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| | Businesses themselves, however, often dislike competition because it can reduce their ability to earn profits. To protect consumers, federal laws limit the ability of businesses to reduce competition. | | Businesses themselves, however, often dislike competition because it can reduce their ability to earn profits. To protect consumers, federal laws limit the ability of businesses to reduce competition. |
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| − | ==Costs==
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| − | It can be difficult running a business. Your costs will seem to be always rising. If you are profitable, then you can expect competitors to move into your turf and drive your revenue down.
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| − | Why are your costs rising? Three reasons:
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| − | 1. In the short run, you have diminishing marginal productivity. Additional employees are not likely to be as productive as your first employees, for example.
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| − | 2. In the long run, you may have decreasing returns to scale. The bigger you become, the more difficult it is to manage everything and everyone. Waste can get out of hand.
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| − | 3. In the long run, your industry may also see rising prices for the inputs. Your suppliers increase their prices periodically. Scarce resources may become even scarcer.
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| − | Experienced business managers will tell you that profitability is made by reducing expenses. This has certainly been true for Wal-Mart. It is constantly driving costs down with its suppliers. Now it even demands that suppliers guarantee certain profit levels for Wal-Mart itself. It has changed the business landscape by focusing on lowering costs.
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| − | Competition can be harmful to a company on its revenue (or demand) side, but can be very helpful to the same company on its cost (or supply) side. The company can shop around with various suppliers and repeatedly drive the cost of its inputs lower. We will see an example of this in our later section on the homeschool dinner.
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| − | In a perfectly competitive market, a company continues producing a good or service until its marginal revenue (MR) falls to equal its marginal cost (MC). When MC > MR, then the company is better off not producing the good. There is usually no point in making something that is a money-loser, unless it attracts profits in a different way (that is known as a “loss leader” that attracts products for other goods and services of a company).
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| | ==Homeschool Dinner Event== | | ==Homeschool Dinner Event== |