Mini Essay: BUSINESS IN THE ECONOMY - What decisions does a business firm make in regard to what, how much and how to produce?

Essay by j2812High School, 11th gradeA+, August 2008

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In an economy, a business's fundamental purpose is to provide products or services to consumers and apply business strategies to maximise their profits. Entrepreneurs must therefore make important decisions which will affect the performance of their business. The basic production decisions concerning a business firm are the choice of the product of which to produce, the quantity of production and the method of production. With these decisions come many factors to be considered.

As it is in a business's best interest to satisfy consumer wants and needs through the provision of goods and services, entrepreneurs must evaluate whether a product will appeal to customers who are willing to pay an adequate price. There are several factors that must be taken into consideration in deciding on what products to produce or not to produce.

One of the factors that influence a business's decisions in terms of what to produce is consumer preferences.

Businesses must know what appeals to their target customers as customer satisfaction will see success for the firm.

Consumer incomes also influence a business's decisions. A business must ask itself whether the proposed price is affordable for their target market and cater for its consumers' incomes. For example, if a business relies on local consumers for sales, and the average income of the area is relatively low, the business must consider whether or not the product is affordable enough as to generate sales whilst also ensuring profits to the business.

The market threshold of the product is also an influential factor for a business's decisions. Market threshold is the number of people required multiplied by the frequency of their purchases that make a business liable. Market threshold is required for a business to determine whether the number of consumers of their product will generate enough sales revenue to make...