SHS

APPLIED ECONOMICS
Quarter 2 -Module X
EVALUATING THE VIABILITY AND IMPACTS
OF BUSINESS ON THE COMMUNITY
Applied Economics – SHS
Quarter 2 – Module 10: Evaluating the Viability and Impacts of Business on the
Community

Republic Act 8293, section 176 states that: No copyright shall subsist in any work
of the government agency or office wherein the work is created shall be necessary for
exploitation such work for profit. Such agency or office may, among other things, impose as
a conditional the payment of royalties.

Borrowed materials (i.e.., songs, stories, poems, pictures photos, brand names,
trademarks, etc.) included in this book are owed by their respective copyright holders. Every
effort has been exerted to locate and seek permission to use these materials from their
respective copyright owners. The publisher and authors do not represent nor claim
ownership over them.

Regional Director: Gilbert T. Sadsad

Assistant Regional Director: Jessie L. Amin

Development Team of the Module

Writer: Sharon T. Castilla

Editors: Romel G. Petajen
Carol P. Gil
Ma. Elena V. Carullo
Reviewers: Romel G. Petajen
Jezrael T. Omadto
Jesslyn T. Taway
Carol P. Gil
Jogene San Juan
Illustrators: Sharon T. Castilla
Javine M. Tolledo
Layout Artist: Javine M. Tolledo

2
 THE ROLE OF ENTREPRENEURS
IN ECONOMIC DEVELOPMENT

Let us start this lesson by reflecting on why is there a need for a business to be
viable and to have an impact in the community. As you go through this lesson, think of
these important questions: How viable do the business I am planning to establish in my
community? Does the business have an impact in my community? To find the answer,
go over the lessons in this module and perform each activity. If you find any difficulty in
answering the exercises, seek the assistance of your teacher or peers.

 Evaluate the viability and impacts of business on the community

Back-to-back loan define as a depositor’s savings deposit or time deposit used as collateral
to advance the same amount of money.
Equilibrium price is the only price where the desires of consumers and the desires of
producers agree – that is, where the amount of the product that consumers want to
buy (quantity demanded) is equal to the amount producers want to sell (quantity
supplied) (Williams, 2020).
Fad is a product that has a very brief product life cycles that rises quickly in popularity but
declines about as quickly.
Fad business is a trend that captures a lot of attention and energy in a short period of time.
Marginal cost is the increase in cost by producing one more unit of the good (Agarwal,
2020).
Marginal revenue is the change in total revenue as a result of changing the rate of sales by
one unit. It is also the slope of total revenue (Agarwal, 2020).
Foot traffic is a term used in business to describe the number of customers that enter a
store, mall, or location (Kenton, 2020).
Viability means ability to survive; or sustainability

Imagine that you want to start a business selling snacks. Fill in the table with
the information needed in starting this business.

3
 Question Answer
Name of business
(What is the name of the business?)
Kinds of snack
(What are the snacks to be sold?)
Source of capital
(Where will you get the money to put up
your business?)
Target Market
(Who are your prospective clients?)
Source of raw materials/supplies
(Where will you get the supplies and
materials needed for your business?)

These are the things you need to consider in opening a business:

- Source of capital
- Type of business/product
- Expansion
- Shutdown

What is the difference

between business and
entrepreneur?

BUSINESS is an entity engaged in commerce and trade, usually having a profit

motive. Some may also engage in the same activity, but with no
intentions of earning profit. It may happen depending on the objectives
of the firm, which are expressed in the mission-vision statement.
ENTREPRENEUR is one who combines the primary factors of production such
as land, labor, and capital, in order to produce goods and services.
Merely selling products or merchandise does not make you an
entrepreneur. Entrepreneurs are innovators that contribute to the
development of goods and services.

What is the process of establishing and

running a business?

4
 THE PROCESS OF ESTABLISHING A BUSINESS

The figure covers the entire life cycle of a business – from the planning stage to the
actual operations to business maturity and deciding whether to expand or leave the industry.

1. Identifying the type of business

o Evaluate the intended location of the business. Example: If you like to
put up business near a university, one viable option is putting up a food stall that
will provide a complementary good (i.e., food) to the students and teachers – can buy
snacks to eat. You can also choose or provide an alternative (i.e., a substitute
service) such as a tricycle or bus line, but this will require much more starting capital.
o Businesses are classified according to the initial capitalization and type of
ownership:
Type of business Capitalization
Microbusiness Php1,500,000 and below
Small scale Php1,500,001 to Php15,000,000
Medium scale Php15,000,001 to Php60,000,000
Large scale Above Php60,000,000

2. Getting the initial capitalization

o Identify options to choose aside from borrowing money from friends and/or family
such as:
 Community-based livelihood programs given not only by the
government but also private or non-profit organizations for the benefit
of even the poorest of Filipino families that offer not only financial
assistance but also technical assistance (not only will lend you money
but they will also teach you how to handle that money and train you in
some of the skills you will need for your prospective business).

5
  Banks that offer a variety of loans – can be short-term or long-term.
Requirements may differ from bank to bank, such as:
 stable sources of income to determine capacity to pay
 good credit standing to determine character in paying
obligations
 tax returns
 financial statements
 government issued IDs
 collateral – can be a “back-to-back” loan (savings as collateral)
or tangible assets (land, equipment, and other valuable items)
 Cooperatives that help members in providing different types of loan
with the concept of “back-to-back” loan; however, it differs from the
bank in terms of profit sharing and incentives given to frequent
borrowers that is called patronage refund.

3. Selecting a location

o One of the main reasons why businesses fall short is having a bad
location.
Factors to consider in choosing a location:
What are the factors to o Nature of business
consider in choosing a o Characteristics and preferences of
location? target market
o Accessibility
o High amount of foot traffic

COST is the only problem with a good location

What is the problem
because of the rent that is very expensive,
with a good
which is a fixed cost. Strive on making enough
location?
sales to offset high rent.

Having a good location with inexpensive rent is

rare.

Yes, intended size of the store or

Does size of the establishment is also essential in selecting
store or location. The size of the store/establishment
establishment is should be appropriate for the kind of business
essential in selecting venture and should have enough space for
expansion in the long run.

4. Direct operations and management of the business

o The owner of a business is generally expected to have
comprehensive knowledge and/or expertise in making his/her product such
as:

6
 o In manufacturing business, the owner must know the materials to be
used how the product is produced, how it is packed and sold.
o In restaurant business, the owner must know how to cook.
o In motor shop, the owner needs to be a mechanic
In other words, as an owner – you should be able to run the operations of
your business.

o It is highly recommended to be different from competitor in order to distinguish your

product or services from theirs – that will be an advantage over competitors and
increase brand recall among existing and potential customers.

Example: KFC has 11 secret herbs and spices for chicken that are unique
from other restaurants.

5. Earning profit and incurring losses

o In reality, all businesses incur losses before they can earn

profits
.
o All businesses start with fixed and variable inputs.

What is the difference between fixed and variable

inputs? Can I have an example?

Fixed inputs Variable inputs

Definition - Are cost which do not change - Are cost which change as you
in size and amount as you increase or change your
increase your production or output or production
output, such as land,
machinery and more
Example: - Utensils - Labor cost
Restaurant - Chairs - Electricity
business - Tables - Water
- Kitchen appliances - Other utilities expense
- Air-conditioning units
- rent

What is break-even?

Break even means that the business Total

Revenue (TR) is equal to its Total Cost (TC).
(TR = TC)

7
 Formula:
Total revenue = Price x Quantity
Total cost = Fixed cost + Variable cost
P – Price
Q – Quantity
TFC – Total Fixed Cost
TVC – Total Variable Cost

Determination of quantity to produce

Problem #1
Anita Garments Store has a rental cost of Php5,000/month and a labor cost of
Php5,000/month. Her product cost is Php50/unit. What Anita should do to break even?

Solve for the break-even:

TR = TC
where TR = P x Q
and TC = TFC + TVC

Given:
TFC = Php5,000
TVC = Php5,000
P = Php50

Solution:
Compute for the quantity to break-even
TR = TC
50Q = 5,000 + 5,000
50Q = 10,000
50Q = 10,000
50 50 Anita must produce 200 units
Q = 200 of garments to break-even.

Problem #2
Anita has a target profit of Php2,000. How many garments shall be produced to attain
the target profit?

Solve for the profit:

Profit = TR – TC
TR = P x Q
TC = TFC + TVC

8
 Given:
TC = Php10,000
P = Php50
Solution:
Compute for the profit
Profit = TR - TC
2,000 = TR – TC
2000 + TC = TR
2,000 + 10,000 = 50Q
12,000 = 50Q Anita must produce 240 units
12,000 = 50Q of garments to earn Php2,000
50 50 profit.
240 = Q

Analyze the problem graphically:

TR and TC Analysis
The figure shows the total revenue (TR) and total cost (TC) analysis of Anita
Garments Store, where the store break-even at quantity (Q) = 200 and earns profit of
Php2,000 at quantity (Q) = 240.

Bibo has a bakery, his rental cost per month is Php10,000 and a labor cost of
Php15,000/month. The cost of the bread per piece is Php10. His target profit is Php5,000.
Required: 1. How many pieces of bread should be produced to break-even?
2. How many pieces of bread should be produced to get the target profit?

Solve for the break-even:

_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________

9
_________________________________________________________________________
_________________________________________________________________________

Solve for the profit:

_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________

Setting of price for a product to determine if the price is

competitive with the industry’s price.
Problem #1:
Lara’s Bakery aims to produce 5,000 pieces of pandesal (the maximum capacity of
the oven). The total fixed cost (TFC) is Php10,000 and total variable cost (TVC) is Php5,000.
What should be the selling price to break-even? How much will be the profit of Lara’s
Bakery?
Solve for the break-even point:
TR = TC
where TR = P x Q
and TC = TFC + TVC

Given:
Q = 5,000 pieces
TFC = Php10,000
TVC = Php5,000

Compute for the break-even point to get the price:

P x Q = TFC + TVC
P x 5,000 = 10,000 + 5,000
5,000P = 15,000 Lara can sell the pandesal for
5,000P = 15,000 Php3.00 per piece to break-
5,000 5,000 even.
P = 3.00

Compare the price with the exiting industry’s price:

10
 Legend:
In the figure shown, the industry selling price is Php5.00
ATC – Average total cost
per piece while Lara’s Bakery break-even price is Php3.00 per
D – Demand
piece. Following the industry standard price, there is a profit MC – marginal cost
margin of Php2.00 per piece of pandesal. MR – marginal revenue
P – Price
S – Supply

Since the equilibrium price is Php5.00, compute for the profit.

Solve for the profit:
Total Profit (TP) = TR – TC
where TR = P x Q
and TC = TFC + TVC

Given:
TC = Php15,000
P = Php5.00

Solve for the profit of Lara’s Bakery:

Compute for the total revenue (TR)
TR = P x Q
TR = 5 x 5,000
TR = Php25,000

Compute for the profit:

TP = TR – TC
TP = Php25,000 – 15,000
TP = Php10,000

Dina aims to produce 10,000 pieces of pastillas per month. The total fixed cost (TFC)
is Php8,000 and total variable cost (TVC) is Php6,000. The price of pastillas as compared to
the industry is P2.00 per piece.

11
 Required: 1. What should be the selling price to break-even?
2. How much will be the profit of Dina?

1. Solve for the break-even point:

_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________

2. Solve for the profit:

_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________

What are the ways to achieve profit?

Here are some ways to achieve profit:

1. Minimize the fixed cost by spreading it out over a large amount of produced
goods.
Example:
- If the rent cost is Php5,000 and produce only 10 units of products; the price
for each product will be Php500/unit (5,000 ÷ 10); but if 5,000 units of
products were produced, then each unit can be sold for Php1.00 (Php5,000
÷ 5,000 units) to recover fixed cost (not including other costs).

2. Spread out the fixed cost over a larger number of operating hours.
Example:
- For a barber shop that is open for more than 8 hours a day, if the fixed costs
are the employees’ wages of Php500/day each and rental fee and each
employee can do haircut for two customers per hour, then having the shop
open for few hours is not ideal, since it will mean less output for all
employees. However, it is also important to consider that keeping longer
hours will entail increasing other costs such as electricity.

Ariel’s barber shop offers haircut for Php50 per person. Each barber can cater haircut
for 30 persons per day. The costs in operating a barber shop are as follows:

12
 Expenses Rate per day
Rental cost (6,000/month ÷ 30 days) Php200
Labor cost (per barber) 500
Electricity cost (per barber) 300
Miscellaneous expenses 200

Compute for the following if Ariel has one (1) employee:

a. Total cost
b. Total revenue
c. Profit or losses

Solution:
a. Compute for the total cost
Total cost (TC) = rent + labor + electric + miscellaneous
= 200 + 500 + 300 + 200
TC = Php1,200

b. Compute for the total revenue

Total revenue (TR) = Price x Quantity
= 50 x 30
TR = Php1,500

c. Compute for the profit/losses

Total profit (TP) = TR – TC
= 1,500 – 1,200
TP = Php300

Using the information above, compute for the following if Ariel has three (3)
employees:
a. Total cost
b. Total revenue
c. Profit or losses

Solution:
a. Compute for the total cost
Total cost (TC) = rent + labor + electric + miscellaneous
= 200 + (500 x 3) + (300 x 3) + 200
= 200 + 1,500 + 900 + 200
TC = Php2,800

b. Compute for the total revenue

Total revenue (TR) = Price x Quantity
= 50 x (30 x 3)
= 50 x 90
TR = Php4,500

13
 c. Compute for the profit/losses
Total profit (TP) = TR – TC
= 4,500 – 2,800
TP = Php1,700

By increasing the output, the possibility to increase profit is feasible. A business can
be expanded and improved as long as the profit margins remain healthy. However, if the
operational costs exceeds the income, it is advisable that the business be closed down.

Mila’s hair salon has three (3) beauticians. Each beautician can cater eight (8)
customers per day to do hair rebonding. The price of hair rebonding is P800 per person. The
costs in operating a barber shop are as follows:

Expenses Rate per day

Rental cost (12,000/month ÷ 30 days) Php400
Labor cost (per beautician) 800
Electricity cost (18,000/month ÷ 30 days) 600
Hair treatment products (per beautician) 1,000
Miscellaneous expenses 200
Compute for the following:
a. Total cost
b. Total revenue
c. Profit or losses

SOME MYTHS ABOUT HAVING A BUSINESS

Myth 1. All you need is a little capital to earn huge profits.

When venturing into any business, it is vital to have and maintain a sense of
proportionality. If you start with limited capital, expect your profits to be similarly modest.
There may be exceptions, but it is impractical to expect that tour business will be one of
those exceptions.
Myth 2. Anything that deals with food is always profitable.

Not all food businesses are successful. Some do not last because their fixed and/or
variable costs are too expensive. Others do not differentiate themselves from their
competitors or are unable to maintain the quality of their products, thus failing to build and
keep a solid customer base.

14
Myth 3. Fad businesses like laundromats or vehicles for hire, are likely to be
successful.

If business conditions are good, then we can safely say that you may break-even and
eventually earn profits. But if too many people attempt to enter the market, the market may
become oversaturated, and many of the businesses will suffer losses.

Myth 4. A partnership is always better than a sole proprietorship.

Partnerships have many advantages but if you need control over the business, it is
better for you to start a single proprietorship rather than a partnership. This is particularly
true if the capitalization comes from a single owner.

Myth 5. Additional capitalization from a future partner is always better to ensure the
firm’s survival.

A firm’s survival may not be the best idea if it is going through rough times. There are
times when survival is no longer the best objective, and it is better to cut your losses.

Myth 6. A shutdown is not an option.

Sometimes, a shutdown is the best option especially if the market is already

oversaturated. If a firm cannot adjust in the long-run, then it cannot compete with large
competitions.
.

IMPACT OF BUSINESS IN THE COMMUNITY

Small businesses are the backbones of the local community with the following impacts:
1. Create a unique community identity – locally owned restaurants showcase the
fresh foods or local farm-to-table that makes a distinct character to their communities.
2. Greater community involvement of business owners – through participation in
community festivals, volunteer work or charitable donations for local causes.
3. Increase community economic health – local businesses tend to support other
local businesses.
4. Promote environmental friendliness – older downtown buildings have been
remodeled and repurposed for different businesses.
5. Increase local tax base – local businesses pay local taxes, bolstering the revenue
available for improvement to roads, schools, and others. When customers spend
their money locally, the taxes they pay benefit their community and better their own
lives.
6. Create local jobs – every local job that is created means that more people are able
to stay in their community.
7. Encourage entrepreneurship – a community with successful small businesses
inspires others to take that leap and develop their own passion. Starting a small
business means that the owner is taking charge of their future through innovation and
prosperity.

15
 8. Innovation and healthy competition – innovation is a hallmark of a successful local
enterprise, and healthy competition drives the marketplace. Locally owned
businesses have a personal relationship with their customer.
9. Lower maintenance and less need for infrastructure
10. Diverse products, locally made

Congratulations, you have finished the last part of

this module! Now, it is time to answer the next
tasks to assess your understanding about the
topics in this module. Go, go, go!

A. Look for at least three (3) businessmen in your community and ask them the following:
1. Reasons for starting a business
2. Impact of his/her business in the community

Number 1 is done for you.

Business Name Type of business Reasons for starting Impact of business in

a business the community
1. ABC Sari-Sari Sari-Sari Store / Additional source of Contribute to local tax
Store Merchandising income base such as securing
of barangay business
permit
2.
3.
4.

B. Examine the products/businesses in your community. Make a list of at least 5 products /

businesses which you believe are just fads, and then think of ways how these
products/businesses can adapt to changes to be viable.

Fad business / products How they can cope with changes

1. Milk tea business Create unique flavor that is different from
other milk tea businesses
2.
3.
4.
5.
6.

16
 ANSWER KEY
You can do it #1
Bibo has a bakery, his rental cost per month is Php10,000 and a labor cost of
Php15,000/month. The cost of the bread per piece is Php10. His target profit is Php5,000.
Required: 1. How many pieces of bread should be produced to break-even?
2. How many pieces of bread should be produced to get the target profit?

Answer #1
Solve for the break-even:
TR = TC
where TR = P x Q
and TC = TFC + TVC

Given:
TFC = Php10,000
TVC = Php15,000
P = Php10.00

Solution:
Compute for the quantity to break-even
TR = TC
10Q = 10,000 + 15,000
10Q = 25,000
10Q = 25,000
10 10
Q = 2,500

Answer #2
Solve for profit:
Profit = TR – TC
TR = P x Q
TC = TFC + TVC

Given:
TC = Php25,000
P = Php10

Solution:
Compute for the profit
Profit = TR - TC
5,000 = TR – TC
5,000 + TC = TR
5,000 + 25,000 = 10Q
30,000 = 10Q
30,000 = 10Q
10 10
3,000 = Q

17
You can do it #2
Dina aims to produce 10,000 pieces of pastillas per month. The total fixed cost (TFC)
is Php8,000 and total variable cost (TVC) is Php6,000. The price of pastillas as compared to
the industry is P2.00 per piece.
Required: 1. What should be the selling price to break-even?
2. How much will be the profit of Dina?

Solve for the break-even point:

TR = TC
where TR = P x Q
and TC = TFC + TVC

Given:
Q = 10,000 pieces
TFC = Php8,000
TVC = Php6,000

Compute for the break-even point to get the price:

P x Q = TFC + TVC
P x 10,000 = 8,000 + 6,000
10,000P = 14,000
10,000P = 14,000
10,000 10,000
P = 1.40

Solve for the profit using the equilibrium price:

Total Profit (TP) = TR – TC
where TR = P x Q
and TC = TFC + TVC

Given:
TC = Php14,000
EP = Php2.00

Solve for the profit of Lara’s Bakery:

Compute for the total revenue (TR)
TR = P x Q
TR = 2 x 10,000
TR = Php20,000

Compute for the profit:

TP = TR – TC

18
 TP = Php20,000 – 14,000
TP = Php6,000

You can do it #3
Mila’s hair salon has three (3) beauticians. Each beautician can cater five (5)
customers per day to do hair rebonding. The price of hair rebonding is P800 per person. The
costs in operating hair salon are as follows:

Expenses Rate per day

Rental cost (12,000/month ÷ 30 days) Php400
Labor cost (per beautician) 800
Electricity cost (18,000/month ÷ 30 days) 600
Hair treatment products (per beautician) 1,000
Miscellaneous expenses 200
Compute for the following:
a. Total cost
b. Total revenue
c. Profit or losses

Solution:
a. Compute for the total cost
Total cost (TC) = rent + labor + electric + hair treatment products + miscellaneous
= 400 + (800 x 3) + 600 + (1,000 x 3) + 200
= 400 + 2,400 + 600 + 3,000 +200
TC = Php6,600

b. Compute for the total revenue

Total revenue (TR) = Price x Quantity
= 800 x (5 x 3)
= 800 x 15
TR = Php12,000

c. Compute for the profit/losses

Total profit (TP) = TR – TC
= 12,000 – 6,600
TP = Php5,400

REFERENCES

Agarwal, P. (2020). Cost of Theory. Profit Maximization Rule. Economic Theory and News.
www.intellegenteconomist.com
BBB (2019). 10 ways small businesses benefit their local communities. M business.
https://medium.com

19
Manapat, C.L. (2018). Applied Economics for Senior High School. C & E Publishing, Inc.,
Fad: Definition & Examples. (2015, August 21). Retrieved from
https://study.com/academy/lesson/fad-definition-examples-quiz.html.
Foot Traffic. Business Essentials. Investopedia.com
Williams, L. & Lumen Learning (2020). Introduction to Business. www.lumenlearning.com

20