Overview of Small Business Economics
Discussion Question 1
Two (2) key factors in determining the cost-effectiveness and potential profitability of bringing any product or service to market are supply and demand and price determination. After reviewing your Required Readings, address the following issues.
- What is learned from a well-formulated supply and demand curve analysis and how does this information help determine optimum production rates for maximum profitability?
- What is the correlation between employee benefits and return on investment assets, return on equity, and return on sales?
- How can the inability to compete profitably on price be overcome?
a.
Multiple lessons can be learned from a well-crafted demand and supply curve analysis, which include the strategy of determining the equilibrium quantity and price that is indicated by the meeting point of the demand and supply curves. It is at the equilibrium point that the quantity demanded meets the supplied quantity. Hence, from a well-formulated demand and supply curve, there is no supplier or customer surplus. Another lesson is that the demand and supply curve analysis would help identify the shift and movement in the equilibrium prices resulting from the shift or movement along the demand curve. Such shift result from a reduction or increment in the demand because of the attributes like taxes, rate cuts, and substitutes. Besides, a well-formulated demand and supply curve analysis aids in recognizing the shift in equilibrium prices caused by a shift in the supply curve. The decrease or increase in the supply is caused by tax benefits and supply shocks.
This information is essential in determining the optimum production rates for maximum profitability. The suppliers can effectively comprehend the amount of a product the clients are willing to purchase at the equilibrium price, ensuring that they utilize cost-effective strategies in the production procedures. For example, applying novel technology can aid the producer in ensuring optimum production rates at a reduced cost, which is essential in obtaining maximum profitability since it would further reduce the production cost (Becker, Michael & Michael, 2017). Also, the information aids the producers in comprehending the client’s behavior to understand the present demand and forecast future demand. Therefore, the producers can ensure that they implement optimal production capacity that would assist in meeting client demand and enable them to maximize profits.
b.
There is a positive relationship between worker benefits and return on investment assets. The return-on-investment asset determines the rate of net profit in relation to total investment assets. When an organization invests in its workforce concerning the offered benefits, the employees often feel appreciated and valued. Consequently, this increases their productivity, which subsequently increases the effect on the firm’s investment (Parrish, 2014). The link between worker benefits and return on equity is as well positive. The return on equity is a financial measure determining the firm’s profitability linked with the stakeholder’s equity. The employee benefits assist in informing the workforce that their work sufficiently meets the clients’ expectations. When the workforce remains consistent in their performance, it helps enhance the organization’s competitive position in attracting a huge client base, which, in turn, increases its revenue, hence increasing profitability. Therefore, employee benefits motivate the workforce to effectively generate revenue from equity investments. However, there is no connection between benefits firms offer employees and the return on sales. Return on sales is the operating profit margin of an organization, which represents the financial ratio that determines how effectively a company utilizes its revenue to generate the stipulated profits (Luo, Zhou & Shon, 2016). Generally, the return on sales does not often decrease when other costs, like employee benefits, are increased.
c.
To profitably compete on the price, an organization must minimize its operating costs and essentially focus on reducing the cost of goods sold by requesting trade discounts from the suppliers or ordering goods in bulk (Farm, 2017). Also, reserving high-interest debts and replacing them with low-interest debt to cover the production expenses would enhance profitability and price competition. Finally, the organization must focus on increasing its sales turnover as it could help in enhancing its overall profitability.
References
Becker, G. S., Michael, G., & Michael, R. T. (2017). Economic theory. Routledge.
Farm, A. (2017). Pricing and price competition in consumer markets. Journal of Economics, 120(2), 119-133.
Luo, N., Zhou, Y., & Shon, J. (2016). Employee satisfaction and corporate performance: Mining employee reviews on glassdoor. com.
Parrish, S. (2014). Employee Benefits: Return On Investment Or Return On Individual? Forbes. Retrieved from: https://www.forbes.com/sites/steveparrish/2014/04/21/employee-benefits-return-on-investment-or-return-on-individual/?sh=6b96931d2a07
