1. Business Decisions and Investments
UNIT VI – Fundamental Economic Principles

2. Why do businesses form?
To make a profit
Sometimes to better society

3. Business Decisions Business owners must make their decisions carefully
Every decision will have a consequence, whether good or bad
Every decision is a gamble as to whether or not it will create more profit

4. What types of decisions do businesses have to make?

5. Business Investments
Investment decisions are the most important decisions for a business to make
Businesses invest in the four factors to create the largest profit possible

6. Why would a business invest in each of the following?
Hiring more workers?
Purchasing a larger factory?
Training employees more?
Investing in new technology?
Outsourcing jobs to other countries?

7. Law of Diminishing Return
Businesses understand that an investment will not always produce a profit
The Law of Diminishing Return states that at some point a business will invest too much and lose money as a result

8. Costs Fixed – doesn’t change based on amount produced (rent)
Variable – changes based on amount produced (labor, resources)
Total Cost = Fixed + Variable Cost (this would be the bills and labor costs)

9. Revenue Total amount of money made before bills and labor costs
Total Revenue =
amount sold X price

10. Profit Total amount pocketed after bills and labor are paid Profit =
Total Revenue – Total Cost