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Applied Economics 10 13
Applied Economics 10 13
APPLIED ECONOMICS
Quarter 2 -Module X
EVALUATING THE VIABILITY AND IMPACTS
OF BUSINESS ON THE COMMUNITY
GOVERNMENT PROPERTY
NOT FOR SALE
Applied Economics – SHS
Quarter 2 – Module 10: Evaluating the Viability and
Impacts of Business on the Community
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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.
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
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Imagine that you want to start a business selling snacks. Fill in the table with the
information needed in starting this business.
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?)
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.
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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).
● 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
⮚ financial statements
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 Nature of business
consider in choosing a Characteristics and
location?
preferences of target market
Accessibility
High amount of foot traffic
Example: KFC has 11 secret herbs and spices for chicken that are unique
from other restaurants.
Definition - Are cost which do not change - Are cost which change as
in size and amount as you you increase or change your
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increase your production or output or production
output, such as land,
machinery and more
- Air-conditioning units
- rent
What is break-even?
Formula:
Total revenue = Price x Quantity
Total cost = Fixed cost + Variable cost
P – Price
Q – Quantity
TFC – Total Fixed Cost
TVC – Total Variable Cost
Problem #1
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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?
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?
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
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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?
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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
Legend:
In the figure shown, the industry selling price is Php5.00
per piece while Lara’s Bakery break-even price is Php3.00 per ATC – Average total cost
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
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where TR = P x Q
and TC = TFC + TVC
Given:
TC = Php15,000
P = Php5.00
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?
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Here are some ways to achieve profit:
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).
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:
Expenses Rate per day
Solution:
a. Compute for the total cost
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Total cost (TC) = rent + labor + electric + miscellaneous
= 200 + 500 + 300 + 200
TC = Php1,200
Using the information above, compute for the following if Ariel has three (3)
employees:
Total cost
Total revenue
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
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.
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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
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.
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.
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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.
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.
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
2.
3.
4.
2.
3.
4.
5.
6.
ANSWER KEY
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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
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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?
Given:
Q = 10,000 pieces
TFC = Php8,000
TVC = Php6,000
Given:
TC = Php14,000
EP = Php2.00
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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
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
REFERENCES
Agarwal, P. (2020). Cost of Theory. Profit Maximization Rule. Economic Theory and News.
www.intellegenteconomist.com
20
BBB (2019). 10 ways small businesses benefit their local communities. M business.
https://medium.com
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
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