrepreneurship An entrepreneur is an individual who operates a business enterprise, employing and coordinating the factors of production. He also accept risks involving setting up a business and in return receives profits as payments or reward for risk taken. Roles of an entrepreneur as a a factor of production -Jobs are created. -It enhances the performance of some dominant sector of the economy and contributes to increases in the national income of the country. Factors affecting the location of an industry 1. The cost and location of raw materials. 2. The cost and availability of labour in the location. 3. Proximity of shopping port. 4. Availability of social infrastructure e.g. schools, recreational centers, medical centers. 5. The adequacy of proper physical infrastructure e.g. water, telephone, roads and bridges. 6. The degree of government control on pollution and traffic congestion in the area. Large firms and Small Firms Reasons for firms remaining small To keep business in the family The markets maybe small and do not require large operation. Owners of some small firms do not have management and technical knowledge to enable expansion. Some firms might not have enough collateral access loan for expansion. Effects of small firms in the economy. ✓ Small firms recognize and utilize the changes in the trends and pass these on to larger establishments. ✓ They cater to the need and demands of the small local communities. ✓ Small firms provides employment. -Large firms Reason for expansion To increase profits. To maintain the monopoly position. To fill the supply gap in the market. To increase market shares. Effects of large firms in the economy Expansion increases capital investment which directly leads to economic growth. Technical innovation by large firms help to modernize the economy. Markets may be expanded to include export market and help to earn foreign exchange. Economies of Scale This refers to the benefits which a firm gets because of the scale of its operation. Diseconomy of Scale This refers to the losses or disadvantages experienced by the firm because of its scales of operation. Economies of scale can be classified as internal or external economies. NB: Internal economies are benefit that accrue at the level of the individual plant or as a result of how the firm is organized on the other hand external economies are the benefits enjoyed by the firm, because of the location of the firm or a part of the particular industry. -Economies of Scale Technical Savings- this refers to size of the plant which the firm uses. Large equipment which may be used when expansion occur are usually more efficient than smaller ones. The firm also reduces the amount of labour use when there is one large machine instead of several smaller ones. Diseconomies of Scale Technical Cost- Large equipment are expensive to purchase as well as to maintain. In addition the labour needed to operate these equipment may need costly training. -Economies of Scale Specialization of Labour- S.O.L which results from expansion which improves the efficiency of the staff by increasing the scales and output of specialized workers. -Diseconomies of Scale Over specialization of labour-The disadvantage of over specialization includes boredom experience by the specialize worker which results in losses in productivity and subsequent increase in cost. -Economies of Scale Financial Savings- Large firms may access loans at a cheaper interest rate than smaller firms because they have establish reputations and usually more collateral. -Diseconomies of Scale Financial Cost- Firms which sells shares and stocks are at a risk of losing everything if the stock market crashes. Interest rate on loans may rise extremely as well as creating huge debts. -Economies of Scale Marketing Savings- Large firms tends to establish large distribution networks which gets products to consumers more efficiently and at less cost than smaller ones. In addition large firms tend to advertise regularly and this contributes to increase in the rate of turnover thereby reducing cost. -Diseconomies of Scale Market cost- markets may expand beyond easily controllable limits. In addition to advertising its costs and may not be efficient in increasing sales. -Economies of Scale Research and Development savings- Results in innovation to aim a change in the production process, the quality and quantity of output or the type of output. This is done by applying new technology aim at increasing deficiency. -Diseconomies of Scale Research and Development cost- R&D requires employment of professionals such as scientists who are usually highly paid. In addition the process of research and development can be lengthy, attracting higher cost to the firm. -Economies of Scale Risk bearing savings- risk bearing economies refers to the diversification of the production process in the addition of new products. The savings here is that quite often the same plant and factory space and labour are used. -Diseconomies of Scale Risk bearing cost- Additional to the product line may not be successful leaving the firm with production, financial and marketing cost to cover. External economies and Diseconomies of Scale Internal Economies- 1. Savings in cost- Are achieved due to concentration of firms in the same location. 2. Growth in the industry may give rise to growth in government incentives such as subsidies, tax holidays and reduce duties on raw materials. 3. Better roads and utilities are establish due to the concentration of firms on location. External Economies 1. Social cost resulted from pollution, traffic congestion due to expansion and concentration in localities. 2. Government regulations to protect social cost such as pollution may prohibit the further expansion of the industry.  New Topic: Cottage Industries Cottage industry is the name given to small firms or businesses that produces a good or service by using simple technology e.g. handy craft items such as letter craft, floral arrangements. Knitting and embroidery work and bakestry items. Personal Services Example tailoring, hair and dress making, barbering, sewing, pastries, jam and jellies. Features of a cottage industries 1. The firm uses simple tools and equipment. 2. The profits made are usually plugged back into the business. 3. Small amount is capital is needed. The importance of cottage industries 1. They provide employment. 2. They make use of locally available materials. 3. The compliment the tourism industry by providing handy craft. 4. The earnings of cottage producers add to the national income. Linkage Industries Linkage industry are those industries which are associated or link with other industries in such a way that the existence of one is dependent on the other. E.g., agriculture, and tourism, agriculture and canning, tourism and handy craft, sugar and rum. Importance of linkage industries to the economy 1. Resources are more efficiently use. 2. Foreign exchange is earned by the exported goods of linkage industries. 3. Specialization is develop in some countries for e.g.; rum production.  Management and Industrial Relations Management Management involve in planning, organizing, controlling and operating of an organization in a manner design to make full use of its resources under its control. Functions of Management Planning Organizing Directing Controlling Coordinating Motivation Delegating Planning Planning involves looking into the future, this involves anticipating difficulties forecasting choosing between alternatives, setting goals, objectives. Types of Planning: They are three (3) types of planning. 1. Long term- This maybe achieve over several years. 2. Medium term- This the period between short term and long term (usually 3 to 6 years). 3. Short term planning- Usually under 3 years. Organizing This means that people must be put in proper places to produce desired results as well as the other factors of production. This is done based upon the plans made to achieve organization goals. Directing This involves assigning various duties to persons within the firm and ensuring that they produce. The process by which this is done is called delegation of authority. Controlling This is an effective system that checks achievements against plans and objectives and supplies information concerning any variances or deviation in performance to the higher level of management.  Coordinating This involves ensuring that all areas of the organization work harmoniously towards the achievement of stated objectives. Motivation This is the manager’s ability to get employees to do what they are supposed to do. Delegating This function involves assigning work activities to subordinates (employees who take orders from managers or supervisors). Motivation can be done in the following ways: 1. Job security 2. Pleasant working environment 3. Good management leadership 4. Good pay 5. Allowing for communication at all levels Responsibilities of Management Management has responsibilities to the following groups: 1. Responsibility to shareholders 2. Responsibility to customers 3. Responsibility to the government or state 4. Responsibility to the society 5. Responsibility to employees 1. Responsibilities of shareholders: a. To ensure that profits are maximized b. To pay dividence to the shareholders c. To ensure the company is run effectively d. To ensure what is stated in the article of association and the memorandum of association is observed and not exceeded. 2. Responsibilities to customers a. To ensure that the goods or services which are sold or provided are of good quality. b. To ensure that goods are fairly price. c. To give customers after sales services. d. To honor whatever warranties are issued with the product. 3. Responsibility to the Government or State a. To pay taxes b. To ensure that the company does not break any law or regulations passed by the state c. To provide information which will be required by government department.