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Sept 9, 2013- Lecture 1
Example of Profit:
Business sells small, plain pizza
Revenue (sales) = $6.00
less Expenses (costs) = - $5.00
Profit = $1.00
A key reason for a business to exist
Not all organisations are businesses
Hospitals, universities, churches
They provide services but not intended for profit
They are “not for profit” organisations
When expenses more than sales
Costs more to produce the products, and run the business, than the business
generates through sales.
Examples of loss-making businesses:
General Motors (2008) – loss of $31 bn (they didn’t sell enough cars; price of
metal went up; recession meant people didn’t buy enough; maybe had recalls;
making too many types of cars; ugly, inefficient cars; they did everything wrong)
Chrysler (2008) – loss of $6 bn
Question: Why did GM not make a profit?
The study of how businesses, people make choices about:
What things to produce/consume
How best to produce things
How best to distribute wealth.
Factors of Production:
Start with basic theory:
There are basic building blocks used to produce anything.
We call those basic building blocks:
“Factors of production”