MACROECONOMICS: depends on uncertainty and questions for the future, but it studies

economic variables (of the past to develop an hypothesis and predict the trend of indicators) and
we combine products and services until reducing those to generic ones:
Aggregated Supply ->
Aggregated Demand ->

ECONOMIC AGENTS:
- Public Sector (government/public national or intranational authorities)
- Private Sector
- Families (households)

They produce, save and invest -> producing to their selves a situation of deficit or surplus of funds.
Markets: facilitate the trade between the agents.

OPTIMAL ECONOMIC SCENARIOS:

- Fast growth and consumption
- Low level of unemployment
- Price stability

HOW DO I MESURE HOW WEALTHY A COUNTRY IS? GDP

Physical or digital environments where the
supply and demand meet and if they
agree (Quantity and Price) there is a trade
GDP Defined: market value of all final goods and services produced in a country in a given time
period, which equals total expenditure on final goods and total income:

- Market value: GDP is a market value: goods and services are valued at their market prices.
- Final goods and services: value of the final goods and services produced.

Final good: item bought by its

final user during a specified
time period.
Contrast: intermediate goods,
avoid in order not to double
count.

- Produced within a country: measures production within a country domestic production.

- In a given time period: measured normally in a year or a quarter.

FLOW OF EXPENDITURE AND INCOME

Equality of income and value of production shows the link between productivity and living
standards.
Aggregate income
It shows two ways of measuring GDP: equals the total amount
- GDP equals expenditure equals income: GDP= C+I+G+X-M paid for the use of
factors of production
(wages, rents…)

- Firms pay out all the receipt from the sale of final goods, so: Y=C+I+G+(X-M)
Depreciation: decrease in the value of a firm’s capital that results from Net investment: increase in the value
wear and tear and obsolescence. of the firm’s capital
Gross investment: total amount spent on purchases of new capital
and on replacing depreciated capital. Net investment= Gross - Depreciation

This is one of expenditure approach to measuring GDP

Total product is a
Gross profit -> firm’s profit before subtracting depreciation,
gross measure
is one of the income approach to measuring GDP.

MEASURING THE GDP

- EXPENDITURE APPROACH: sum of consumption expenditure, investment, government

expenditure on goods and services, and net exports: GDP=C+I+G+(X-M)

- SUPPLY APROACH: measures GDP by the market value of the final goods and services
produced in a country and in a time: GDP= p1*q1+…+pn*qn

- INCOME APPROACH: sum of the incomes that firms pay households for the factors of
production they hire.
 - NATIONAL INCOME AND EXPENDITURE ACCOUNTS:
- Compensation of employees
- Net interest Sum to net domestic
- Rental income income at factor cost
- Corporate profits
- Dividends

- ADJUSTMENTS MADE TO GDP

· Indirect taxes minus subsidies added to get from factor cost to market prices.
· Depreciation added to get from net domestic product to gross domestic product.

Nominal GDP: value of goods and services valued at the prices that prevailed in that same year.
Real GDP: value of final goods and services valued at the price of a reference base year (2000). We
use this value in order to remove any influence that rise prices and the cost of living.

- Real GDP per person is real one divided by population : it tells the value of goods and
services that the average person can enjoy.
· Long-Term trend: express the real GDP per person as a ratio of some reference
year.

HOW DO WE KNOW IF OUR LIVING STANDARDS EXPAND?

Value of the real GDP when
- Growth of potential GDP per person all the economy factors are
- Fluctuations of Real GDP around potential GDP fully employed

Business cycle: periodic but irregular up-and-down movement of

total production and other measures of economic activity.
- Two phases: Expansion (real GDP increases)  Recession
(real GDP growth its negative for two successive quarters)
- Two turning points: Peak (minimum)  Trough (maximum)

Standard of Living Across Countries:

To compare real GDP between countries, we must convert both GDPs to the same currency units,
and the goods and services must be valued at the same price.

Limitations Of Real GDP:

Factors that influence the standard of living that are not part of GDP are:

- Household production
- Underground economic activity
- Health and life expectancy
- Leisure time
- Environmental quality
- Political freedom and social justice
Price level: average level of prices and the value of money. It lets use measure the inflation rate
and distinguish between real and nominal values.
Inflation rate:
annual percentage
change in the price
level

Why is inflation a problem?

Once it takes hold, it is unpredictable, it redistributes income and wealth in arbitrary ways
between employers and workers, borrowers and lenders; it diverts resources from
productive activities to inflation forecasting. From a social perspective, this waste of
resources is a cost of inflation.

Inflation -> hyperinflation (workers are paid twice a day since money loses its value)

How can we measure inflation? CPI

CPI (Consumer Price Index): measures the average of the prices paid by urban consumers
for a “fixed” basket of consumer goods and services. It is defined equal to 100 for the
reference base period (2001). Items are updated over time to reflect the consumer’s
habits.
The CPI involves:
· Selecting the CPI basket
· Conducting a monthly price survey: INE employees check the prices of goods in
Spain.
· Calculating the CPI:
CPI=(Cost of basket at current-period / Cost of basket at base–period prices)*100

The CPI’s purpose is to measure the inflation rate, which is the percentage change in the
price level from one year to the new:
Inflation rate= [(CPI this year - CPI last year)/CPI last year]*100

Nevertheless, CPI overstate the true inflation because of:

· New Goods Bias: new goods that were not available in the base year appear and if
are more expensive than the ones they replace: CPI
· Quality Change Bias: quality improvements occur, and the price rises but this is not
inflation, even if the CPI counts it too.
· Commodity Substitution Bias: CPI does not take into account costumer’s
substitution away from goods whose relatives prices increase.
· Other Substitution Bias: people switch to buying from cheaper sources, but CPI
does not take into account the outlet substitution.

Alternative Measures Of The Price Level Are:

PPI (Producer Price Index): economic indicator that measures the monthly evolution of the
prices of industrial products manufactured and sold in the international market.

GDP deflator: deflate nominal variables to find their real values. ¡But not the real interest
rate!
GDPdeflator t= (GDPnominal/GDPreal)*100 GDPdeflator t %=[(GDPdeflator t - GDPdeflator t-1)/ GDPdeflator t-1]*100
Deflation: decrease in the general price level of goods and services. It occurs when the inflation
rate falls below
0% 

Disinflation: inflation declines to lower levels. Deflation, increases the real value of money, it
allows one to buy more goods with the same amount of money over time.

LABOR MARKET:

Active population: 16 years  age  67 years Unemployed rate=

unemployed population/Active population
Non-active population: studying, retired, housewives…

THE CONCEPT OF BUSINESS AND PROFIT

- Business: an organization that provides goods or services to earn profits.

- Profits: the difference between a business’ revenues and its expenses.
- Consumer Choice and Demand: consumers choose how to satisfy their wants and needs.
- Opportunity and Enterprise: identify needs and capitalize on the opportunity.
 - Benefits of Business: provide goods and services, employ workers increasing quality of life,
innovation and opportunities,
enhanced personal incomes
of owners and stockholders,
support community and
charities.

EXTERNAL ENVIRONMENT OF
BUSINESS

- Economic Environment: growing company has to pay

· Strong economy: many people have jobs -> higher fines and offer + benefits
to attract worker
pay less offer fewer
· Weaker economy: people looking for jobs->
benefits

- Global Business Environment: international trade agreements, economic conditions,

political unrest, international market opportunities, suppliers, cultures, competitors,
currency values…
- Sociocultural Environment: customs, mores, values, and demographic characteristics of
the society.
- Political-Legal Environment: relationship between business and the government; laws
regulate what an organization can and cannot do in many areas including: products,
advertising practices, safety and health considerations…
- Technological Environment: all the ways by which firms create value: human knowledge,
work methods, physical equipment, electronics and telecommunications, various business
activity processing.
- Domestic Business Environment: seeking to be close to costumers, building relationships
with suppliers, distinguishing itself from competitors.

CLASSIFICATION OF THE COMPANIES

- Size: micro, small, medium and corporations.

- By the capital ownership: privates, publics, mix.
- By the legal form: sole proprietorship, general partnership: Limited partnership or limited
Liability company, Corporation, Cooperative.
- By activity: primary, secondary, third sector.

SME IN SPAIN
Bipolar business structure: multinational corporations (ease of access to finance in different ways).
Micro SMEs: by their lack of access to finance. 90% of the SMEs is provided by banks.
Special types:
- Alternative markets: MAB and MARF
- Financial intermediaries: private equity and mutual guarantee societies.

ECONOMIC SYSTEM

Nation’s system for allocating its resources among its citizens, both individuals and
organizations. Factors of production: labor, capital, entrepreneurs, physical and information
resources.

TYPES:

- Planned Economy: centralized government controls all or most factors of production and
makes decisions for the economy.
· Communism: individuals contribute according to their abilities and receive benefits
in order to their needs.
Owns and operates all factors of production.
Governments Assigns people to jobs and owns all businesses and controls business
decisions
- Market economy: individual producers and consumers control production and allocation
by creating combinations of supply and demand.
· Capitalism: government supports private ownership and encourages
entrepreneurship.
à Individuals choose where to work, what to buy, how much to pay.
à Producers choose who to hire, what to produce, how much to charge.
· Market: a mechanism of exchange between buyers and sellers of a good or service.

- Mixed market economy: features characteristics of both planned and market economies.
· Privatization: process of converting government enterprises into privately owned
companies.
· Socialism: government owns and operates select major industries such as banking
and transportation. Smaller businesses are privately owned
FORMERS OF OWNERSHIP

- Sole Proprietorship: individual or married couple pursuing business for a profit. DOES NOT
involve corporation.
NO legal entity -> NO minimum amount to start
the activity
75% economic incomes coming from customers

- Self-Employed or Freelance:
· The individual that makes “regular” business in own name, assuming the rights and
obligations.
· Your third-party liability is universal and responds with all its present and future
assets of the debts of the company.
· Legal requirement: Incomes > 9080.4€ -> if your incomes are under this amount or
if this is not your main activity, you are not forced to enroll in the (Bias in the Law
interpretation).
à Min to pay per month: 275€/month
 à Spain:  3·106 people are self-employed
à Taxation: IAE, Social Security System, RETA, IRPF, VAT.

Comparison
between sole
proprietorship and
self-employed

- Partnership: two or more people agree to contribute resources to start and operate a
business together. Limited partners share profit, but losses are limited to the amount of
their investment.

· Partnership Agreement (contrato de constitución): no formal documentation is

required to create a partnership, it is a good idea to draw up a written document, to
formalize the relationship between business partners.
à Capital contributions.
à Responsibilities of each partner.
à Decision-making process.
à Shares of profits or losses.
à Departure of partners.
à Addition
of
partners.

Sole proprietorship
VS self-employed
- Co-Ownership: is made up of two or more people who share ownership of a common
property or the right to something. Unlimited liability. A Comunidad de Bienes (CB) is
simple and quickly to set up (and dissolve) since there is no minimum financial investment.
To create a CB a partnership agreement will need to be drawn up by the members
stipulating the amount contributed by each.

- Limited Liability Corporation (LLC): combination of sole proprietorship and corporation. It

protects owners against personal loss. LEGAL ENTITY. Treated as proprietorship for tax
purposes.
· Combines corporate limited liability with partnership tax and advantages with
fewer administrative requirements than corporations.
· Often used by professional corporations.
· Min capital: 3005.06€
· The shares are not tradable, agreement among partners (min 1) must take place.
- Corporation: a legal entity that exists separately from its owners.

ADVANTAGES DISADVANTAGES
- Limited responsibility of - Min capital: 3005.06€
partners to their capital - Cost to set up the entity:
contributions. They do not 500-600€
response to business debt with - Limited sources of finance
their assets.
- Low investment.

- Not-

for-Profit Corporations: an incorporated business that does not seek a net profit. Utilizes
revenue (it come primarily from fundraising and donations) available after normal
operating expenses for the corporation’s declared social or educational goals. Tax-exempt.
 - Cooperative: business owned and governed by members who use its products or services,
these are provide to people with common interests. Members can be individuals or
businesses, they set policy and elect directors. ADVANTAGE: group power.

- Joint Venture (JV): is a business arrangement in which two or more parties agree to pool
their resources for the purpose of accomplishing a specific task (a new project or any other
business activity).

FRANCHISE

Is a method of doing business whereby the business (franchiser) sells a company’s products or
services under the company’s name to independent third-party operators (franchisees).
Play an important part in our economy. More than half of all franchises are in the fast-food
industry. Franchise opportunities exist in
nearly every industry, and it provides a
opportunity to do business
internationally.

ACQUISITION: one company takes over

another company, the purchased
one ceases to exist, and it operates and
trades under the buying company’s
name.

HOSTILE TAKEOVER: acquisition occurs when one company tries to take control over
another company against its wishes.

· Tender offer: the acquiring firms offer to buy the target company’s
stock at a price higher than its current value to
induce shareholders into selling.
· Proxy fight: the acquiring company tries to persuade the WHY DO THEY OCCUR?
target company shareholders to vote out existing - Become the
management and to introduce management that is dominant force in
sympathetic to the goals of the acquiring company. market
- Reduce costs
MERGER: two companies join to form one company, friendly and - Add new product
mutually lines
agreed. - Expand into new
geographic areas
- Gain innovations

Types Of Mergers

- Horizontal Merger: companies that share the same product line and market ->
competitors.
- Vertical Merger: companies that have a company/customer-supplier relationship.
 - Product Extension Merger: companies selling different-related products in the same
market.
- Market Extension Merger: companies that sell the same product in different markets.
- Conglomeration: companies that have no common business areas merge to obtain
diversification.

All these legal forms are typical of private companies.

But: Are public companies in Spain?

Those are the ones that are partially owned or fully by the state -> capital are state property.
15: owned from sectors such: energy, communication, power, defense companies.

Can a public company become private?

Privatization: it involves the partial or total disposal of capital of the company to third parties.

MANAGEMENT: working with people and resources to accomplish the goals of the organization.

- What skills have successful managers?

Technical, Interpersonal, Conceptual, Decision-making, Time management.
 Manage the four-time
Global skills: understand foreign
wasters: paperwork,
markets, cultural differences,
telephone calls,
practices of foreign rivals, how
to collaborate with others meetings, e-mail.
around the world

Technology: how to
process increasing
amounts of
information.

FUNCTIONS OF MANAGEMENT:

- Planning:
· Goals and Objectives: S M A R T E R
Rewarding
Extending
Timely
Realistic
Acceptable
à Vision: series of Measurable
goals and plans, should be made clear to employees and
Specific
investors -> FUTURE
à Mission statement: current description, lists the organization’s purpose, it
also includes the basic goals and philosophies. -> PRESENT

· Management Planning:

How can we plan?

STRATEGIC MANAGEMENT: process of helping an organization maintain an effective
alignment with its environment.
Strategy: broad set of action plans to achieve
company goals.
Mission Statement: statement of how a
business will achieve its purpose.
Goals: starting point in effective strategic
management, objectives that a business plans to
achieve, are used to measure success or failure.

Setting Goals:
à Long-term: five years or more
à Intermediate: one to five years
à Short-term: one year or less
à Purposes: provide direction and guidance, helps firms allocate resources,
define corporate culture, managers assess performance.

Types of Strategy
à Corporate strategy: determines what business a company will own and
operate, its growth can be by a related or an unrelated diversification, the
retrenchment, which consists in downsizing and divestiture.
à Business/Competitive Strategy: focuses on improving the company’s
competitive position at the level of the business unit or product line.
à Functional Strategy: guides managers in specific areas such as marketing,
finance, and operations in deciding how best to achieve corporate goals by
performing their functional activities most effectively.

Formulating Strategy
1. Settin
g

strategic goals: derived from a firm’s mission statement.

2. Analyzing the Organization and the Environment: SWOT analysis, assessing
internal strengths and weaknesses and external opportunities and threats:
environmental and organizational analysis.
 3. Matching the Organization and Its Environment : matching environmental
threats and opportunities against corporate strengths and weaknesses.

Hierarchy of plans:
à Strategic plans: steps needed to meet strategic goals, resource allocation
and focus on company priorities.
à Tactical plans: shorter-term plans for implementing specific aspects of the
company’s strategic plans.
à Operational plans: short-term targets for daily, weekly, or monthly
performance.
3 Stages in the Change Process:
Contingency planning: planning for change, - After analyzing the company’s
identify important aspects of a business that environment, extensive change is the
might change and the way to respond to most effective response.
changes. - Top management formulates a vision of a
new company.
Crisis management: organization’s methods - The firm sets up new systems for
appraising and compensating employees
for dealing with a crisis, immediate response. who enforce the firm’s new values.

Corporate culture: shared experiences, stories, beliefs, norms that characterize an

organization, it defines the work and business climate in an organization. Managers must
understand the culture, transmit it to others and support it.

- Organizing: process of structuring resources

(capital, personnel, raw materials, other resources)
to carry out plans.

· Vertical/Tall structure: organized by its specific function: finance, sales…, the

integration between functions is not easy with long lines of communication and
reporting up.
à Levels of expertise within functions are developed and managers can better
keep track of economic and environmental conditions that affect them.
It has been the primary structure since industrial revolution.
 · Horizontal/Flat organizations: few layers so if needed the bosses’ approval, it
would be faster received, and often use teams giving them the responsibility for the
outcome of its work. The company can be more responsive since individuals are
more empowered to make decisions.

· Network: collection of independent, single-function firms that collaborate on a

product or service, it is successful for the companies who need to be innovative,
flexible, need quick responses, and reduce cost and risk.

- Leading: process of influencing, motivating, and enabling others to contribute to the

success by achieving goals. A good leader has to be: determinate, inspire, flexible and
empathic, innovative, honest, self-confident and competent

LEADERS  MANAGERS
Important of guiding Task orientated and
and inspiring others focus on process
to accomplish a task and control
 Leadership styles:

- Controlling: ensuring that plans and strategies set in place are properly carried out.

· Bureaucratic control: uses rules, regulations

and formal authority.
· Market control: evaluate workers on their
attainment of specific objectives.
· Clan control: assumes that employees and Control cycle:
Plan, Do,
management have same goals. Check, Act

OPERATIONS
- Operations (Production): all activities involved in making products for customers.
- Service Operations (Service Production): provide intangible and tangible service products.
- Goods Operations (Goods Production): produce tangible products.
- Operations Managers: create utility for costumers through production, inventory, and
quality control.
- Getting value through operations:
· Utility: ability of a product to satisfy a want or need: form, time, place.
· Operations management: systematic direction and control of processes that
transform resources into finished services and goods that create value for and
provide benefits to customers.
DIFFERENCES BETWEEN SERVICE AND GOODS OPERATIONS

Are performed Are produced

- Involve interacting with consumers.
- Are sometimes intangible and
unstorable.
- Involve a customer’s presence in the
process.
- Involve certain service quality
considerations.

OPERATIONS PROCESS

- Operations Process: methods and technologies used to produce a good or service.

- Goods Production Processes: make-to-order or make-to-stock processes.
- Service Production Processes: there are “Low-contact systems” where low customers are
involved and “High-contact systems” which involves much more customers.

BUSINESS STRATEGY AS THE DRIVER OF OPERATIONS

- Companies design their

operations (which will
make you success) based
on its strategy, their
strategic position is the
description of itself a
company has chosen,
understanding the business
as they consumers.
Moreover, they should
have a market position, even if the company has a single service or product concept or
multi-service portfolio, it has to be configured to deliver each type of service to the
customers, taking into account the positions they want to have in contrast with their
competitors.

OPERATIONS PLANNING

- Capacity Planning: determining the amount

of a product that a company can produce
under normal conditions.
- Location Planning: determining where
production will happen based on costs and
flexibility.
- Layout Planning: how do you produce?
Planning for the layout of machinery,
 equipment, and supplies. How a company can respond to demand for more and different
products or it finds itself unable to match competitors. Process and product layout.

QUALITY PLANNING

Is the combination of “characteristics of a product or service that bear on its ability to satisfy
stated or implied needs”. Begins when products are designed: goals are set for performance and
consistency. It includes deciding what constitutes a high-quality product and determining how to
measure these quality characteristics.

METHODS PLANNING

Managers identify each production step and methods for performing it. They reduce waste and
inefficiency through methods improvement and process flows.
Helps managers
They attempt improve customers service. organize and
record information

OPERATIONS SCHEDULING

Times when specific production activities will occur. Types:

- Masters schedule: shows which products will be produced and when.

- Detailed schedule: shows day-to-day activities.
- Staff schedules: show who and how many employees will be working and when
- Project schedule: coordinate completion of large-scale products.

Gantt Chart: breaks down projects into steps to be performed

and specifies the time required to complete each step, it is used to:
- List all activities to be performed.
- Estimate the time required for each step
- Record the progress on the chart.
- Check the progress against the time.

OPERATIONS CONTROL

Requires managers to monitor performance by comparing results with detailed plans and
schedules.
Follow-up: checking to ensure the production decisions are being implemented, it is a
critical ongoing facet.

MATERIALS MANAGEMENT

The process by which managers plan, organize, and control the flow of materials from sources of
supply through distribution of finished goods. Then: supplier selection, purchasing, transportation,
warehousing, inventory control.
PRODUCTIVITY
- Utilization: measure of the extent to which a resource is being used. It can be expressed in
absolute terms or as a percentage of possibility. All resources (staff, equipment, airport
terminals, gates, simulators, information systems, distribution channels) should be utilized
as full as possible. Maximizing resources utilization is now a critical element in the
operating strategies of the well-managed implications.

- Productivity: ratio between inputs/outputs, either all inputs are aggregated or just a single
category (labour).

à Labour productivity:
Measure the capacity demand and supply:
 ASMs (available seat-mile) -> production capacity.
 ATMs (available ton-mile)
 PM (passenger mile) -> volume of passenger traffic.
Quantify the monetary value:
 RPMs (revenue passenger mile): passenger per km transported.
 RTMs (revenue ton mile)
à Flight equipment productivity:
 ASMs produced per flight hour, day or year.
 RPMs produced per flight hour, day or year.
à Output per gallon or liter of fuel= Passenger-mile-gallon; revenues
passenger-mile-gallon.
à Total productivity:
 RASK: revenues/ ASK: revenues/available-seat-mile
 YIELD: revenues/ PM: revenues/passenger mile
à Load factor: PM/ASM; TM/ATM

- Efficiency: maximized when a given level of inputs is generating as much

output as possible or when a given level of output is generated by the
minimum level of inputs possible. Economic
appeal
- Effectiveness: maximized when a targeted standard of performance is
attained.

HOW TO MANAGE PRODUCTIVITY?

- Staff productivity: outsourcing labour/intensive processes, greater automation as routine

purchasing, more flexible work-rules and staff multi-skilling, having customers participating
more actively in-service delivery.

BARRIERS TO INCREASE PRODUCTIVITY

- Productivity can growth and market share decline.

- Productivity can growth and profit can fall.
- The institutional context: laws applied
· Hours worked per year affected by regulations or union agreements.
 · Burocratic processes are difficult to follow.
· The more regulated a market is, the more laws you should follow, and the more
affect the productivity would be.
· Automation processes
· Outsourcing in order to follow the law, but it affects the staff members and staff
productivity.

PRODUCTION PROCESS

For goods and services -> efficient production processes: decrease costs, allow for lower prices,
improve product, attract customers, increase profits.

- Mass production: relies on machines and automated assembly lines to produce goods that
are identical and adhere to certain standards of quality. On an assembly line, partially
complete products are moved from one worker to the next on a conveyor belt, a
disadvantage is inflexibility.

- Flexible production: Flexible Manufacturing System (FMS). Several machines linked by a

computer, adaptable to schedule and product specification changes. Four components:
 · Processing machines: are arranged in stations according to their task, like
assembling and inspecting parts
· Material handling system is what moves the products from one workstation.
· Central computer: controls all of the components.
· Human labor
Used for products with: Low to medium demand, frequent changes in demand and a wider
variety of possible customization.

- Customer-driven production revolves around the customer: “Dell”, prospect to cash steps.
1. Sales prospects (potential customers).
2. The company presets customization limits to ensure products that are also
cost-effective.
3. Order management processes the order, control inventory and ship the item.
4. Production makes the item to customer’s requirements.
5. Finance bills the customer and collects payment.

Living conditions: business brings

Utility supply: public opportunities or threats, as they
infrastructure services: power, search for areas with high quality of
water… life.
Hazardous-waste disposal: Labor availability: skills
different state, country, and Laws and regulations: protect
municipally guidelines. workers and environment

- Facility location: we have to consider raw materials, transportation costs, human factors,
physical factors.

Depending:
- Proximity to markets
- Cost of transporting raw
materials
- Presence of highways
and other
transportation systems

PRODUCTION MANAGEMENT
Maximize effciency, allow for growth, meet
national standards, smooth production
flow, minimize work, meet employee
needs.
Production planning: facility location;
layout; what, how much to produce; what
processes and machinery to use; how
to meet the needs of employees; quality
control.

Working with suppliers:

 - Make or buy decision: cost and quality considerations.
- Supplier selection steps:
1. Define requirements
2. Research potential suppliers
3. Ask for quotes
4. Decide and work out a contract
- More than one supplier for an item.
- Strong vendor relationship: vendor timeliness affects a business’ products and how
customers view the company.

Maintaining inventory control: receiving, storing, handling and tracking (raw materials,
(un)finished products, consumables); stock book solutions; reserve stock system.

Just-in-Time (JIT) inventory control: keep smallest amount of inventory possible, items ordered JIT
for use, reduce storage costs, requires strong supplier relationships and robust inventory control
system…

Forward scheduling

Backward scheduling

Order Start Completed/

received Due

Routing: way in which goods are transported, a company’s routing guide shows detailed routing
solutions for every shipping situation.

Quality control: activities to guarantee that a good or service meets a specific level of quality,
which happened at the end of the process, but today, the product service is inspected by workers
at each critical operation.

PERT Charts:
- Maps out the various steps involved in a project, differentiating tasks that must be
completed in certain order from tasks that may be completed simultaneously.
- Time estimates are assigned to each task.
- Helps identify the critical path, or the sequential tasks that will take the longest amount of
time. This helps managers determine an overall timeline for completing a project or a
manufacturing standpoint.
- Are limited in their ability to predict project completion times, since they do not take into
account delays.
Decision Time Frames: the firm makes many decisions to achieve the maximization profit, some
decisions are critical to the survival of the firm and are irreversible, nevertheless, others are easily
reversed and are less critical to the survival of the firm, but influence profit, and are placed in the
short and long run.
Time frame in which the quantity of all resources can
be varied. Can´t be easily reversed If a firm’s plant has
no resale value, the amount paid for it is a sunk cost
(cost incurred, cannot be changed and are irrelevant
for the present)
Time frame in which the quantity of one or
more resources used in production is fixed. The
capital (firms’ plant), is fixed in the short run,
other resources can be changed in the short
run.
Short-Run Technology Constraint: to increase output in the short run a firm must increase the
amount of labor employed. Relationship between output and quantity of labour:
- Total product: total output produced in a period.
- Marginal product: change in total product that results from a one-unit increase in the
quantity of labour employed.
- Average product: equal to total product divided by the quantity of labor employed.

Product curves: show how the firm’s total product, marginal product, and average product
change as the firm varies the quantity of labor employed. The total product curve shows how
total product changes with the quantity of labor employed, is similar to the PPF (Production
Possibility Frontier), it separates attainable output levels from unattainable output levels in the
short run.
Marginal product curve: how the marginal product curve relates to the total product curve.
Each bar measures the marginal product of labor. (Ex: when labor increases from 2 to 3, total
product goes from 10 to 13, so marginal product is 3 units of output).

Almost all production processes are like this: increasing marginal returns initially and
diminishing marginal returns eventually.
The marginal product of a worker
The marginal product of a worker is exceeds the marginal product of the
less than the marginal product of the previous worker. Arise from
previous worker. Arises because each increased specialization and division
additional worker has less access to of labor.
capital and working space.

Law of diminishing returns: as a firm uses more of a variable input with a given quantity of
fixed inputs, the marginal product of the variable input eventually diminishes.
Average product curve: shows the relationship between average and marginal product, when
marginal product exceeds average product, average product increases. When marginal
product is below average product, it decreases.

Short-Run Cost: to produce more output, the firm must employ more labor, which means that it
must increase its costs. Three cost concepts and curves:
- Total cost (TC): cost of all resources used. TC=TFC+TVC. Increases as output does.
- Total fixed costs (TFC): cost of the firm’s fixed inputs, do not change with output. Its curve
is the same at each output level.
 - Total variable cost (TVC): cost of the firm’s variable inputs, change with outputs. Becomes
less steep at low output levels and steeper at high output levels.
- Average cost:
· Average fixed cost (AFC): total fixed cost per unit of output. Its curve shows that
AFC falls as output increases.
· Average variable cost (AVC): total variable cost per unit of output. Is U-shaped, as
output increases, average variable cost falls to a minimum and then increases.
Initially MP exceeds AP which brings AP rising and AVC falling. Eventually, the
opposite happens.
· Average total cost (ATC): total cost per unit of output. ATC=AFC+AVC. U-shaped due
to be the vertical sum of the AFC curve and the AVC curve, arises from the influence
of two opposing forces: spreading total fixed cost over a larger output AFC curve
slopes downward as output increases; when AVC curve slopes upward and AVC
increases more quickly than AFC is decreasing.

- Marginal cost (MC): increase in total cost that results from one-unit increase in total
product. With increasing marginal returns, the MC falls as output increases. With
diminishing marginal returns, MC rises as output decreases. Its curve is special, depends on
AVC, when AVC is falling, MC is below; if AVC is rising, MC is above it; if AVC is at its
minimum, MC is equal to it. The same happens with
ATC.

Cost curves and Product curves: the shapes of a firm’s cost

curves are determined by its technology:
· MC is at its minimum when MP is at its
maximum.
· When MP is rising, MC is falling.
· AVC is at its minimum when AP is at its
maximum.
· When AP is rising, AVC is falling.

Shifts in the cost curves: depends on two factors:

- Technology: technological changes influences both, the

product curves and the cost curves. An increase in
productivity shifts the product curves upward and costs
curves downward. If a technological advance result in
firm using more capital and less labor, fixed costs
increase, and variable costs decrease. Average total cost
increases at low output levels and decrease at high
output levels.

- Prices of Factors of Production: an increase in the factor of production, increases costs and
shifts the cost curves. An increase in a fixed cost shifts TC and ATC curves upward but do
not shift the MC curve. An increase in a variable cost shifts TC, ATC, and MC curves upward.
Relationship between the
maximum output attainable and
the quantities of capital and labor
Long-Run Cost: all inputs are variables and all costs are too.
 - Production function: the behavior depends upon the firm’s production function. As the
size of the plant increases, the output that a given quantity of labor can produce increases,
however diminishing occurs.
· Diminishing Marginal Product of Capital: increase in the output resulting from a
one-unit increase in the amount of capital employed, holding constant the amount
of labor employed, it also returns to labor (given plant) and it creates a U-shaped
costs curve of MC, AVC, ATC.

- Average cost curve: relationship between the lowest attainable average total cost and
output when both, the plant and labor are varied, it is a planning curve that tells the firm
the plant that minimizes cost of producing a given output range, then the firms incurs the
costs that corresponds to ATC curve for that plant.

- Economies and diseconomies of scale:

· Economies of scale: features of a firm’s technology that lead to falling long-run
average cost as output increases.
· Diseconomies of scale: features of a firm’s technology that lead to rising long-run
average cost as output increases.
· Constant returns to scale: features of a firm’s technology that lead to constant long-
run average cost as output increases.
· Minimum efficient scale: a firm experiences economy of scale up to some output
level, beyond it, it moves into constant or diseconomies scale. The minimum
efficient scale is the smallest quantity of output as which the long-run average cost
reaches its lowest level, if the curve is U-shaped, the minimum point corresponds to
this.

Sources of finance of the Company

Internal: produced as consequence of running the firm -> depreciation.

- Depreciation implies: decline in the value of assets; and allocation of the tangible assets to
periods in which they are used, the cost is allocated as depreciation expenses.
- Fixed assets of a project: depreciates its value.

- Estimate depreciations: value of the goods or assets; maturity; residual value; amount to
be depreciated; method of depreciation.

- Firms can manipulate depreciation: show more valuable assets than there are “strength
and productivity”; show less valuable assets “pay less taxes”.

- Problems to accomplish the Accounting Plan: doesn’t exist a secondary market of the
equipment; exact useful life of the fixed assets is unknown; nonuse equipment has a minor
life value.

- Total depreciation is used differently:

· Expansion cycle (^): firm increases its productive supply, they need to invest, needs
finance resources that can get from the depreciations