Starting a Business
What information do you need before you can decide which type of business might be the most successful? Be sure to give your answer in at least three to four sentences.
Before I can choose a business, I need to know how much competition there is in my community. For example, if competition for outdoor footwear is high, the coffee shop might be the better choice. I also need to know which business has factors of production that are possible for me to meet. For example, how many employees would I need for each business?
In this lesson, you started by reviewing customer demand before choosing a business. What microeconomic factors point to the fact that your business should be successful? Be sure to provide evidence for your claim.
It is clear that consumers in the area are able and willing to purchase custom outdoor shoe equipment. Data from surveys and market research demonstrate that the standard of living is high enough for my product. These data also demonstrate that new coffee shops are not in demand in my community. A new coffee shop may be successful, but it would be a bigger risk considering the capital need and the amount of competition already present.
Now, use your research to decide which business is the best choice for this community. Explain your choice in two to three sentences, using factual evidence to support your claim.
The best business for this area is The Shoe Hut. This is the case for several reasons. First, there is less competition for custom sporting goods, as the supply in the area is lower. Survey data shows that there are more individuals who desire custom outdoor sporting goods than there are people who desire more coffee shops. Finally, the overall capital required to start and maintain The Shoe Hut is lower. Less equipment is needed, any building can be rented, and if an employee cannot be hired immediately, I can run the store on my own.
After you analyzed demand, you took steps to make sure your business made sense financially. How will thinking on the margin help increase the chance of long-term success for your business, even if additional competition enters your community?
Thinking on the margin will ensure that each pair of inserts produced is turning a profit. Once a profit is no longer being made on a pair of inserts, production must be cut back. Understanding these margins will also help me stay competitive in a market that is open to other producers. If additional producers enter the market, I know that I have the ability to lower prices or offer discounts while still maximizing profits.
You have just seen the production possibilities for your new store. Use this information to write two to three sentences explaining which item is better for you to produce and why.
You have just seen the production possibilities for your new store. Use this information to write two to three sentences explaining which item is better for you to produce and why. It is better for me to produce running shoe inserts, because the production of running shoe inserts has a lower opportunity cost than the production of hiking boot inserts. This shows that the production of running shoe inserts requires fewer resources, which could also mean greater profits.
