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Unit 3

A business combines natural resources, labor, and capital to produce and distribute goods and services for a profit. The production process involves inputs being transformed by technology into outputs like goods and services. A business aims to produce outputs efficiently by choosing technologies and distribution channels that minimize costs and maximize profits.

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24 views3 pages

Unit 3

A business combines natural resources, labor, and capital to produce and distribute goods and services for a profit. The production process involves inputs being transformed by technology into outputs like goods and services. A business aims to produce outputs efficiently by choosing technologies and distribution channels that minimize costs and maximize profits.

Uploaded by

Martina Perez
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Business

A Business is a combination of natural-resources, workforce and capital funds, organized in


a certain way to produce and distribute the goods and services demanded by the society
while obtaining a profit out of it.

Production process
Inputs:
- Production factors
- Items produced by other companies
Business:
- Transformation used by technology
Outputs:
- Goods
- Services

Economic view of the production process


The goal of the production process under this view, is to satisfy families ́needs, thus, the
basic consumption amounts. It is seen as a cyclical process.

Functional-utility view of the production process


Under a practical approach, the production process adds value to the inputs, so the utility
inputs had before this process was increased. It is focused on what the output is for.

Technical view of the production process


It is determined by using the three production factors, such as, natural resources, workforce
and capital funds and applying a technology to obtain the goods and services. It is focused
on how the production process is done and organized.

Technology development
Technology refers to the processes, the machinery and toolings used at a certain time
together with the production factors to obtain goods and services. The technology is
developing permanently thanks to the efforts made by the public and private sectors. The
tools to develop new technologies are called R+D+I (Research Development Investigation)

Technological efficiency
One technology is more efficient than the other when:
- Produces a bigger output using the same amount of inputs (production factors)
- Needs a smaller amount of inputs for producing the expected same amount of output

Economic efficiency
Economic efficiency refers to choosing the cheapest technology among the technically
efficient ones that are available at that specific time.

Production costs and profit


Profit = Full revenue - Full cost
Types of cost
Fixed cost:
- No link to the activity volume
Variable cost:
- Linked to the activity volume
- More units more costs

Average cost per unit


The average cost or Cost per unit (Cu) is the sum of all the costs needed for producing one
unit.

Marginal cost and revenue


Marginal revenue → The revenue obtained from selling an additional unit
Marginal cost → The cost of producing an additional unit
Marginal revenue - Marginal cost = Marginal profit

Law of diminishing marginal returns


The law of diminishing marginal returns is a theory in economics that predicts that initially
adding additional factors of production results in increases in output obtained. Then after
some optimal level of capacity is reached, adding an additional factor of production will
actually result in smaller increases in output.

Economies of scale
Big companies produce more and more, so they ŕ e able to reduce the full cost per unit
and can get their products produced cheaper.

Direct distribution and Non-Direct distribution advantages and disadvantages

Direct distribution Non-direct distribution

Advantages - Know customers - Can reach a larger


closely and their geographical area
desires - Experts putting
- Total control of the products on the
company’s image hands of customers
- No need to pay for
intermediaries
- All profits are for the
company

Disadvantages - Limited geographical - Intermediaries also


area sell competitor
- Lots of resources products as well as
needed yours
Different distribution channels
- E commerce
- Franchises
- Outlets
- Pop-Up-Stores
- TV Shopping
- Vending machines
- HO-RE-CA (hotels, restaurants, cafeterias)
- Gourmet and delicatessen stores
- Social media stores
- Drive throughs
- Glovo, just eat etc.

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