Business Economics 2

Introduction
Lecture 1
Contact details

• Ing. Zuzana Vaculčíková, Ph.D.

U2/533
vaculcikova@utb.cz
• Kwadwo Asante
asante@utb.cz

• Salem Udoh
udoh@utb.cz

• Alex Ntsiful
ntsiful@utb.cz
What do you expect to learn in this course?

• Introduce yourself: any knowledge about economics, business

economics, costs, calculations?
 Course description
• The objective of the subject is to familiarize students with the internal
environment of a company, with a focus on production, purchasing, and
investment activities, the creation and distribution of financial results, cost
modeling and calculation, the pricing policy of the company, and the
fundamental principles of financial management of the company.
Requirements
Student Requirements
• Credit (10%)
• Attendance of at least 80%
• Submission of a seminar paper on a designated topic from the content of this
subject
• Exam+ tests (90%)
• Tests (4.12.2023) – 20% of the final grade
• Final exam (11.12.2023) – 70% of the final grade
 Course content
Date Lecturer Topic
18.9. Zuzana Vaculčíková Introduction, requirements, business environment
25.9. Alex Ntsiful Basic concepts of business economics (costs, revenues etc.)

2.10. Salem Udoh Production activities of the company

9.10. Zuzana Vaculčíková Cost functions
16.10. Zuzana Vaculčíková Cost calculation
23.10. Zuzana Vaculčíková Cost calculation
30.10. Kwadwo Asante Prices
6.11. Kwadwo Asante Sales activities of the company, revenues
13.11. Salem Udoh Profit/loss - definition, structure, methods of calculation
and reporting
20.11. Alex Ntsiful Relationships between basic economic variables of the
company, the break-even point
27.11. Salem Udoh Basics of company financing, cash flow
4.12. Tests 20% of the final grade
11.12. Exam 11.12. 70% of the final grade
Lecture 1
 Company, enterprise, business
• Productive social systems that are created by people that serve to
society by some output (Eschenbach, 2000)
• A set of tangible, intangible and personal components, a set of factors
of production
• Economic theory – transformation system whose primary task is to
convert inputs into outputs in order to maximize profit

Sources - inputs COMPANY Product/service -

outputs
The Economic Problem of Scarcity
• resources, which are the inputs used to produce goods and services, are limited or finite, while human wants and needs are virtually
limitless.
• the problem of unlimited wants, but limited resources

Here are the key points to understand about the economic problem of scarcity:
• Limited Resources: land, labor, capital. These resources are finite, meaning there is a finite amount of them available at any given time.
• Unlimited Human Wants: As societies progress and individuals experience higher standards of living, their desires for goods and services
tend to grow, and new wants emerge. This ever-expanding list of wants is often referred to as the "infinite human wants.
• Choice and Opportunity Cost: Due to the scarcity of resources and the infinite nature of human wants, choices must be made. When a
resource is allocated to one use, it becomes unavailable for other potential uses.
- the concept of opportunity cost – the value of the next best alternative that must be foregone when a choice is made.
• Efficient Resource Allocation: Distributing resources in a way that maximizes their utility, or in other words, getting the most value out of
limited resources. This involves making choices that minimize waste and maximize satisfaction.
• Trade-Offs: Scarcity leads to trade-offs. Individuals and societies must make trade-offs between competing wants and needs. For example,
a government may need to decide whether to allocate resources to healthcare, education, defense, or infrastructure, recognizing that
allocating more to one area means allocating less to others.
• Innovation and Technology: While resources are finite, human creativity, innovation, and technological advancements have the potential
to increase resource efficiency.
• Sustainability and Environmental Concerns
Why is BE important?
• Resource Allocation:
• E.g. through cost-benefit analysis and marginal analysis, organizations can determine where to allocate resources to achieve the
highest returns. For example, should the company invest in expanding production capacity or improving marketing efforts?
• Cost Minimization:
• By understanding various cost structures (fixed, variable, semi-variable), businesses can make decisions to minimize production
costs.
• E.g. Techniques such as cost-volume-profit analysis (CVP) help organizations find the most cost-efficient production levels and
pricing strategies.
• Maximizing Revenue:
• Organizations can use concepts like price elasticity of demand to understand how changes in price affect the quantity demanded.
• Revenue maximization involves setting prices at levels that balance maximizing unit sales with maximizing price per unit, taking into
account the competitive landscape and consumer behavior, cross-selling and upselling strategies.
• Profit Generation:
• Decision-making tools such as break-even analysis help businesses determine the level of sales needed to cover costs and achieve
profitability.
• By understanding cost structures, pricing strategies, and market dynamics, organizations can develop effective business plans and
strategies to enhance profitability.
• Market Analysis:
• The study of market structures, competition, and market behavior helps organizations identify opportunities and threats in the
market, understand the customer.
• Risk Management and forecasting (long-term planning)
• Economic analysis helps organizations assess and mitigate risks. By understanding the potential economic consequences of various
decisions, businesses can make more informed choices to safeguard their financial health.
Economic outputs of entrepreneurship
• Influence employment, eliminates poverty
• Source of income for the government, taxes
• Increase the demand for goods and services
• Consumed income gets into economic cycle
• Good competitive environment
• Innovation
Business environment
Business Goals
Business Goals
Business objectives
New world of entrepreneurship
1. Mass customization – made to
order

• Every Customer is Their Own

Market. No longer does one size fit all.
Customers expect it their way and are
willing to pay for it.
• Consumers Are More
Expressive. Some call it self-
expression. Others call it narcissism.
• Customization is the New
Loyalty. Consumers that customize a
product are more likely to become
brand advocates. Customizers are also
more likely to be repeat purchasers,
completing the loyalty loop.
New world of entrepreneurship
2. Self-service
3. Co-creation
Consumers buy experiences rather than goods or commodities. Co-
creation is leveling the playing field between firms and customers,
evolving the traditional consumer economy into one that emphasizes
the value of collaboration.
4. From information to knowledge
5. Digitization
6. AI and machine learning
Entrepreneur vs. businessman
• Entrepreneur

• Businessman
Myths about entrepreneurship
• Entrepreneurs are high risk takers.
• Entrepreneurs are born.
• Entrepreneurs are mainly motivated to get rich.
• Entrepreneurs give little attention to their personal life.
• Entrepreneurs are often high-tech wizards.
• If my product or service is good, I will be successful.
• The more clients, the better.

What do you think?

Lifecycle of business
• Shell Study: Out of the 500 largest companies operating in the 1970s,
only 40% of surveyed organizations survived thirty years later.
• Crainer (2000): Almost 40% of the „Fortune 500“ list from the early
1990s to the beginning of millennium no longer exist.
• Drucker (2001): Businesses have only rarely been living for more than
thirty years.
• Handy (1999): The average age of large organizations is no more than
forty years.
Lifecycle of business
• Nowadays, the admired companies such as Pixar, Apple, Netflix,
Amazon, Nvidia have recently been on the edge of life and death.
• Pixar took 16 years to release its first feature film.
• The first product of Nvidia had almost caused the end of business.
• At the beginning of new millennium, Amazon was in the stage of
collapse.
• Apple managed to avoid bankruptcy in 1997 at the last minute.
• Social network LinkedIn needed 1 year to get 100 thousands of
members.
Biggest business comebacks
• LEGO
• “Everything is awesome?” Not for the toymaker in the 1990s, when
Lego was suffering due to the rise of video games and other
competition. In 1998, the company lost money for the first time. Then
Jørgen Vig Knudstorp stepped in as CEO in 2004, and things started to
snap into place. Knudstorp cut costs and introduced soon-to-be-
popular Lego lines like Ninjago. It worked: By 2013, Lego was the
world’s most profitable toymaker.
Biggest business comebacks
• DISNEY ANIMATION
• Disney may be the best-known name in children’s entertainment, but
its once-revered animation division began the 21st century in a major
slump. After ’90s successes such as The Lion King, the studio started
churning out duds like Hercules and Fantasia 2000. The result was a
major downsizing in the early 2000s. But after Disney acquired Pixar
in 2006 and Ed Catmull and John Lasseter took charge, the studio
roared back with hits like Tangled and last year’s world-
dominating Frozen.
Biggest business comebacks
• STARBUCKS
• Sometimes too much success can mean trouble. In the 2000s
Starbucks overexpanded, -diluting profits and damaging the brand
(not every corner needs a Starbucks). By late 2008 net income had
fallen dramatically, cutting the stock price in half. A look at how
Starbucks CEO Howard Schultz turned things around:
Biggest business comebacks
• MARVEL
• As the home of Spider-Man, Captain America, and other iconic
characters, Marvel has long been the comic-book world’s biggest
player. But in the mid-1990s the comics market crashed, Marvel went
broke, and there was no superpower strong enough to stave off
bankruptcy. But fear not! After restructuring, our hero changed its
approach, focusing on movies rather than paper and ink. Today, Iron
Man, the Avengers, Spider-Man, and X-Men are all billion-dollar
franchises, and the company’s master plan–to connect many of its
characters in a single cinematic universe–has turned it into one of pop
culture’s most powerful brands.
Thank YOU for your attention.