An economy primarily consists of producers and consumers, and they engage in what is known as transaction. An economic transaction would be the transfer of goods and services from the producers to the consumers in exchange for money.
Creation of goods involve various activities. These activities can be collectively known as a business, or a firm. Starting a business is neither easy nor quick. Here are a few essentials required to do the same.
What to produce?
There are many goods that an economy consists of. Hence, the producer must decide on which of these to produce. Looking out for one’s own profit cannot be the only criteria. Resources are scarce, and they should be used optimally and towards the societal welfare.
How to produce?
There can be many methods of producing one commodity. Hence, the producer should opt for that process which exploits the resources fully at minimal cost.
How much to produce?
An excess of supply will lower the price and the producers will eventually incur a loss. Hence, produce to cater to the market demand.
To start a business one needs to have enough investment power. If a producer does not have the required capital he can take loans from financial institutions, or enter into partnership with other investors to get collective investment support.
It is not enough to have the money to set up a business. One needs to understand the consumption patter of the market. Even if the product has high selling probability, it should be marketed in a way that it grabs the buyer’s attention. Otherwise, consumers might not be fully aware of the product details.
Normally, a business cannot reach the optimal production level in the short run. This is due to the fixed inputs of production that cannot be changed according to need. These inputs give rise to fixed costs which cut into the producer’s revenue. However, with time as the business reaches a considerable scale, these fixed inputs disappear and only the variable ones remain, i.e. the producer faces only variable cost.
No business can sustain on the basis of single showmanship. There are too many activities involved. Therefore, it is cheaper, more efficient and necessary to delegate duties to the individuals specializing in those fields.
Hence, violation of any of the above guidelines is a mistake through which the business suffers.