Economics of Organization

1. Economics
of
Organization
Medolyn Tariman - PUP SP Instructor

2. Economics
Internal Organization
External Organization
- Consumer
- Supplier
- Competitors
- Regulators
- Cost
- Production
- Marketing
Decision

3. Decision to Expand the Enterprise
KEY!

4. economies of scale (cost
per unit decreases as
volume increases) and
economies of scope (costs
per unit of different goods
can be reduced by
producing multiple products
using the same production
resources). Businesses
often expand to exploit
these economies
in markets with few sellers that each
provide a large fraction of the goods or
services available, the sellers possess
an advantage over buyers in
commanding higher prices. Businesses
will often either buy out competitors or
increase production with the intent to
drive competitors out of the seller
market in order to gain market power.
02
Cost and
Production
Firm Competition & Market
Structure
01

5. Many businesses sell products that are intermediate,
rather than final, goods. Their customers are other
businesses that take the goods or services they
purchase and combine or enhance them to provide
other goods and services. As a result, the profit that is
earned in the production of a final product will be
distributed across several firms that contributed to the
creation of that good. However, the profit may not be
evenly distributed across the contributing firms or
proportional to their costs. Sometimes a firm will
recognize the higher profit potential of the firms that
supply them or the firms to which they are suppliers
and will decide to participate in those more lucrative
production stages
ANALYSIS
03

6. Due to the considerable uncertainties of
future costs, revenues, and profits and
the need for firms to commit resources
before these uncertainties are resolved,
business is a risky prospect. Just as
investors can mitigate the inherent risk of
owning stocks by purchasing shares in
different firms across somewhat unrelated
industries, large firms can reduce some of
their risk by producing unrelated products
or services. Additionally, there may be
increased efficiencies in movement of
resources between different production
operations when done by the same
04
Expansion/Contraction of Enterprise

7. Classifying Business Expansion in Terms of
Value Chains

8. Extraction
Raw
material
Generic Value Chain for Manufactured
Good
Processing Creation of
Distribution of
Raw
Materials Parts Parts
01 02 03 04 05
Assembly of
Manufactured
Unit
06
Retail Sale of
Manufactured
Unit

9. Iphone Manufactured Good
Extraction
Raw
material
Processing Creation of
Distribution of
Raw
Materials Parts Parts
01 02 03 04 05
Assembly of
Manufactured
Unit
06
Retail Sale of
Manufactured
Unit

10. 01.
Horizontal
Integration

16. Horizontal
Integration
Cost efficiencies in the form of
economies of scale from higher
volumes or economies of scope
from producing related products are
primary driving factors in horizontal
integration
When a firm expands to a new product
that is
similar to its current products, usually
there
is a transfer of knowledge and
experience
that allows the expanding firm to start
with
higher cost efficiency than a firm that is
entering this market with no related
experience
Market power from holding a higher share of all sales in
a market is the other major motivation for horizontal
integration

25. 02.Vertical
Integration

29. 02.Vertical
Integration
You could enter a subtitle here if you
need it

31. 02.Vertical
Integration
double marginalization
occurs when one or more firms selling to each other
along a vertical chain have market power.
free rider problem
quantity forcing
Distributors might not do their share in advertising or
otherwise promoting the products that they sell

32. 03.
Conglomerate
s

33. Conglomerate
is a business enterprise that
participates in multiple value
chains that are different in nature
3 -M
Management, Market and Money

34. Market
As to markets, the
conglomerate, he argued, is
not in one market, but in
many. When the outlook for
one market is unpromising,
the resources can be
withdrawn from that market
and transferred to another.
Should one market go
completely bad, the
subsidiary operating in that
market can be transformed in
character or product without
significant damage to overall
performance.
Management
The
conglomerates, he
claimed, use
newer
management
techniques and
have more
effective
entrepreneurial
spirit. Additionally,
they can pay more
for high-level
managerial skills
and spread them
over a variety of
enterprises.
MERCURY
Mercury is the closest
planet to the Sun and
the smallest one
President of Gulf 8 & Western

35. Venus has a beautiful name and
is the second planet from the
Sun. It’s terribly hot—even hotter
than Mercury
MAYBE YOU NEED TO DIVIDE THE
CONTENT
VENUS
Mercury is the closest planet to
the Sun and the smallest one in
the Solar System—it’s a bit
larger than the Moon
MERCURY

36. A
PICTURE
IS
WORTH
A
THOUSA
ND

37. YOU COULD USE FOUR COLUMNS,
WHY NOT?
0
4.
Jupiter is a gas giant and
the biggest planet in the
Solar System
0
2.
Despite being red, Mars
is actually a cold planet.
It’s full of iron oxide dust
0
3.
Mercury is the closest
planet to the Sun. It was
named after a god
0
1.
Venus has a beautiful
name and is the second
planet from the Sun

38. AWESO
ME
WOR
DS

39. REINFORCE THE CONCEPT USING
INFOGRAPHICS!
Saturn is
composed of
hydrogen and
helium
SATURN NEPTUNE MARS
Neptune is the
farthest planet
from the Sun
Despite being
red, Mars is
actually a cold
place

40. THIS IS A GRAPH!
To modify this graph, click on it, follow the link, change the data and paste the new
graph here

41. INFOGRAPHICS MAKE YOUR IDEA
UNDERSTANDABLE…
Jupiter is a gas giant
and the biggest
planet in the Solar
System
Saturn is the ringed
one. It’s composed
mostly of hydrogen
and helium
01 03
Venus has a
beautiful name and is
the second planet
from the Sun
Neptune is the
farthest planet from
the Sun and the
fourth-largest
02 04

42. … AND THE SAME GOES FOR TABLES
MON TUE WED THU FRI SAT SUN

43. THIS IS A MAP
Despite being red, Mars
is a cold place
Neptune is the farthest
planet from the Sun
Mercury is the closest
planet to the Sun

44. Mercury is the
closest planet to
the Sun
MERCUR
Y
A TIMELINE ALWAYS WORKS WELL
Venus is the
second planet
from the Sun
Saturn is a gas
giant and has rings
Mars is actually a
very cold place
VENUS SATURN MARS
01 02 03 04

45. HOW ABOUT THE PERCENTAGES?
Venus has a beautiful
name, but it’s terribly
hot
Mercury is the closest
planet to the Sun
Neptune is the farthest
planet from the Sun
15% 30%
55%

46. DO YOU PREFER THESE OTHER
PERCENTAGES?
99%
50%
30%
60%
Venus has a beautiful
name, but it’s terribly
hot
Mercury is the closest
planet to the Sun
Despite being red,
Mars is actually a cold
place
Neptune is the
farthest planet from
the Sun
VENUS
MARS
NEPTUNE
MERCURY

47. Big numbers catch your audience’s attention
4,498,300
,000

48. earths is the Sun’s mass
is Jupiter’s rotation period
is the distance between Earth and the Moon
333,000.00
24h 37m 23s
386,000 km

49. MARS
Despite being red, Mars is
actually a cold place
MERCURY
Mercury is the smallest
planet in the Solar System
SATURN
Saturn is composed of
hydrogen and helium
VENUS
Venus has a beautiful
name and is the second
JUPITER
Jupiter is a gas giant and
the biggest planet of them
all
NEPTUNE
Neptune is the fourth-
largest planet in the Solar
System
SOMETIMES, REVIEWING CONCEPTS
IS A GOOD IDEA

50. BASIC
$35
You can explain
your product or your
service
Characteristic
Characteristic
$60
You can explain
your product or your
service
Characteristic
Characteristic
$85
You can explain
your product or your
service
Characteristic
Characteristic
PRO PREMIUM
OUR SERVICES

51. TABLE
T APP
Venus has a beautiful name
and is the second planet
from the Sun. It’s terribly
hot—even hotter than
Mercury

52. DESKTO
P
SOFTWA
RE
Venus has a beautiful
name and is the second
planet from the Sun. It’s
terribly hot—even hotter
than Mercury

53. MOBIL
E APP
Venus has a beautiful name
and is the second planet
from the Sun. It’s terribly
hot—even hotter than
Mercury

54. Here you could
talk a bit about
this person
JOHN SMITH,
P.E.
TEACHER
OUR TEAM
Here you could
talk a bit about
this person
JENNA DOE,
MUSIC
TEACHER
Here you could
talk a bit about
this person
JOHN DOE,
COUNSELOR