Micro and Macroeconomic Conditions of a Business - Assignment Example

Micro and macroeconomic conditions of a business Question one While ensuring the business runs smoothly several aspects needs to be considered. The government policies are the major concern of any major and a firm needs to utilize them in order to run effectively. The government policies range from monitory to fiscal policies in which adjusting existing local laws and integrating them with the company’s policy create a conducive environment for the firm to operate within its target without fear of interference from the government policies though taxes and should be able to identify government incentives that will enhance the firm operates at a given capacity. The other factor to be considered is the supply- demand aspect. The firm should be able to focus majorly on what the market. The market should be able to determine the amount of products being offered. The supply to the market should be in line with the demand in that production increases with an increase in demand and a decrease in demand should reduce the production. This should be done with little interference to the core agenda of profit maximization. While finding equilibrium between the supply and demand factors of production which include labour and capital should be considered as well. The internal factors should integrate well with external factors in ensuring that an informed decision is made. The strategies involved should satisfy the internal market while aiming at benefiting from the diseconomies of scale. A lower cost per unit will be achieved by increasing the size of the firm. Question two The government carry out fiscal policy with an effort of sustaining the economy. The efforts by the government are to ensure increased aggregate demand. The policies by the government include government borrowing. In some instances the government decides in borrowing from the private sector. The result is reduced power to spend by the manufacturing firms as the available funds focuses more on ensuring a balanced in their profit making goals and reduced expenditure. The government on the other hand borrows from the sector to reduce the government deficit. The result of borrowing from the sector is reduces the spending power of the firms. The firm should critically analyse the government decisions to borrow from them as a means of increasing the aggregate demand (Grossman & Hart, 1986). The firm should consider its internal goals before falling victim to government policies. The firms should decide on which policies are to be adopted and which are to be ignored. Adjusting to these policies may assist the firm operate at equilibrium with all other factors kept constant. The other policies by the government may include the increase in bank rates offered by the central bank as a means of reducing the amount of money in supply. The result increases the interest rates that eventually reduce the rat of borrowing. The result may be a reduced funding to the firm. The firm should counter this by ensuring there are several avenues of raising funds rather than profit plough back (Holmstrom, 1999). The expansion of any given firm depends majorly on its market advantage and a large pull of resources. The sources of funding should allow the firm to return it with a minimum or no interest. Higher interest affects the company’s profitability (Akerlof, 1980). The interest rate also plays part in determining the markets demad. The customers may feel the burden of higher interest rates hence reduce their purchasing power. The effect will reduce the demand for the company’s products hence reduced production. The firm should counter this by providing product at in small quantities to ensure a continuous production and still maintain the profit margins and the same time satisfying the market demand. The euro zone effect should be used in determining the type of labour to be used by the firm while producing. The policy should allow the firm enough strength in production. The government should be involved in analysing the most appropriate means and methods of production. The production strategy will involve both set laws on labour and the capacity of the firm to sustain a given number. Question three While identify the new location of the companies branch various factors of the company had to be considered. The preferred locating of the new business was the united state of America. The GDP of the country states potentially higher market and which will be a positive in the firm’s effort to ensure unit increases its supply to the market due to increase demand brought about by the higher purchasing power of the potential market. The economic situation in the region also plays part in ensuring that the market gains the market achieves the much needed market to supply their product. The higher demand will enable the firm break event within the shortest time possible and assist its effort in increasing its market size and enable it benefit from the economies of scale (Roberts, 2004). The location should ensure a shorter period between the manufacturing points to the consumer to avoid dissatisfaction to the customer. The customer’s purchasing power is what determines the number of units produced. The USA provides the potential market to it population and the higher purchasing power among its citizen. The other aspect is the government monetary policy. The first policy includes the taxes provided by law. In the new location taxes are charged based on the activities and nature of business. The start up cost is lower and hence conducive in assisting new companies to get involved business venture. The government also offer incentives that reduce the burden of the company while commencing business operation (Williamson, 2006). In return the government is aiming at creating employment opportunities to majority of its citizens. The move then deals with nature of unemployment in the given country. The firm also benefits as it enjoys both a ready market and also enjoy a ready labour market which will go hand in hand in ensuring a cautious production without necessarily outsourcing labour from other avenues rather that the available market. Capital is the other aspect of the business and the firm is treated to various means of raising the much needed capital to ensure the firm runs its operation without bottlenecks (Silver, 2004). The sources of funding may arise from the financial institutions whose rates of interest are determined the government policies in its implementation. The very details of details of the firm depend on the financial aspect as initial expenses may depend on external findings before breaking even. The other source of funding dwells on government grants and incentives that aim at encouraging investment but at the same time promote job creation. In attracting more customers the firm will develop a strategy that ensures that the changes in the economy which include inflation that not reduce the purchasing power by the customers. The move will be to adjust prices and quantity to cater or the market demand upon its long term strategies. Customers will be issued with credit on goods sold to ensure the continuous purchasing power and an increase in rate of production. The demand in the market will ensure that the firm focus on production while being assured of a ready market size (Stieglitz & Foss. 2009). The production line will be determined by the amount of labour available at the firm. The labour aspect plays a major role in ensuring the demand is satisfied within the shortest period possible. The productive nature of the firms will be judged in the outputs per hour with a target being focus on the market. The value added tax will be the other aspect that will ensure the firms set their prices in order to recover from production cot and government policies. The government also plays part in determining the prices to be charged by the manufactures. The firms need to analyse the government provision on prices and analysis its effectiveness before adjusting their prices. The firm needs to gather enough information on external factors that determine the nature of business to be developed in a certain location. The government policies should be in line with what existing policies of the firm are all about. The economic value of these policies should be the determinant factor in making informed decisions. Anew business will dwell more in increasing the level of customers while reducing the initial cost (Williamson, 1996). To recover the amount used in production the firm while needed to adjust its pricing policies. The efforts are to ensure that equilibrium between the market and units of production is achieved. The equilibrium between the supply and demand factors of production which include labour and capital should be considered as well (Holmstrom & Milgrom,1994). By considering the factors the firm will be able to adjust prices based on cost with internal factors plying part in the determination. The internal factors should integrate well with external factors in ensuring that an informed decision is made. The firm should price their products with an aim of attracting more customers and avoid high taxes initiated by the government. The firm has to consider as well the economic situation of the people with prices reflecting the economic situation. They should adjust these prices t enable the firms purchase more. Reffernces Akerlof, G. A. 1980. "A Theory of Social Custom, of Which Unemployment May be One Consequence." The Quarterly Journal of Economics94(4): 749-775 Grossman, S.J. and Hart, O. 1986. The Costs and Benefits of Ownership: A Theory of Vertical Integration. Journal of Political Economy. 94(4): 691–719 Holmstrom, B. 1999. "The Firm as a Subeconomy." Journal of Law, Economics, and Organization15(1): 74-102. Holmstrom, B. and P. Milgrom 1994. "The Firm as an Incentive System." American Economic Review 84(4): 972-991. Roberts, J. 2004. The Modern Firm: Organizational Design for Performance and Growth. Oxford, Oxford University Press Silver, M. 2004. Enterprise and the Scope of the Firm. Oxford, UK: Martin Robertson Stieglitz, N. and N.J. Foss. 2009.Opportunities and New Business Models: Transaction Cost and Property Rights Perspectives on Entrepreneurship. Advances in Strategic Management, 26: 67-96. Williamson, O. E. 2006. The Economic Institutions of Capitalism.New York: Free Press. Williamson, O. E. 1996. The Mechanisms of Governance. Oxford: Oxford University Press Read More