Kacy Stein Business 110F Midterm Study Guide Chapters 1 2 4 5 6 7 8 10 17 18 19 20 Chapter One Revenue and profit related but separate Revenue the total money that a company receives for the sale of their good or service This doesn t mean the store has made 5 in profit because it also has to cover all other costs related to that profit Often synonymous with sales or reffered to as top line Profit revenue minus cost In the end the company looks at its profit income as the bottom line Total revenue measure of a businesses size Ex Shell their revenue is stated at 484 billion 489 million If you subtract out their profits that are also substantial their bottom line income was 39 billion The profit to revenue ratio gives you the profit margin which says for every dollar of sales how much money the company made The profit margin profit revenue ratio for WalMart is lower than some others because they market themselves with low prices Their profit margin is lower because they pass on low costs to their customers but they still make a lot of money through selling more Risk and Reward Risk uncertainty not sure what the outcome will be An entrepreneur is not sure if the business will succeed what their costs will be the economic environment they will be facing Reward what makes risk worth taking and the reward is profit The general trend in risk and reward is proportional as risk grows so does reward Investors are looking for a stock with a higher potential reward and the least risk Stakeholder a person or group who stands to gain along with the business They will benefit if the company does well The stakeholders need to have a vested interest in the organization Stakeholder analysis is used when important decisions have to be made How that decision will impact the stakeholders and if the decision will be positive for one stakeholder but negative for another that has to be thought out carefully They could be creditors lending money the community around the company investors but anyone really Value To be successful a business must provide a valuable good or service that customers are willing to pay for and it meets their need The business has to sell it at a price that is equal to or less than the consumer is willing to pay so it is a good value The relationship between what the company is asking you to pay and what the customer is willing to pay A cost structure is needed so that a produce can be sold for less that it takes to create and market it Graph input and output The company wants lower inputs and higher outputs Efficiency is the relationship between inputs and outputs and companies need to be efficient to be successful They need low input costs but is producing high output Technology is any tool or process improvement that allows a business or person to be more efficient On a diagram it would be represented as a shift outward in the efficient frontier It makes for the same amount of for less input or the same out of input for more output Value frontier we can look as value as the output or value added where the business has taken inputs and created something that is of more value they have added value somehow This increases the consumers willingness to pay There are still costs or input on the x axis In order for businesses to be successful they need to be continuously striving to be on the value frontier It really doesn t matter where a business is on the frontier as long as they are on it Low cost position a firm is placing themselves as the low cost provider on the market Or differentiation is separating yourself from the low cost providers by providing a higher value product Chapter 2 Economics is the study of how societies allocate scarce resources Typically the two resources are capital and labor Capital is money and particurlarly used to acquire assets Assets are are things owned by a company that are used to produce the goods or services that a company is selling like a machine a factory or warehouse Labor has a broader definition than hourly workers but are the human resources employed by the company Macroeconomics the big picture economic conditions within a country or globally Planned economy ex old soviet union north korea cuba The central planners allocate resources using a plan Forecasting what the needs are within the economy and allocating capital and resources and labor throughout Free Marker economy Opposite of planned economy Adam Smith and the invisible hand The idea is that capital and labor are free to move to the industry where the products are in the most demand Essentially if a product is selling well and an industry is doing well because the demand is high they will be earning profits and use those profits to attract more capital attain more assets and ultimately increase the output of their industry In a totally free market economy there would be no government interference at all which is not really the case in any place in the world Mixed Economy what mostly all economies are This could be socialist where there is a significant amount of government involvement Or economies with minimal gov involvement like the Unites States esp since the 1980s China is politically communist which believes that capital should not be in the hands of private citizens but instead in the hands of the government Yet in China there is private ownership of capital There is a growing upper class and middle class this is a significant change that is impacting the global economic environment Microeconomics looks at individual businesses the firm level Within industries the supply and demand the equilibrium price and the cost structure Industrial organizational economics looks at the structure conduct and performance of industries The number of companies competing in an industry etc Conduct looks at pricing issues and competition Performance of an industry relates to how efficiently that industry is using recourses to benefit society Social welfare maximization the idea that certain behaviors in an industry are beneficial to a society and others are not Laws that look Anti trust issues or regulate monopolies they all have their bases in industrial organization economics What are the pros and cons of a free market capitalist economy compared to a planned economy Could compare the United States to the Soviet Union What kind of issues can we anticipate what are the benefits and drawbacks A free market or capitalist economy possesses many benefits that ultimately make it superior to a
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