Understanding the Concepts of Business Enterprise Lecture Notes of Business and Management Dr. Fahmy Radhi, MBA

The Concept of Business The exchange of goods/services with money for mutual benefit/profit An organization that provides goods and/or services to earn profits All profit-seeking activities that are organized and directed to convert factors of production into goods and services or combination between goods and services for customers in the markets to achieve the business objectives

The exchange of goods/services with money for mutual benefit/profit

An organization that provides goods and/or services to earn profits

All profit-seeking activities that are organized and directed to convert factors of production into goods and services or combination between goods and services for customers in the markets to achieve the business objectives

Factors of Production Labor or human resources – the physical and mental capabilities of people that contribute in economic production Capital – the funds needed to create and operate a business enterprise Land or physical resources – tangible resources used in the conduct of their business Entrepreneurs – people who take opportunities and the risks in creating and operating business Information resources – data and information used in decision making and problem solving in operating business

Labor or human resources – the physical and mental capabilities of people that contribute in economic production

Capital – the funds needed to create and operate a business enterprise

Land or physical resources – tangible resources used in the conduct of their business

Entrepreneurs – people who take opportunities and the risks in creating and operating business

Information resources – data and information used in decision making and problem solving in operating business

Entrepreneur Entrepreneur - A person who takes the risks to organize and manage a business innovatively and creatively that receives the financial profits and non-monetary rewards for his The Growth Oriented Entrepreneur Need for Achievement - A Strong desire to succeed, to grow up and to accomplish challenging tasks Low need to conform, persistence, High energy level Risk-taking tendency

Entrepreneur - A person who takes the risks to organize and manage a business innovatively and creatively that receives the financial profits and non-monetary rewards for his

The Growth Oriented Entrepreneur

Need for Achievement - A Strong desire to succeed, to grow up and to accomplish challenging tasks

Low need to conform, persistence, High energy level

Risk-taking tendency

Differences between goods and services Quality not easily measured Quality easily measured Labor intensive Capital intensive Small facilities Large facilities Local markets Regional, National or International markets Short response time Long response time High customer contact Low customer contact Output can not be inventoried Output can be inventoried Intangible outputs Tangible and durable outputs Services Goods

Business Objectives Business Profit = TR -TC Economic Profit – business profit that considered opportunity cost as a part of expenses Survival Growth Social Responsibility

Business Profit = TR -TC

Economic Profit – business profit that considered opportunity cost as a part of expenses

Survival

Growth

Social Responsibility

Market Market a mechanism for exchange between buyers ( demand ) and sellers ( supply ) of particular goods and services Market Classifications: Input Market is market in which firms buy resources from supplier household Output market is market in which firms supply goods and services in response to demand on the part of household

Market a mechanism for exchange between buyers ( demand ) and sellers ( supply ) of particular goods and services

Market Classifications:

Input Market is market in which firms buy resources from supplier household

Output market is market in which firms supply goods and services in response to demand on the part of household

Circular Flow in A Market Economy

Market Price or Equilibrium

Market Competition structure Perfect competition – market characterized by numerous firms producing an identical product in the market Monopolistic – market characterized by numerous buyers and one or just few sellers in the market Monopoly – numerous buyers with only one seller that can set the price in market Oligopoly – numerous buyer with few seller that can influence the price in the market

Perfect competition – market characterized by numerous firms producing an identical product in the market

Monopolistic – market characterized by numerous buyers and one or just few sellers in the market

Monopoly – numerous buyers with only one seller that can set the price in market

Oligopoly – numerous buyer with few seller that can influence the price in the market

Characteristics of Market Structure Low-medium High None Level control over price Variety Specific Identical Similarly of goods/services Difficult Regulated Easy Ease of entry into industry Few None Many Number of competitors Oligopoly Monopoly Perfect Competition Characteristics

Economic Systems Planned Economy – an economy system in which the government owns, controls and allocates the productive resources. The two most its basic forms are communism and socialism Market Economy – an economy system in which individuals own, control and allocate the resources through supply and demand in the markets. Its form is capitalism. Mixed Market Economy – featuring characteristics of both planned and market economies

Planned Economy – an economy system in which the government owns, controls and allocates the productive resources. The two most its basic forms are communism and socialism

Market Economy – an economy system in which individuals own, control and allocate the resources through supply and demand in the markets. Its form is capitalism.

Mixed Market Economy – featuring characteristics of both planned and market economies

The business contribution to economic performance Economic growth by increasing two indicators: Aggregate output – total quantity of goods and services produced by an economic system in given period indicated by GDP and GNP Standard of Living – total quantity and quality of goods and services that people can purchase with the currency used by their economic system Economic Stability – condition in which the balance between the money available in an economy and the goods produced in the same rate. It’s indicated by: Inflation rate – the rise in the average level of price for all goods and services in a particular time Unemployment rate – the level of joblessness among people actively seeking work

Economic growth by increasing two indicators:

Aggregate output – total quantity of goods and services produced by an economic system in given period indicated by GDP and GNP

Standard of Living – total quantity and quality of goods and services that people can purchase with the currency used by their economic system

Economic Stability – condition in which the balance between the money available in an economy and the goods produced in the same rate. It’s indicated by:

Inflation rate – the rise in the average level of price for all goods and services in a particular time

Unemployment rate – the level of joblessness among people actively seeking work

Business Forms Sole Proprietorship - a business owned and managed by one individual who is responsible for all of its debts General Partnership – business with two or more owners who share in both the operation of the firm and the financial responsibility for its debts Corporations - a business that is a legal entity separate from its owners who has responsible the limits of their investment

Sole Proprietorship - a business owned and managed by one individual who is responsible for all of its debts

General Partnership – business with two or more owners who share in both the operation of the firm and the financial responsibility for its debts

Corporations - a business that is a legal entity separate from its owners who has responsible the limits of their investment

Characteristics of Business Forms indefinite Terminates at death or withdrawal of partner Terminates at death of owner Duration of business Difficult and expensive Complicated , depends on contract Easy, after debts are paid Termination Shareholders are liable only to extent of investment Partners have unlimited liability Owner has unlimited liability Liability for debts and taxes Complicated based on law and procedure Relatively easy, but needs written contract Simplest to establish and form Start-up and operation Corporation Partnership Proprietorship Characteristics

Incorporated Forms of Business Cartel - cooperation among some business in achieving same goals. E.g. Price Cartel, Production Cartel, Area Cartel and Syndicate Sales Cartel Business Trust - two or more business joint together to accomplish specific business goal. Holding Company/Concern - a corporation that hold many business Acquisition/Consolidation/Merger: Horizontal Merger, Vertical Merger and Conglomerate Merger

Cartel - cooperation among some business in achieving same goals. E.g. Price Cartel, Production Cartel, Area Cartel and Syndicate Sales Cartel

Business Trust - two or more business joint together to accomplish specific business goal.

Holding Company/Concern - a corporation that hold many business

Acquisition/Consolidation/Merger: Horizontal Merger, Vertical Merger and Conglomerate Merger

SEKIAN