Business Concepts: Specialization, Coordination, and Efficiency

Posted on Apr 5, 2025 in Business Administration and Management (BAM)

Specialization: Benefits and Considerations

Specialization:

  • Benefits: Increases productivity, enhances goods and services.
  • Cons: Creates more complex relationships and interdependence among people in society.

The Need for Coordination

Need for Coordination:

Coordination ensures that what some produce matches what others want to consume. This applies to both large-scale economic coordination and the internal coordination within a company.

Functions of a Company

Functions of the Company:

  1. Coordinate production factors to produce more efficiently.
  2. Create or increase the value of assets (capacity to satisfy needs and desires).

Value of the Firm

Value of the Firm: The difference between the value of goods produced and the cost of raw materials used in their production.

Objectives of a Private Company

Objectives of the Company (Private):

  • Make money
  • Grow and gain market power
  • Achieve stability and adaptability to the environment and social nature

Components of a Company

Components of the Company:

  1. Internal Human Group: Workers, capital owners, administrators.
  2. Capital: Assets necessary to develop the activity.
  3. Organization: Coordination and communication relations within the human group.
  4. Environment: Factors influencing and being influenced by the company.

Technical and Economic Efficiency

  • Technical Efficiency: Achieving maximum output with given resources.
  • Economic Efficiency: Achieving maximum production with minimum cost.

Production Function and Marginal Product

  • Function Production: Production varies when any of the factors increases, holding the others constant.
  • Marginal Product (MP): The additional output gained from adding one more unit of input.

Economic Principle of Diminishing Returns

Economic Principle of Diminishing Returns: The marginal product of labor (or other factor) begins to decrease from a certain point as more of it is used, if others are kept constant.

Costs: Fixed, Variable, and Total

  • Fixed Costs (FC): Costs needed to start producing, regardless of the amount of production.
  • Variable Costs (VC): Costs that vary with the amount produced.
  • In the long term, all costs are variable.

Cost Equations

  • Total Cost (TC) = FC + VC
  • Average Total Cost (ATC) = TC / Q (units produced)
  • Average Variable Cost (AVC) = VC / Q

Revenue, Profit, and Breakeven Point

  • Income (I) = Price (P) x Quantity (Q)
  • Profit (B) = I – TC

Breakeven Point

Breakeven Point (PM) = CF / (P – CVun)

Classification of Businesses

Classification of Businesses by:

  1. Economic Activity: Sector 1, 2, 3.
  2. Size or Dimension: Micro (-10), Small (-50), Medium (50-250), Large (+250).
  3. Area of Operation: Local, regional, national, multinational.
  4. Ownership of Capital: Private, public, or mixed.
  5. Legal Form:
    • Individually-owned business: The owner is autonomically responsible for the debt.
    • Corporate company or companies:
      • ASA (Sociedad Anónima): Formed by money partners, divided into shares, liability restricted to their actions, easily transmissible.
      • SL (Sociedad Limitada): Formed by money partners, liability limited to partitions, transmission limited for more control.
      • Partnership: Partners bring capital and labor, jointly and severally liable for debts.
      • Limited Partnership: Two types of partners: collective and limited, liability limited to capital.
      • Society of Social Interest (Social Economy): Cooperatives and private companies working (SAL).

Union of Companies

Union of Companies: To control the market, face competitors, reduce costs, and achieve economies of scale.

Economies of Scale

Economies of Scale: Obtained by decreasing average costs as the company grows and increases in production quantity.

Multinational Companies

Multinational: Companies formed by a parent company with subsidiaries operating in different countries, sharing the same goals. The matrix is the company from the state where it started its activity and where the management lies.

Advantages and Disadvantages

  • Advantages: Favors the development of emerging economies.
  • Disadvantages: The contribution of foreign technology creates a dependence on outsiders.

Social Costs

Social Costs: Costs induced by private activities of the firm borne by society.

Areas of Consideration

Respect for the environment, commitment to society, trust and credibility with employees, customers, and consumers.