Economics of

Big Business
Marie Rodlene G. Mallen
MABA - 2nd Semester 2021
 I. Nature of Business

◆ A business is an organization that strives for a profit by

providing goods and services desired by its customers.
◆ Goods are tangible items manufactured by businesses, such
as laptops. 
◆ Services are intangible offerings of businesses that can’t be
held, touched, or stored.

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 How do businesses and not-for-profit
organizations help create our standard of
living?
By providing goods and services desired by
customers. Standard of living refers to the
level of wealth, comfort, material goods, and
necessities available to a certain
socioeconomic class or geographic area

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 I. Nature of Business
Factors of Production
Natural Resources
Includes raw property and
anything that comes from the
ground.
Labor
The value of the workforce
depends on workers'
education, skills, and
motivation
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Capital
The machinery, tools and
buildings humans use to
produce goods and services.
Entrepreneurship
An entrepreneur is a person
who combines land, labor,
and capital - to earn a profit
 How Business and
Economics Work
A business’ success depends in part on the
economic systems of the countries where it
is located and where it sells its products.

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 II. How Business and Economics Work
The Basic Economic Systems of the World
  Capitalism Communism Socialism Mixed Economy
Ownership of Businesses are Government owns Basic industries Private ownership
Business privately owned all or most such as railroads of land and
with minimal enterprises. and utilities are businesses but
government owned by government control
ownership or government. Very of some enterprises.
interference. high taxation as The private sector
government is typically large
redistributes
income from
successful private
businesses and
entrepreneurs.

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 II. How Business and Economics Work
The Basic Economic Systems of the World
  Capitalism Communism Socialism Mixed Economy
Control of Complete freedom Complete Some markets are Some markets,
Markets of trade. No or government controlled, and such as nuclear
little government control of some are free. energy and the
control. markets. State enterprises post office, are
are managed by controlled or
bureaucrats. highly regulated.

Forecast for 2020 Continued steady No growth and Stable with Continued growth.
growth. perhaps probable slight
disappearance. growth.
Examples United States Cuba, North Finland, India, Philippines
Korea Israel

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 “
III. Definition of Big Business
Big business involves large-scale corporate controlled 
financial or business activities. As a term, it describes
activities that run from "huge transactions" to the more
general "doing big things". 

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 IV. Big Businesses in the Philippines

Business Size Basics:

Size of Business Number of Total Assets
Employees
Micro enterprises Less than 10 Up to 3 Million
Small businesses 10 - 99 More than 3 million to 15
million
Medium businesses 100-199 More than 15 million to 100
million
Large Businesses 200 and more More than 100 million

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 Philippines: MSMEs Have Bigger
Impact than Big Businesses in terms of
Employment

The 2019 List of Establishments of the

Philippine Statistics Authority (PSA) recorded
a total of 1,000,506 business enterprises
operating in the country. Of these, 995,745
(99.5%) are MSMEs and 4,761 (0.5%) are
large enterprises. Micro enterprises constitute
89% (891,044) of total MSME
establishments, followed by small enterprises
at 10% (99,936) and medium enterprises at
10
0.5% (4,765).
 V. Theory of Production

Production Function is defined as the transformation of physical input

into physical output where output is a function of input.

Two types of Production Function:

◆ Short-run Production: Law of Variable Proportion
◆ Long-run Production: Law of Return to Scale

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 V. Theory of Production

The Laws of Variable The Laws of Return to Scale

Production
In the long run input output
In the short run, input- relations are studied assuming
output relations are studied all the input to be variable.
with one variable input,
while other inputs are held
constant.

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 Example: Bill’s Restaurant

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 PROFIT
1st Waiter: $4,000
2nd Waiter: $6,000
3rd Waiter: $6,500
4th Waiter: $ 5,500

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 VI. Theory of Costs

◆ Accounting Costs / Explicit Costs

◆ Economic Costs / Implicit Costs
◆ Outlay Costs
◆ Opportunity Costs
◆ Direct / Traceable Costs
◆ Indirect / Non-Traceable Costs
◆ Fixed Costs
◆ Variable Costs

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 VII. Economies and Diseconomies of Scale

Economies of scale refer to Diseconomies of scale occur

these reduced costs per unit when the output increases to
arising due to an increase in such a great extent that the
the total output. cost per unit starts increasing. 

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 VII. Economies and Diseconomies of Scale

Net Profit of Burger Steak – Bill’s Restaurant

1st Month – 60 orders at P220 12th Month – 300 orders at P220

Variable Cost (110) P 6,600.00 Variable Cost (110) P 33,000.00

Fixed Cost (rent, utilities) 3,000.00 Fixed Cost (rent, utilities) 1,000.00
Total Cost 9,600.00 Total Cost 34,000.00

Cost per Unit 160.00 Cost per Unit 113.00

Net Profit (13,200 – 9,600) 100.00 Net Profit (66,000 – 34,000) 32,000.00

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 VII. Economies and Diseconomies of Scale

Net Profit of Burger Steak – Bill’s Restaurant

3rd Year – 900 orders at P250
Variable Cost (160) P144,000.00
Fixed Cost ( bigger rent expense, utilities,
depreciation of new equipment) 26,000.00
Total Cost 170,000.00
Cost per Unit 189.00
Net Profit (225,000 – 170,000) 55,000
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 VII. Economies and Diseconomies of Scale

Internal economies – economies of production that the firm accrues

when it increases the output leading to a drop in the cost of production.

External economies – these are the benefits that each member firm of
the industry accrues due to the expansion of the entire industry.

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 VIII. Monopolies and Antitrust Laws

BIG BUSINESSES vs SMALL BUSINESSES:

WHY IS FAIR COMPETITION
GOOD FOR FILIPINOS?

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 VIII. Monopolies and Antitrust Laws

What would happen if businesses

decided not to independently and fairly
compete with one another?

Businesses might band together and agree on

practices that would benefit them most at the
expense of consumers. Fewer choices, higher
prices, and lack of quality products and
services mean consumers ultimately lose.

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 VIII. Monopolies and Antitrust Laws

Monopoly
A market structure characterized by a single seller, selling a unique
product in the market. In a monopoly market, the seller faces no
competition, as he is the sole seller of goods with no close
substitute.

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 Philippine Competition Act
Republic Act No. 10667 or the
Philippine Competition Act (PCA) is the
primary policy of the Philippines for
promoting and protecting fair market
competition. It became effective on
August 8, 2015.

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 VIII. Monopolies and Antitrust Laws

Antitrust Laws: Philippine Competition Act

◆ promotes fair trade practices, prohibits formation of or regulates natural
monopolies, and penalizes arrangements that duly manipulate or restrict
fair market competition.
◆ a legal framework for developing a competitive business environment,
resulting in affordable, high-quality products and services in the market.
◆ Regulated by the Philippine Competition Commission (PCC)

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 VIII. Monopolies and Antitrust Laws

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 VIII. Monopolies and Antitrust Laws

Anti-Competitive Agreements

Price Fixing Output Market Bid Rigging

Limitation Sharing

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 VIII. Monopolies and Antitrust Laws

Case Studies:
Price Fixing – Price-fixing of electronic books in the United
States, 2013
Output Limitation – Output restrictions in the cement industry in
India, 2010

Market Sharing – Market allocation between pharmaceutical

companies in England, 2011

Bid Rigging – Bid-rigging cartels in the automobile industry in

Canada, 2009

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 VIII. Monopolies and Antitrust Laws

ARE ALL INTERACTIONS

WITH COMPETITORS
CONSIDERED
COLLUSIVE?
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 VIII. Monopolies and Antitrust Laws

ABUSE OF DOMINANCE

WHEN CAN BUSINESSES BE CONSIDERED DOMINANT IN THE

MARKET?
There shall be a rebuttable presumption of market dominant position
if the market share of an entity in the relevant market is at least 50 percent,
unless a new market share threshold is determined by the Commission for
that particular sector.”
 
IS IT ILLEGAL TO BE DOMINANT?
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 VIII. Monopolies and Antitrust Laws

ABUSE OF DOMINANCE

There is abuse of market dominance when an entity with a significant

degree of power in a market engages in conduct that restricts competition.
Such conduct includes predatory pricing, imposing barriers to market
entry, and the unfair exercise of monopsony power (where one business is
the sole buyer for many sellers), among others.

Case Study - Predatory pricing among freely distributed newspapers in the United
States, 2010

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 VIII. Monopolies and Antitrust Laws

Restricting
Predatory or refusing
Pricing to supply

Blocking
competitors’
Exploitative
access to
behavior toward
Price goods and
customers or
Discrimination resources
competitors

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 VIII. Monopolies and Antitrust Laws

Anti-competitive Mergers and Acquisitions

Anti-competitive mergers and acquisitions refer to the consolidation

of companies that can substantially lessen competition, or
significantly impede effective competition in a relevant market. While
mergers and acquisitions are not illegal per se, merged entities can
coordinate their market behavior and exercise market power
unilaterally.

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 VIII. Monopolies and Antitrust Laws

WHAT ARE THE FINES AND PENALTIES FOR VIOLATIONS OF

THE PCA?
The PCC imposes administrative penalties to PCA violators. There are four
kinds of fines that the PCC can impose. These are:
I. Administrative fines for violations of Sections 14 (Anti-competitive
Agreements), 15 (Abuse of Dominant Position), 17 (Compulsory
Notification), and 20 (Prohibited Mergers and Acquisitions) of the PCA.
In fixing the amount of fines, the Commission shall consider both the
gravity and duration of the violation.
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 VIII. Monopolies and Antitrust Laws

WHAT ARE THE FINES AND PENALTIES FOR VIOLATIONS OF

THE PCA?
The PCC imposes administrative penalties to PCA violators. There are four
kinds of fines that the PCC can impose. These are:
II. Fines worth at least PHP50,000 for failure to comply with an order of
the Commission.
III. Fines for the supply of incorrect or misleading information.
IV. Fines worth at least PHP50,000 for any other violations not specifically
penalized under the relevant provisions of the PCA.
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 Thank you!
PRESENTATION BY:
Marie Rodlene G. Mallen
MABA - 2nd Semester 2021
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