Table of Contents
2.1THE NATURE OF RESOURCE COST STRUCTURE AND THE PRACTICAL SIGNIFICANCE OF DIFFERENT COSTS 2.2 THE FACTORS INFLUENCING OPTIMUM SIZE AND THE SIGNIFICANCE OF DEMAND AND SUPPLY RELATIONSHIPS 2.3UNDERSTANDING OF THE RELEVANCE AND LIMITATIONS OF ECONOMIC THEORY TO MANAGE DECISIONS 3.CONCLUSION
From the economic perspective, there are a full range of wants from individuals, firms and government but there is only a few number of resources or factors of production such as land, labour, capital and enterprise. The raw material will come from land, taking the example of oil, gas. The labour relates to the individuals able to work. The capital covers machinery, computers, offices or shops for retail people. Enterprise will bring all of these factors together and allow them to produce goods and services in order to make a profit. This individual report will be identifying the nature of resource cost structure and the practical significance of different cost. It will also explain the factors influencing optimum size and the significance of demand and supply relationships. It will finally demonstrate an understanding of the relevance and limitations of economic theory to management decisions.
2.1 ECONOMIC PERSPECTIVE IN ORDER TO RUN THE COMPANY EFFICIENTLY: Considering an example of project of creation of a manufacturing company based in the UK, the resources needed for the realisation of the project will be established before the start of the project. Knowing that any resource has a cost associate with it, identifying the resources needed, will lead to work towards establishing all costs for the whole project. Resource can be physical or virtual, but the report will be interested in the physical resources as skills are manifested in people, who are physical entities. Three types of resources have to be considered: People, materials and equipment. People can be skilled, semi-skilled and non-skilled. Materials, tangible items such as steel, concrete, lights, wood, cables, paint required by the project. Equipment, everything used to bring all the materials together, for example, cranes, welding sets, computing time, mobile offices. It is also important to know how much money committed to spend at any point in time.
2.1.1The microeconomics perspectives:
This focuses on the market behaviour of individual consumers and firms to help understand the decision making process of firms and households. This is at a level of individual buyer and individual seller, meaning demand and supply. How much to produce and how much to charge for it. The law of the demand is that the demand decreases when the price increases and the demand increases when the price decreases.
Also more demand of a product results in an increase of the price the price of that product. (See graph below).
2.1.2The macroeconomics perspectives, focuses on the big picture of the national economy as a whole and provides a basic understanding of how things work in the business environment. The macrocosmic policy goals will be achieved by the monetary policy and the fiscal policy. The monetary policy is the management of the nation money supply, the decision of the interest rate and the banking system to promote economic growth, lower unemployment and inflation.
2.2The factors influencing optimum size and the significance of demand and supply relationship: The demand and the supply are two main concepts of the economy. Demand is what quantity of product or service the buyers need at a certain time at a precise price. The supply is the quantity the market can offer at that same time and price. The relationship between the quantity demanded and the price is the demand relationship and the relation between the supply and the price is the supply relationship. The price is a reflection of supply and demand.
The law of demand:
When the price of a product goes up, the quantity demanded of that product goes down. On the other hand, when the price of a product goes down, the quantity demanded of that product goes up. The graph above shows that relationship between the demand and the price: p1 higher, Q1 smaller than Q2 and Q3.
The law of supply:
Unlike the law of the demand, the law of supply shows that at a higher price the supply increases. The producers supply more at a higher price to increase their revenue. The relationship between supply and price is shown in the graph above: at P3, price greater than P2 and P1, the corresponded quantity Q3 is greater than Q2 and Q1.
2.2ECONOMICS THEORY TO IMPROVE THE RUNNING OF THE COMPANY:
2.3THE COUNTRY OF EXPANSION OF THE COMPANY:
2.3.1Macroeconomic conditions of the country
2.3.2Current economic policy (fiscal and monetary)
1. describe different aspects of business in order to run a company efficiently. Microeconomics and Macroeconomics perspectives 2.Explain using economics theory using real world examples
3. Company to be expanding internationally by opening a new manufacturing facility in a non-EU country a) Macroeconomic conditions of the country
b) Current economic policy (fiscal and monetary)
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