An Overview of Small Business Economics
Two (2) key factors in determining the cost-effectiveness and potential profitability of bringing any product or service to market are supply and demand and price determination.
a. What is learned from a well-formulated supply and demand curve analysis and how does this information help determine optimum production rates for maximum profitability?
b. What is the correlation between employee benefits and return on investment assets, return on equity, and return on sales?
c. How can the inability to compete profitably on price be overcome?
Part A: Supply and demand curve analysis
Supply and demand curves are drawn with the price on the y-axis and quantity on the x-axis. A demand curve shows the highest quantity that can be purchased by a household at a given price or the highest price that the household would pay willingly for a specified quantity. A supply curve shows the highest quantity that can be supplied willingly at a given price or the lowest price that can be accepted for a given quantity (Piros & Pinto, 2013). Using this information, total revenue (TR), total cost (TC), marginal revenue (MR) and marginal cost (MC) can be determined. Profit is maximized at the production level where the difference between TR and TC is greatest, MR=MC and where employees of the next unit of input are no longer contributing to the total profit.
Part B: Correlation between employee benefits and return on investment, equity, sales
Maximizing productivity means that more output is produced per unit of input or using the lowest amount of input to produce a given level of output. When productivity increases, production costs are lowered, meaning more profitability or return on sales. The investment value is increased, thus higher return on investment assets. These benefits are beneficial to the stakeholders of the business, such as equity shareholders and employees. They increase the return on equity and employee rewards and benefits (Piros & Pinto, 2013). These rewards to employees motivate them to increase productivity and the cycle is repeated. Thus, there is a positive correlation between productivity, return on sales, return on investment assets and employee benefits.
Part C: Overcoming the inability to compete profitably on price
When a business is unable to compete profitably on price, it should adopt non-price competitive techniques. This involves distinguishing its products based on attributes other than price (Lumen Learning, 2020). These can be the focus on the customer, quality of the services, distribution, economies of scale and so on. This enables the business to convince its customers that its products are better than those of its competitors not because they are cheaper, but because they have better attributes. The business should engage in promotional activities such as advertising and the development of new products.
References
Lumen Learning. (2020). Competitive Dynamics and Pricing | Boundless Marketing. Retrieved 4 September 2020, from https://courses.lumenlearning.com/boundless- marketing/chapter/competitive-dynamics-and-pricing/
Piros, C. D., & Pinto, J. E. (2013). Economics for investment decision-makers: micro, macro, and international economics. John Wiley & Sons.
