Lessons from Econ 201 on Managing a Business Research Essay Sample

Lessons from Econ 201 on Managing a Business

Before   I enrolled in the Econ 201 class, various aspects of managing a company remained a mystery. For instance, I did not understand how manufacturing companies produce enough quantity for their customers.  For example, firms that produce perishable products rarely go into loss following an over production, neither do consumers experience regular shortage of supply as a result of under production. However, the Econ 201 class shed light on some of the business concepts, including the fundamental principles of market forces and decision-making in production. The following is a review of the usefulness of the lessons that I learned in this course in the management of an electronics manufacturing business.

Essential of Economics

An electronic manufacturer, such as the Samsung Company manufactures a whole range of electronic products.  For example, the company specializes in mobile phones, refrigerators, and television sets, among others. However, the principle of economics determines the quantity of each product to be manufactured at given time.  The process of manufacturing a product, say a mobile phone requires various resources. First, the company needs to the technical machines that produce the different parts of the gadget. They also need technology, which includes computer software that programs the phone. Additionally, there has to be a number of labor forces involved at every stage of production. For instance, the individual employees operate the machines (capital resources) at every stage to ensure the completeness of the production.  Some of the steps involved in the manufacturing process, such as joining of distinct parts, are completed manually by the labor force. Aside from the labor and the capital, there is also the contribution of the entrepreneur, whether individual or a group of shareholders. In the case of Samsung Company, for example, the entrepreneurs are a group of shareholders who have invested their wealth in the manufacturing company. There is also the premise and the land in which the company building is erected.  The four types of resources, mainly capital, labor, entrepreneur, and land, are the key components in the production process.

According to the principles of economics that I have learned in the Econ 201 class, the resources listed above are scarce. For instance, it takes a substantive amount of money to invest in the capital of manufacturing electronic equipment such as technology and machinery. There are no enough entrepreneurs in the market to invest in these processes, and thus, there are only a sizeable number of electronic manufacturers in the world. The cost of hiring a professional labor force that has the technical expertise in electronic manufacturing is also high. For this reason, companies intend to minimize the number of technicians employed by making sure that they have the minimum number required for operation. Similarly, the cost of purchasing or leasing land and erecting the company’s facility is also high. As a result, the Samsung manufacturing processes can only take place in a given confine where the company has established its facility. 

Despite the scarcity of the resources, the Samsung Company has to manufacture different types of products, using the specific machinery and labor force. Therefore, the company is obliged to make wise choices to optimize production, amidst the scarcity of resources. As a result, the company decides the number of each particular item to be manufactured within a given period. For instance, the company may designate periodical days or weeks for different projects. The decision to produce one item and not the other is usually influenced by various factors. For instance, the managers should consider the cost involved in the production of each item against the expected gain from the production. Aside from the cost versus the benefits, the company may also produce individual items, not because they are profitable but in line with their objective. For example, Samsung has created a brand name as an exclusive electronic supplier. For this reason, they may produce a given product; say a particular home appliance, even if the product is not profitable to maintain the consistency of the brand as an electronic manufacturer. Therefore, the decision to produce an item and not another is determined by the constraints of resources, the cost versus the probable benefits and the objectives of the company.

After a critical consideration of factors of production, the company settles on a particular product to manufacture at a given time. For instance, the company may decide to manufacture phones and not home appliances. The cost of producing the foregone item is economically referred to as the opportunity cost. In the phones and home appliances, for example, the cost of producing the home appliance is the foregone (opportunity) cost. Aside from the expense of the forgone item, the company also incurs other costs that are not recoverable, usually known as the sunk cost. For example, the cost of installing system software, even if the software may turn out to be obsolete. Despite the costs, however, the need to satisfy the customers and make profit serve as the incentives that keeps the company continuously spending and investing. As long as there is a demand for electronic products in the business, Samsung continues to produce the products irrespective of the cost of production. Therefore, the demand for their products in the market triggers their production, and hence the market supply.

Price Exchange

As hinted above, the demand for the electronic products in the market influences the electronic company’s decision to produce goods. Supply changes with the changing demand; however, at a given equilibrium cost and quantity, supply equals to the demand. In the electronics market, for example, the equilibrium point is when the amount of electronics demanded equals to the quantity supplied. There are various reasons that may lead to a change in demand and supply of a product. For instance, there are the price-related causes and the non-price cause, both of which alter the market equilibrium point.  For example, the demand for mobile phones may increase due to the nonprice factors such as the change in fashion and trends. As a result, the company produces more phones to meet the increased demand and thus, the equilibrium cost increases. At the same time, the cost of increases following the increased quantity demanded. On the contrary, a decrease in the demand of phones due to non-price causes such as the emergence of other means of communication results in a decrease in price as well as the quantity of produce. Similarly, the quantity of production may increase or decrease as a result of non-price factors. For instance, electronic companies may find access to the cheap raw material. The decline in the cost of input raw materials enables the manufacturers to produce more quantity at a given cost. As a result, supply exceeds demand that results in a reduction in market equilibrium cost and a corresponding increase in equilibrium quantity.

The electronics market is also influenced by the price-related changes in demand and supply. However, the impact of price changes depends on the market behaviors regarding a given product. For instance, customers are sensitive to the changes in the price of given type of electronics than others.  Products whose demand or supply changes with slight change in prices are said to have a price elastic demand or supply respectively.  The price elasticity of demand is among the major factors that companies consider when setting up the market price. It also assists the companies in deciding the changes in the quantity to be produced at specific prices. The price elasticity of a product depends on different factors. In the electronic market, for example, the price elasticity of Samsung’s electronics may vary depending on the price of competitors’ products, such as the Apple electronics. Additionally, the price elasticity of a given product varies depending on the availability substitutes for particular products. However, most of the electronic gadgets do not have immediate substitutes unlike other consumer goods such as food products. Therefore, the major determinant of the price elasticity of electronic products is the availability, cost, and quality of the competitor’s products.

Inside the Firm

The course, Econ 201 has also helped understand and relate different aspects of managing the internal business operations.  For instance, it has shed light on the internal organization of the Samsung Company. The company has different levels of management, with the scope of authority varying from one level to another.  At the top management, the board of directors and the chief executive officer holds the company. Down the ranks, the company has departmental managers, each in charge of the distinct section, such as the production manager, the sales manager, and the human resources manager. The distribution of duties among different personnel ensures that each is focused on a specific section to maximize their performance. Additionally, specialization and division of labor ensures that staffs gain skills and competencies in their areas to improve the company’s overall efficiency.  Although each department is headed by specific individuals, the entire management team works as a single entity through collective decision-making and joint accountability.

The internal business management involves the short-term and the long-term decisions making.  In both instances, the management intends to come up with the most appropriate choice that maximizes the shareholder’s profit.  Some of the short-term decisions in an electronic company may include the decisions in hiring and retaining employees.  For example, companies hire production personnel only when an addition to the labor input contributes to an increase in marginal revenue. By the law of diminishing return, however, it gets to a point where the additional of an employee results in no additional profit.  Thus, the company compares the marginal cost, cost of adding a single input unit such as the labor force or any other resource, against the marginal profit in the short term.

On the other hand, companies are faced with different long-run decisions that determine the continuity of a business. In an electronic company, for example, long-term decisions includes investment in long-term capital resources such as the decision on whether to buy or lease machinery, whether to invest in a premise and so on.  In making such decisions that have a long-term effect on the operation of a business, the management must focus on the sales forecast and the assessment of the goals of the company.  In line with the companies’ aim of maximizing profit, the management tends to weigh the anticipated return on investment and its cost in terms of the interest rate. Therefore, companies invest in long-term resources whose projected return exceeds the interest in borrowing an equivalent amount in financial institutions.

Market Analysis

In the last section of the course, I got an opportunity to meditate on how companies run their business. Firstly, I learned that companies strive to maximize profit through effective resource investment. For a company to make a profit, the marginal cost (MC) should be less than the marginal revenue (MR). At the point when the MC equals the MR, the company operates optimally and can sustain its operation. Despite the managers’ efforts to optimize profit, however, some companies end up making losses. Nonetheless, these companies continue to operate in the market at the short-run. In the long-run, however, a company whose total cost outweighs the total revenue may be wiped out of business.

Even though the company managers strive to utilize the internal structures of a business to optimize profit, business are highly influenced by the external factors such as the market structure. For instance, the profit maximization of the Samsung Company is dependent on the market structure of the electronic industry.  From the knowledge gained in the economic class, it is clear those electronic companies operates in a perfectly competitive market.  There are several companies producing relatively similar products that are only differentiated by brand names. As thus, the prices of commodities are set by the market forces. Firms continue to produce as long as the market price is favorable for them. Although individual companies may be able to adjust the prices of their commodity by a slight margin, there is a limit to how much brand products may be overpriced.  This is because consumers tend to purchase low priced products and may turn to the competitor’s goods. In a market such as the electronic market, prices are unregulated and only set by the forces of demand and supply. At some point, the prices commodities may decline below some companies cost of production. When this happens, some companies whose cost of production is high are driven out of business. Due to the reduction in the number of suppliers, the demand of products will exceed the supply in the long-run, which results in a price rise and a consequent normalization of the market.

Aside from the perfectly completive market structure experienced in the electronics industry, there are other forms of market structures. An immediate opposite of the perfect competition is a monopoly market, where a single company dictates the industry. If Samsung were a monopolist, for example, there would be no other supplier of electronics. Samsung would be responsible for setting prices since consumers have no alternative but to consume their products. Unlike in the current electronics market where any willing manufacturer may produce and sell whatever type of electronics, market entry in the monopolistic market is restricted. Barriers to market entry may include government regulation or huge capital investment required. Although markets are expected to be in the extreme of either perfectly competitive or monopoly, there are instances where both features of the two structures interact to give rise to imperfect competition. In imperfect markets, the buyers and suppliers enjoy the features of both extreme market structures.

Conclusion

The Econ 201 was an insightful course that provided a basic background of various economic concepts. It helped me understand the business structures of my interest industry, the electronic company.  The course was not only relevant but also enjoyable. It equipped me with the necessary economic skills that are appropriate in the advanced economic courses.