Business Management & Economics: Key Concepts and Theories

What are Economies of Scale?

Cost advantage from producing larger volumes (fixed cost per unit decreases as output increases).

What are Economies of Scope?

Cost advantage from producing multiple products with shared resources (e.g., same machine for two products).

What are the main purposes of organizations & businesses?

Division of labor, efficiency, durability, reliability, innovation, legal protection, and tax advantages.

What are the goals of non-profit, public, and for-profit organizations?

For-profit: Generate profits for owners/shareholders. Non-profit: Advance a cause/mission for society. Public: Provide services for the common good, funded by taxes.

What are the 3 components of the systems model?

Inputs ‚Üí Processes/Transformation ‚Üí Outputs.

What are characteristics of an open system?

Interacts with its environment, adapts to feedback, influenced by external forces.

What is entropy in business systems?

Tendency toward disorder if energy/innovation is not invested (e.g., Blockbuster vs. Netflix).

What are the characteristics of the Agrarian era?

Agriculture-based, broad skills, seasonal work tied to nature.

What are the characteristics of the Industrial era?

Mechanization, division of labor, factory system, rise of labor unions.

Who was Adam Smith and what did he advocate?

Father of capitalism, free markets, 'invisible hand.'

What did Karl Marx argue about capitalism?

Capitalism exploits workers; elites own production, workers depend on them.

What is Scientific Management (Taylorism)?

Use of time/motion studies, task standardization, separation of planning (managers) and execution (workers).

What is Bureaucratic Management (Weber)?

Hierarchical authority, formal rules, impersonality, technical qualifications.

What is Humanistic Management?

Shift toward recognizing motivation through social needs (Hawthorne studies).

What are causes of unethical behavior?

Bad apples (personality), situational pressure (self-interest, goals), environmental factors (incentives, culture).

What is the Agency Problem?

Misalignment between principal’s interests (owners) and agent’s actions (managers/employees).

What is ethical fading?

When focus on goals/outcomes causes ethical aspects to 'fade out' of decisions.

What is Corporate Social Responsibility (CSR)?

Businesses must maximize positive impact and minimize negative impact on people, planet, and profit.

What is Creating Shared Value (CSV)?

Business strategy to create economic + social value (e.g., Nescafé Plan helping farmers).

Shareholder vs. Stakeholder theory?

Shareholder (Friedman): Sole duty is to maximize profits.
Stakeholder (Freeman): Firms must balance needs of all groups with claims on the org.

What are types of business ownership?

Sole proprietorship, partnership, LLC, corporation.

What is a mission statement?

A company’s purpose — why it exists.

What is a vision statement?

The long-term desired future state of the company.

What are strategic goals?

Long-term objectives that align with mission & vision.

What are the stages of the business lifecycle?

Introduction ‚Üí Growth ‚Üí Maturity ‚Üí Decline/Renewal.

Key characteristics of the Introduction stage?

High risk, low resources, most fail within 5 years.

Key characteristics of the Growth stage?

Rapid expansion, competitors enter, balance quality & scaling.

Key characteristics of the Maturity stage?

Slower but stable growth, efficiency focus, shrinking margins.

Key characteristics of Decline/Renewal?

Decline: falling sales/profits, reduced innovation.
Renewal: reinvent product/market (e.g., Nintendo).

What is formalization?

Degree to which tasks are standardized by rules/procedures.

What is centralization?

Degree to which decisions are made at upper levels (centralized = consistent, decentralized = faster).

What is chain of command?

Line of authority from top to bottom, dividing line vs. staff functions.

What is span of control?

Number of employees reporting to a manager (tall = narrow span, flat = wide span).

What is specialization?

Degree to which work is subdivided into jobs; high in large firms, low in small firms.

What are the 5 types of departmentalization?

Functional, Product, Geographic, Process, Customer.

When is functional structure best used?

Stable environment, single/dominant product line.

When is divisional structure best used?

Multiple product lines/markets, fast-changing environment.

When is matrix structure best used?

Complex orgs needing efficiency + agility; dynamic industries.