APPLIED ECONOMICS

Quarter 2 -Module X
EVALUATING THE VIABILITY AND IMPACTS
OF BUSINESS ON THE COMMUNITY
Applied Economics – SHS
Quarter 2 – Module 10: Evaluating the Viability and Impacts of Business on the
Community

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Regional Director: Gilbert T. Sadsad

Assistant Regional Director: Jessie L. Amin

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 THE ROLE OF ENTREPRENEURS
IN ECONOMIC DEVELOPMENT

Back-to-back loan ​define as a depositor’s savings deposit or time deposit used as collateral
to advance the same amount of money.
Equilibrium price ​is the only price where the desires of consumers and the desires of
producers agree – that is, where the amount of the product that consumers want to
buy (quantity demanded) is equal to the amount producers want to sell (quantity
supplied) (Williams, 2020).
Fad ​is a product that has a very brief product life cycles that rises quickly in popularity but
declines about as quickly.
Fad business ​is a trend that captures a lot of attention and energy in a short period of time.
Marginal cost ​is the increase in cost by producing one more unit of the good (Agarwal,
2020).
Marginal revenue ​is the change in total revenue as a result of changing the rate of sales by
one unit. It is also the slope of total revenue (Agarwal, 2020).
Foot traffic ​is a term used in business to describe the number of customers that enter a
store, mall, or location (Kenton, 2020).
Viability ​means ability to survive; or sustainability

Imagine that you want to start a business selling snacks. Fill in the table with the
information needed in starting this business.

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 Question Answer
Name of business
(What is the name of the business?)
Kinds of snack
(What are the snacks to be sold?)
Source of capital
(Where will you get the money to put
up your business?)
Target Market
(​Who are your prospective clients?)
Source of raw materials/supplies
(Where will you get the supplies and
materials needed for your business?)

THE PROCESS OF ESTABLISHING A BUSINESS

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 The figure covers the entire life cycle of a business – from the planning stage to the
actual operations to business maturity and deciding whether to expand or leave the industry.

1. ​Identifying the type of business

o Evaluate the intended location of the business. Example: If you like to
put up business near a university, one viable option is putting up a food stall
that will provide a complementary good (i.e., food) to the students and teachers – can
buy snacks to eat. You can also choose or provide an alternative (i.e., a substitute
service) such as a tricycle or bus line, but this will require much more starting capital.
o Businesses are classified according to the initial capitalization and type of
ownership:
Type of business Capitalization

Microbusiness Php1,500,000 and below

Small scale Php1,500,001 to Php15,000,000

Medium scale Php15,000,001 to Php60,000,000

Large scale Above Php60,000,000

2. ​Getting the initial capitalization

o Identify options to choose aside from borrowing money from friends and/or family
such as:
● Community-based livelihood programs given not only by the
government but also private or non-profit organizations for the benefit
of even the poorest of Filipino families that offer not only financial
assistance but also technical assistance ​(not only will lend you money

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 but they will also teach you how to handle that money and train you in
some of the skills you will need for your prospective business).
● Banks ​that offer a variety of loans – can be short-term or long-term.
Requirements may differ from bank to bank, such as:
stable sources of income to determine capacity to pay

good credit standing to determine character in paying

obligations
tax returns
financial statements

government issued IDs

collateral – can be a “back-to-back” loan (savings as collateral)

or tangible assets (land, equipment, and other valuable items)
● Cooperatives ​that help members in providing different types of loan
with the concept of “back-to-back” loan; however, it differs from the
bank in terms of profit sharing and incentives given to frequent
borrowers that is called patronage refund.

3. Selecting a location

o One of the main reasons why businesses fall short is having a bad
location.

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 4. Direct operations and management of the business
o The owner of a business is generally expected to have
comprehensive knowledge and/or expertise in making his/her product such
as:

o It is highly recommended to be different from competitor in order to distinguish your

product or services from theirs – that will be an advantage over competitors and
increase brand recall among existing and potential customers.

Example: KFC has 11 secret herbs and spices for chicken that are unique
from other restaurants.

5. Earning profit and incurring losses

o In reality, ​all businesses incur losses before they can earn

profits
.
o All businesses start with fixed and variable inputs.

Fixed inputs Variable inputs

Definition - Are cost which do not change - Are cost which change as
in size and amount as you you increase or change your
increase your production or output or production
output, such as land,
machinery and more

Example: - Utensils - Labor cost

Restaurant - Chairs - Electricity
business - Tables - Water
- Kitchen appliances - Other utilities expense
- Air-conditioning units
- rent

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Problem #1
Anita Garments Store has a rental cost of Php5,000/month and a labor cost of
Php5,000/month. Her product cost is Php50/unit. What Anita should do to break even?

Solve for the break-even:

TR = TC
where TR = P x Q
and TC = TFC + TVC

Given:
TFC = Php5,000
TVC = Php5,000

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 P = Php50

Solution:
Compute for the quantity to break-even
TR = TC
50Q = 5,000 + 5,000
50Q = 10,000
50Q​ = 1​ 0,000
50 50
Q = 200

Problem #2
Anita has a target profit of Php2,000. How many garments shall be produced to attain
the target profit?

Solve for the profit:

Profit = TR – TC
TR = P x Q
TC = TFC + TVC
Given:
TC = Php10,000
P = Php50
Solution:
Compute for the profit
Profit = TR - TC
2,000 = TR – TC
2000 + TC = TR
2,000 + 10,000 = 50Q
12,000 = 50Q
12,000​ = ​50Q
50 50
​240 = Q

Analyze the problem graphically:

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 TR and TC Analysis
The figure shows the total revenue (TR) and total cost (TC) analysis of Anita
Garments Store, where the store break-even at quantity (Q) = 200 and earns profit of
Php2,000 at quantity (Q) = 240.

Bibo has a bakery, his rental cost per month is Php10,000 and a labor cost of
Php15,000/month. The cost of the bread per piece is Php10. His target profit is Php5,000.
Required: 1. How many pieces of bread should be produced to break-even?
2. How many pieces of bread should be produced to get the target profit?

Solve for the break-even:

_________________________________________________________________________
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_________________________________________________________________________

Solve for the profit:

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_________________________________________________________________________

Setting of price for a product to determine if the price is

competitive with the industry’s price.
Problem #1:
Lara’s Bakery aims to produce 5,000 pieces of ​pandesal (​ the maximum capacity of
the oven). The total fixed cost (TFC) is Php10,000 and total variable cost (TVC) is Php5,000.
What should be the selling price to break-even? How much will be the profit of Lara’s
Bakery?
Solve for the break-even point:
TR = TC
where TR = P x Q
and TC = TFC + TVC

Given:
Q = 5,000 pieces
TFC = Php10,000

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 TVC = Php5,000

Compute for the break-even point to get the price:

P x Q = TFC + TVC
P x 5,000 = 10,000 + 5,000
5,000P = 15,000
5,000P​ = ​15,000
5,000 5,000
​P = 3.00

Compare the price with the exiting industry’s price:

Since the equilibrium price is Php5.00, compute for the profit.

Solve for the profit:
Total Profit (TP) = TR – TC
where TR = P x Q
and TC = TFC + TVC

Given:
TC = Php15,000
P = Php5.00

Solve for the profit of Lara’s Bakery:

Compute for the total revenue (TR)
TR = P x Q
TR = 5 x 5,000
TR = Php25,000

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 Compute for the profit:
TP = TR – TC
TP = Php25,000 – 15,000
TP = Php10,000

​ er month. The total fixed cost (TFC)

Dina aims to produce 10,000 pieces of ​pastillas p
is Php8,000 and total variable cost (TVC) is Php6,000. The price of ​pastillas as compared to
the industry is P2.00 per piece.
Required: 1. What should be the selling price to break-even?
2. How much will be the profit of Dina?

1. Solve for the break-even point:

_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________

2. Solve for the profit:

_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________

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 Ariel’s barber shop offers haircut for Php50 per person. Each barber can cater haircut
for 30 persons per day. The costs in operating a barber shop are as follows:
Expenses Rate per day
Rental cost (6,000/month ÷ 30 days) Php200
Labor cost (per barber) 500
Electricity cost (per barber) 300
Miscellaneous expenses 200

Solution:
a. Compute for the total cost
Total cost (TC) = rent + labor + electric + miscellaneous
= 200 + 500 + 300 + 200
​TC = Php1,200

b. Compute for the total revenue

Total revenue (TR) = Price x Quantity
= 50 x 30
TR = Php1,500

c. Compute for the profit/losses

Total profit (TP) = TR – TC
= 1,500 – 1,200
​TP = Php300

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Solution:
a. Compute for the total cost
Total cost (TC) = rent + labor + electric + miscellaneous
= 200 + (500 x 3) + (300 x 3) + 200
= 200 + 1,500 + 900 + 200
​TC = Php2,800

b. Compute for the total revenue

Total revenue (TR) = Price x Quantity
= 50 x (30 x 3)
= 50 x 90
TR = Php4,500

c. Compute for the profit/losses

Total profit (TP) = TR – TC
= 4,500 – 2,800
​TP = Php1,700

By increasing the output, the possibility to increase profit is feasible. A business can
be expanded and improved as long as the profit margins remain healthy. However, if the
operational costs exceeds the income, it is advisable that the business be closed down.

Mila’s hair salon has three (3) beauticians. Each beautician can cater eight (8)
customers per day to do hair rebonding. The price of hair rebonding is P800 per person. The
costs in operating a barber shop are as follows:
Expenses Rate per day
Rental cost (12,000/month ÷ 30 days) Php400
Labor cost (per beautician) 800
Electricity cost (18,000/month ÷ 30 days) 600
Hair treatment products (per beautician) 1,000
Miscellaneous expenses 200

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 Compute for the following:
a. Total cost
b. Total revenue
c. Profit or losses

SOME MYTHS ABOUT HAVING A BUSINESS

Myth 1. All you need is a little capital to earn huge profits.

When venturing into any business, it is vital to have and maintain a sense of
proportionality. If you start with limited capital, expect your profits to be similarly modest.
There may be exceptions, but it is impractical to expect that tour business will be one of
those exceptions.
Myth 2. Anything that deals with food is always profitable.

Not all food businesses are successful. Some do not last because their fixed and/or
variable costs are too expensive. Others do not differentiate themselves from their
competitors or are unable to maintain the quality of their products, thus failing to build and
keep a solid customer base.

Myth 3. Fad businesses like laundromats or vehicles for hire, are likely to be
successful.

If business conditions are good, then we can safely say that you may break-even and
eventually earn profits. But if too many people attempt to enter the market, the market may
become oversaturated, and many of the businesses will suffer losses.

Myth 4. A partnership is always better than a sole proprietorship.

Partnerships have many advantages but if you need control over the business, it is
better for you to start a single proprietorship rather than a partnership. This is particularly
true if the capitalization comes from a single owner.

Myth 5. Additional capitalization from a future partner is always better to ensure the
firm’s survival.

A firm’s survival may not be the best idea if it is going through rough times. There are
times when survival is no longer the best objective, and it is better to cut your losses.

Myth 6. A shutdown is not an option.

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 Sometimes, a shutdown is the best option especially if the market is already
oversaturated. If a firm cannot adjust in the long-run, then it cannot compete with large
competitions.
.

IMPACT OF BUSINESS IN THE COMMUNITY

Small businesses are the backbones of the local community with the following impacts:
1. Create a unique community identity – locally owned restaurants showcase the
fresh foods or local farm-to-table that makes a distinct character to their communities.
2. Greater community involvement of business owners ​– through participation in
community festivals, volunteer work or charitable donations for local causes.
3. Increase community economic health ​– local businesses tend to support other
local businesses.
4. Promote environmental friendliness – ​older downtown buildings have been
remodeled and repurposed for different businesses.
5. Increase local tax base ​– local businesses pay local taxes, bolstering the revenue
available for improvement to roads, schools, and others. When customers spend
their money locally, the taxes they pay benefit their community and better their own
lives.
6. Create local jobs ​– every local job that is created means that more people are able
to stay in their community.
7. Encourage entrepreneurship ​– a community with successful small businesses
inspires others to take that leap and develop their own passion. Starting a small
business means that the owner is taking charge of their future through innovation and
prosperity.
8. Innovation and healthy competition ​– innovation is a hallmark of a successful local
enterprise, and healthy competition drives the marketplace. Locally owned
businesses have a personal relationship with their customer.
9. Lower maintenance and less need for infrastructure
10. Diverse products, locally made

A. Look for at least three (3) businessmen in your community and ask them the following:
1. Reasons for starting a business
2. Impact of his/her business in the community

Number 1 is done for you.

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 Business Name Type of business Reasons for starting Impact of business in
a business the community
1. ABC Sari-Sari Sari-Sari Store / Additional source of Contribute to local tax
Store Merchandising income base such as securing
of barangay business
permit
2.

3.

4.

B. Examine the products/businesses in your community. Make a list of at least 5 products /

businesses which you believe are just fads, and then think of ways how these
products/businesses can adapt to changes to be viable.

Fad business / products How they can cope with changes

1. Milk tea business Create unique flavor that is different from

other milk tea businesses

2.

3.

4.

5.

6.

ANSWER KEY
You can do it #1
Bibo has a bakery, his rental cost per month is Php10,000 and a labor cost of
Php15,000/month. The cost of the bread per piece is Php10. His target profit is Php5,000.
Required: 1. How many pieces of bread should be produced to break-even?
2. How many pieces of bread should be produced to get the target profit?

Answer #1
Solve for the break-even:
TR = TC
where TR = P x Q
and TC = TFC + TVC

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 Given:
TFC = Php10,000
TVC = Php15,000
P = Php10.00

Solution:
Compute for the quantity to break-even
TR = TC
10Q = 10,000 + 15,000
10Q = 25,000
10Q​ = 2​ 5,000
10 10
Q = 2,500

Answer #2
Solve for profit:
Profit = TR – TC
TR = P x Q
TC = TFC + TVC

Given:
TC = Php25,000
P = Php10

Solution:
Compute for the profit
Profit = TR - TC
5,000 = TR – TC
5,000 + TC = TR
5,000 + 25,000 = 10Q
30,000 = 10Q
30,000​ = ​10Q
10 10
​3,000 = Q

You can do it #2
Dina aims to produce 10,000 pieces of ​pastillas p​ er month. The total fixed cost (TFC)
is Php8,000 and total variable cost (TVC) is Php6,000. The price of ​pastillas as compared to
the industry is P2.00 per piece.
Required: 1. What should be the selling price to break-even?
2. How much will be the profit of Dina?

Solve for the break-even point:

TR = TC
where TR = P x Q
and TC = TFC + TVC

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 Given:
Q = 10,000 pieces
TFC = Php8,000
TVC = Php6,000

Compute for the break-even point to get the price:

P x Q = TFC + TVC
P x 10,000 = 8,000 + 6,000
10,000P = 14,000
10,000P​ = ​14,000
10,000 10,000
​P = 1.40

Solve for the profit using the equilibrium price:

Total Profit (TP) = TR – TC
where TR = P x Q
and TC = TFC + TVC

Given:
TC = Php14,000
EP = Php2.00

Solve for the profit of Lara’s Bakery:

Compute for the total revenue (TR)
TR = P x Q
TR = 2 x 10,000
TR = Php20,000

Compute for the profit:

TP = TR – TC
TP = Php20,000 – 14,000
TP = Php6,000

You can do it #3
Mila’s hair salon has three (3) beauticians. Each beautician can cater five (5)
customers per day to do hair rebonding. The price of hair rebonding is P800 per person. The
costs in operating hair salon are as follows:
Expenses Rate per day
Rental cost (12,000/month ÷ 30 days) Php400
Labor cost (per beautician) 800
Electricity cost (18,000/month ÷ 30 days) 600
Hair treatment products (per beautician) 1,000
Miscellaneous expenses 200

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 Compute for the following:
a. Total cost
b. Total revenue
c. Profit or losses

Solution:
a. Compute for the total cost
Total cost (TC) = rent + labor + electric + hair treatment products + miscellaneous
= 400 + (800 x 3) + 600 + (1,000 x 3) + 200
= 400 + 2,400 + 600 + 3,000 +200
​TC = Php6,600

b. Compute for the total revenue

Total revenue (TR) = Price x Quantity
= 800 x (5 x 3)
= 800 x 15
TR = Php12,000

c. Compute for the profit/losses

Total profit (TP) = TR – TC
= 12,000 – 6,600
​TP = Php5,400

REFERENCES

Agarwal, P. (2020). Cost of Theory. Profit Maximization Rule. Economic Theory and News.
www.intellegenteconomist.com
BBB (2019). 10 ways small businesses benefit their local communities. M business.
https://medium.com
Manapat, C.L. (2018). Applied Economics for Senior High School. C & E Publishing, Inc.,
Fad: Definition & Examples. (2015, August 21). Retrieved from
https://study.com/academy/lesson/fad-definition-examples-quiz.html.
Foot Traffic. Business Essentials. Investopedia.com
Williams, L. & Lumen Learning (2020). Introduction to Business. www.lumenlearning.com

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