APPLIED ECONOMICS

Industry and Environment

Analysis: Business Operation
Identification

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APPLIED ECONOMICS
BUSINESS OPERATION IDENTIFICATION

Objectives:
• identify and explain different principles, tools,
and techniques in creating a business
• apply tools and techniques for business
opportunities

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APPLIED ECONOMICS
BUSINESS OPERATION IDENTIFICATION

Arrange the scrambled words:

TOPRIF NXMAIAZNOITM
KMEART
OCTDUPR
FIFDIERITATNON

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APPLIED ECONOMICS
BUSINESS OPERATION IDENTIFICATION

Economic Analysis of
Profit Maximization
• Profit
– Is the gap or difference between revenue and
cost.
Thus, the condition of for maximum profit is when
marginal revenue is equal to marginal cost.

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APPLIED ECONOMICS
BUSINESS OPERATION IDENTIFICATION

Table 3.1: Factors Leading to Profit

Maximization
Profitability Factors Minimal Profit Medium Profit High Profit

Market Concentration Many sellers Few Sellers One seller

Market Entry No barriers to Entry
Product Differentiation Homogenous Good
Information Perfect Information for all
Participants
Market Power No market power
Market Structure Perfect Competition
Some Scale Barriers Scale and legal Barriers
Contestable Market Gov’t Barriers
Some degree of Product Highly Differentiated
differentiation Product
Limited Information Very limited Information
Limited Market Power High Market Power
Oligopoly or Monopolistic Monopoly
Competiton

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APPLIED ECONOMICS
BUSINESS OPERATION IDENTIFICATION

Market Concentration
This refers to the number of sellers and
buyers in the market.
The more concentrated the market means
the lesser producers are there in the industry.
These few suppliers command huge market
power in determining the price the price in the
industry.
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APPLIED ECONOMICS
BUSINESS OPERATION IDENTIFICATION

Barriers to Entry
This refer to inherent features of the
industry and the various means devised in the
market to prevent the entry of potential players
and competitors that want to take advantage of
the enormous profit in industry.

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APPLIED ECONOMICS
BUSINESS OPERATION IDENTIFICATION

Two categories of Market Barriers

Scale Barriers refer to requirements for a large
production plants for a feasible operation in
the industry.
Legal Barriers refer to proprietary rights and
their corresponding legal protection extended
to existing market players in the production
and distribution of a product or service.

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APPLIED ECONOMICS
BUSINESS OPERATION IDENTIFICATION

Product differentiation
This factor refers to the ability of a
business firm to create a market niche through
several means of varying its products and
services. The ability of the business enterprise to
convince the buyers that its products or service
it is selling is different from similar products and
services can give market power to the firm.
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APPLIED ECONOMICS
BUSINESS OPERATION IDENTIFICATION

Limited Information
This element refers to the unevenness in
the distribution of information among the actors
in the market. When market actors are not
evenly informed those with more information
can have market power and extract surplus fron
the other actors.

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APPLIED ECONOMICS
BUSINESS OPERATION IDENTIFICATION

POSTER’S FIVE FORCES OF

COMPETITIVE POSITION
• Competition among existing firms in the
industry
• Bargaining power of customers
• Bargaining power of suppliers
• Threats of potential entrants
• Threats of substitute goods
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APPLIED ECONOMICS
BUSINESS OPERATION IDENTIFICATION

Environmental Scanning in Industry

Analysis
Besides these spheres of business, politics
and economies affecting the industry, there are
non-sector that may impact on the industry. The
development of technology, for example, can
alter the production and distribution processes
of several industries.

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APPLIED ECONOMICS
BUSINESS OPERATION IDENTIFICATION

World Economy

Government
Changes in the Regulation and
Natural Environment policies

Firm

Technological
Social Changes
Development

Demographic
Changes

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APPLIED ECONOMICS
BUSINESS OPERATION IDENTIFICATION

• National and Global Economies

– A potentially profitable business venture thrives in
a favorable business climate which in turn is set in
a vibrant economy.

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APPLIED ECONOMICS
BUSINESS OPERATION IDENTIFICATION

• Government Policies and Regulations

– The government will always be there to regulate
the tax not only business but also business
transactions. It should be recognized that
government is an institution that exercises control
over commercial ventures.

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APPLIED ECONOMICS
BUSINESS OPERATION IDENTIFICATION

• Demographic Changes
– From the country’s population business
enterprises draw primarily their customer. As
population expands, it creates additional demand
for product and services can enhance the
profitability of business companies and several
industries.

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APPLIED ECONOMICS
BUSINESS OPERATION IDENTIFICATION

• Social Changes
– Modifications in family structure and other social
changes have impact on consumer behavior and
tastes.
– For example, with traffic congestion in Metro
Manila getting worse many students and young
professional have opted alternative measures to
address this daily toll on their lives.

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APPLIED ECONOMICS
BUSINESS OPERATION IDENTIFICATION

• Changes in Natural Environment

– We have identified various spheres of
environments that affects businesses but there is
an environment that affects all sectors- the
natural environment.
– Heavy monsoon rain and strong typhoon can
destroy agricultural produce that can drastically
reduce supply and affect the price of agricultural
commodities.

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APPLIED ECONOMICS
BUSINESS OPERATION IDENTIFICATION

Activity
Compose a slogan on the importance of
environmental protection.
Submit a position paper to our President
on the priorities for infrastructure development.

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APPLIED ECONOMICS
BUSINESS OPERATION IDENTIFICATION

Quiz:
1. It Is the gap or difference between revenue and cost.
2. This refers to the number of sellers and buyers in the
market.
3. This refer to inherent features of the industry and the
various means devised in the market to prevent the entry of
potential players and competitors that want to take
advantage of the enormous profit in industry.
4. It refer to requirements for a large production plants for a
feasible operation in the industry.
5. This element refers to the unevenness in the distribution of
information among the actors in the market.

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6 – 10 Poster’s Five Forces Of Competitive
Position
APPLIED ECONOMICS
ECONOMICS AS AN APPLIED ECONOMICS

Reference:
• Tullao Jr., Tereso S. Applied Economics For A
Progressive Philippines. Phoenix Publishing House;
927 Quezon Ave., Quezon City. 2016
• Pagoso, Cristobal M. Philippine Economics (Macro
Approach). NELSON PUBLICATION; Marimar
Village Paranaque City. 2003
• Carnaje, Gideon P. Applied Economics. Vibal Group
Inc, Araneta Avenue, Quezon City. 2016

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