Financial Concepts in a Changing Business

Michael Magons

FIN/571

April 9, 2012
Beatrice Jones

Financial Concepts in a Changing Business

Guillermo Navalles’s furniture store is facing some new competition and has choices to make (University of Phoenix, 2012). These choices include competing with the new firm, absorbing or being absorbed by other firms, or changing from mainly manufacturing to distribution. Changing technologies and changes in the labor force influence decisions Guillermo needs to make to improve his business. Financial concepts associated with these types of changes are discussed here. Guillermo is compelled to make decisions about how he runs his company because of his own financial self-interest (Emery, Finnerty, & Stowe, 2007). The opportunity cost for Guillermo’s firm has changed since the arrival of new competition, and he must decide how to change his variable costs to maintain the prosperity of his company. His options include altering labor costs through automation or changing from a manufacturer to a distributor with more outsourcing (University of Phoenix, 2012). He is also displaying the behavioral principle because he is considering either copying the competition or adopting a business model that works for other furniture firms. Copying the behavior of another could work for Guillermo. The comparative advantage principle can also work with Guillermo because he can offer a patented coating that is flame retardant and stain resistant that the competition does not (University of Phoenix, 2012). He could attract buyers because he offers a better product (Emery, Finnerty, & Stowe, 2007). The principle of valuable ideas also applies when considering the patent. If this is marketed properly the coating could create a large demand for his furniture allowing him to increase his price. The diversification