April 8, 2013
Guillermo Navallez’s furniture store is in trouble. Guillermo’s research brought different conclusions. Every decision made will have a principle behind it. Guillermo’s decisions are based on opportunity cost, researching competition, new ideas, comparative advantage, and options. He will compare the decisions and principles together.
Principle of Self Interest
“This principle says that when all else is equal, all parties to financial transactions will choose the course of action most financially advantageous to themselves” (Emery, Finnerty, Stowe, p. 20). Guillermo did not follow the principle because of the opportunity cost. The cost of expanding his business would take away from family time.
The principle is basic, what is everyone else doing. Guillermo researched his competition. Merger and acquisitions is not an option for him. He does not want to be bought out, either. Guillermo wishes to remain independent. He decided to look at what the foreign competition is doing to enable them to produce the furniture more rapidly, cheaper, and with the same quality.
Principle of Valuable Ideas
What can Guillermo do to improve business practices, marketing, and sales? Guillermo could go high-tech, like the foreign competitors. If he purchases a robotic laser lathe to produce his furniture, the expense for the purchase will be offset by the savings in labor. The advantage Guillermo receives, running the plant 24 hours day with reduced production costs.
Principle of Comparative Advantage
Comparative advantage is the abilities of a party to produce a good or service at a lower marginal and opportunity cost. Comparative advantage enables trading among countries. One of Guillermo’s competitors has been looking for a distributor. He has the ideal of changing the main focus of his business while keeping a small part of high-end...