Entrepreneurship in a Market Economy. Needs and Wants  Needs: things you must have  Wants: things you think you must have.

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Entrepreneurship in a Market Economy

Entrepreneurship in a Market Economy

Needs and WantsNeeds: things you must haveWants: things you think you must have

Economic ResourcesDef: The means in which goods and services are producedGood: something tangibleService: something untanible

Factors of Production (3 Resources)Natural: raw materialsHuman: peopleCapital: buildings, equipment, supplies

Law of Diminishing ReturnAll resources are limited

To make the most efficient use of resources business consider law of diminishing returnsStates that when one factor is increased while others stay the same, the resulting increase in output will level off at some time and then decline

McDonalds Game Functions of a BusinessProductionMarketingManagementFinanceSupply and DemandSupply: The quantity of a good/service a producer is willing to produce at different prices

Demand: The quantity of a good/service that consumers are willing to buy at a given price Supply Curve

Demand Curve

Equilibrium

Demand ElasticityDef: When demand for a product is affected by its price

Elastic Demand: When change in price creates change in demandInelastic Demand: When change in price creates very little change in demandReasons for Inelastic DemandThere are no acceptable substitutes for a product consumers needThe change in price is so small in relation to income of consumerThe product is a basic need (physiological) rather than a wantCosts of Doing BusinessA company that prices its product based only on cost of materials involved in production will go out of business very quickly!

Fixed CostVariable CostFixed CostThese are costs that must be paid regardless of how much of a good or service is produced

Monthly rentInsurance feesInterestVariable CostsCosts that go up and down depending on quantity of good or service produced

Price of FlourPrice of Coffee

The more bagels a company sells, the more resources it must buy and visa-versa DifferenceA business with less fixed cost and more variable cost is at less risk because if sales are lower the business will not suffer as much with less revenue!Marginal Benefit and Marginal CostMarginal Benefit measures the advantage of producing one additional unitMarginal Cost measures the disadvantage of producing one additional unit

If Wicker decides that staying open an additional two hours and will make additional revenues of $100 (selling additional sandwiches and drinks) but that it will cost $125 (ingredients, overtime, electricity) to stay open in that time, they would opt against it.Economies of ScaleEconomies of scale are the cost advantages obtained due to expansionBusinesses can expand in the following ways:Size of facilityObtaining specialized machinerySpecialization of laborEconomies of scale represent an increase in efficiency of productionContinuedSince the number of goods increases a business that achieves economies of scale lowers the average cost per unit because the cost can be spread out over an increased number of units.

Lower costs per unit allow businesses to lower the price which may attract more customers.

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