When the marginal benefit of an activity is equaled by rising marginal cost, the total benefit of the activity is at its highest level and increasing production further will result in a loss. When marginal benefits of an activity are greater than or equal to marginal costs, there is profit. The marginal cost is the expense for adding that extra amount. The marginal benefit of an activity is the benefit from choosing to supply an additional amount of that service or good. To grow and attract capital, business owners must set up their business plans to weigh the possibilities for failure against the higher rate of return that will be achieved if the business succeeds. The nominal average annual returns of small-company stocks have been 17.7% over the past 70 years, compared with 12.5% for common stocks of large companies. The cash flows and returns for a small business owner have much more variance than those of large companies.īut the highest returns also historically accrue to the small-business investor. The largest number of bankruptcies and shutdowns occur with small businesses. And there is no riskier commercial enterprise than a small business. With any financial asset, the higher the risk assumed, the higher the expected return must be to gain investors. The seven most important principles to understand are: Every aspect, including setting prices, marketing to customers, expansion of product lines and strategic planning, is affected by these principles. Understanding these concepts and why they work as they do will answer many doubts as you analyze your business's prospects. How to apply those principles to your own business.Ī few key principles lie at the heart of economic analysis. The key economic principles that make businesses succeed.These fundamental rules form the basis for any economic analyses and choices for growth. To ensure long-term success, owners must apply key economic principles to their market strategy. But as business expands, flaws in understanding of the basics can magnify and overwhelm the company. In some cases, they may have established their businesses and even become profitable without understanding the rationales - or even possibly by contravening them. Washington State Department of CommerceĮntrepreneurs must understand basic economic principles to grow their companies successfully.Michigan Economic Development Corporation.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |