Applied Economics

Governor Pack Road, Baguio City, Philippines 2600

Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: Grade 12- ABM
Email: [email protected]; Website: www.uc-bcf.edu.ph

MODULE 10 – Applied Economics Subject Teacher:

CONTEMPORARY ISSUES FACING THE FILIPINO ENTREPRENEUR

Learning Objectives:
At the end of this module, student must be able to:
a) identify the contemporary issues faced by entrepreneurs; and
b) recognize the effect of contemporary issues to entrepreneurs.

Introduction
One of the challenges that entrepreneurs face is the opportunity cost of investing in different
portfolios and interest rates that go with. Investment defined as things that one buys for future use
expecting the value of it to increase.
Contemporary Issues
1. Investments and Interest Rate
An investment is a product that people buy with the hope that they will be beneficial or will
generate income in the future. We classify thee investments as either long term investments or short
term investments. One of the usual long term investments is buying a property or engaging in real
estate. The process is simple: you buy any property then wait for the value to increase as years go by.
Waiting time is over when you decide to sell the property, usually at a higher price, and move on to
the next opportunity to invest.
Banks offer a variety of short term investments. Savings and time deposits are the usual venues for
these types. Security risk is low, gain is also low, and interest rates are fixed. The only problem is that
opportunity cost is high. If you are well versed with other types of investments, it is possible that you
won’t go for these but rather look for other venues.
Other financial intermediaries usually offer other types of investments like stocks and bonds. The
Philippine Stock Exchange is a place where traders buy and sell stocks for profit. Ideally, a broker buys
stocks and sell them at a higher price later. Although it may sound simple, there are many things that
may complicate the profit objective. There are losers and gainers from trading, you can’t win them all.
Let us say you have no money and you are looking for a good portfolio on what a company to
invest with. You may consider the background and the financial performance of a business before you
buy its stocks. Businesses sells out stocks to private entities like individuals in exchange for ownership to
gather money and expand or open new businesses.
After deciding on what to buy you are now part owner of the corporation and you are entitled to
a percentage share of all of its gains and losses. Owning shares of a company with a good reputation
will make the market value of such increase. In time, other factors will make or break the reputation of
a particular company. If your timing is right, you may sell or trade your stocks for a better deal. Time is
not definite when you trade shares of stocks; you may or may not benefit from it. It is the risk in investing
with such undertaking.
You may also invest in bonds where a company directly or indirectly borrows money from you and
in exchange you get an interest (higher than what banks offer as savings or time deposits) after a given
period of time. You can compute the future value of your money by simply multiplying the interest rate
to the value your investment and adding it to the amount you invested. Unlike stocks, bonds mature
and you need to renew it if you decide to invest with the same company. You either gain or lose in
trading stocks while you get a fixed interest rate on bonds. In stocks, you get to be a part owner of the
company until you let go of your shares while in bonds you are treated as a temporary lender.

2. Rentals
Having your own small business is also an investment, but these are things that you should consider.
In any kind of market structure, the first few months of operation is where the business experience losses.
This is because of fixed costs which include rent, machinery and equipment. Theoretically, as a business
continues to operate efficiently, both variable and fixed costs are distributed among the output
equally making it profitable. Profit will only be experienced by the business if quantity output is exactly

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 Applied Economics
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: Grade 12- ABM
Email: [email protected]; Website: www.uc-bcf.edu.ph

MODULE 10 – Applied Economics Subject Teacher:

at the point where cost is at its lowest. If you do not expand, there will come a time where the business
will experience increasing costs because of the effect of the Law of Diminishing Marginal Returns.
The law of diminishing returns states that as one input variable is increased, there is a point at which
the marginal increase in output begins to decrease, holding all other inputs constant. At the point
where the law sets in, the effectiveness of each additional unit of input decreases.
In case you decide to expand, (all things being constant) your business will incur profits. But you
need to consider the initial capitalization, cost of expanding, and vulnerability of the market before
you really venture in such project.
3. Minimum Wage
Increasing costs of businesses is brought about by the increasing wages. In the Philippine setting,
each region, has its own minimum wage determined by the standard of living of its residents. Every
now and then, the government tries to increase minimum wage. This minimum wage is expected to
be enough for the ordinary worker to afford things that he/she usually buys. The objective of increasing
minimum wage enough for subsistence is to improve the lives of ordinary households. But in reality, it
brings about unemployment. Setting a minimum wage will result to a surplus of laborers which was
already discussed in the previous lesson.
4. Taxes
Taxes is also a significant issue for issues facing the entrepreneur. Taxes are considered inflows for
the government and outflows for the firms. Business apply either a percentage tax on gross receipts or
on value added. This is a burden for the business. Any tax for that matter is a burden. Business taxes
should be paid every month and income tax from business are taxed quarterly.

Other Problems Faced Under Different Market Structures

Market structures are different composition of sellers and distinguishing quality of goods. It is
essential to identify which of the existing market structure one’s business belongs to and it is also equally
important to identify possible problems or challenges one might face upon entering such market.
1. Pure Competition

Pure competition is a market structure where there are many buyers and sellers. Since
there are many participants, none of them can cause changes in prices and quantities of goods
and services. For example, when a buyer of “bangus” at Balintawak Market no longer
participates in buying “bangus” and posts a decrease in quantity demand, it does not follow
that prices will decrease. This is due to the fact that a single buyer is insignificant in this of structure
and can easily be replaced by new buyers. Sellers also experience the same scenario.

The usual problem that a competitor faces is how to survive and how to get a fair market
share. In order to be competitive; one has to adjust the size of his/her business to achieve the
most efficient plant size. This is attained by adding more labor inputs until the best combination
of labor and capital is experienced.

2. Monopoly

Monopoly is a market structure where there is only one seller that represents the whole
industry. If sellers are “price takers” in pure competition, a monopolist, on the other hand, is a
“price maker”. In a monopoly, there is only one good or service with no close substitutes; hence
consumers have no other choice but to patronize that one product or service.

The usual problem that a monopolist faces is the improvement of its product or service.
This problem occurs because the monopolist lacks the foresight to become efficient due to the
absence of competition.

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 Applied Economics
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: Grade 12- ABM
Email: [email protected]; Website: www.uc-bcf.edu.ph

MODULE 10 – Applied Economics Subject Teacher:

A very good example is the manila Rail Transport (MRT) where many consider the service
as poor and inappropriate. Although there seem to be an effort on the part of the owners to
improve its service; it is still insufficient. And we see the proof of a deteriorating service beyond
control.

One solution is the transfer of ownership to an entity that has the resources to improve its
services. Enough funding is needed.

3. Oligopoly

There are many types of oligopoly; an example is where players are the same or there
are no disparities between them. Another example is a dominant player among several players;
another instance is where there are only two players (and some might even have this imperfect
collusion). To better appreciate this market structure type, focus will be given to the Oligopoly
in a perfect collusion, where there is a dominant player and products are homogenous.

Competitors in this kind of a structure collude and are called “player”. Either they play as
one team or they play in different teams. There are few sellers that prefer to make alliances than
to compete. In a duopoly, where there are two sellers, it is best if they work together rather than
compete with each other; or they can just work together and pretend they are competing with
each other.

The problem faced here is the existence of barriers to entry where a competitor finds it
hard to enter the industry because of the initial capital requirement. Although it’s a good idea
to be able to have more sellers and producers; the task for the players to enter the industry is
extremely difficult.

4. Monopolistic Competition

This market structure has different products with many sellers. Products belonging to the
same industry seem to be identical but they are not. Hair shampoos are an example. Though
they have the same purpose in personal hygiene, each brand is different because they have
different compositions and difficult and different target consumers. One might even lead the
industry by being the pioneer or by producing effective advertisements, or by being simply
unique, thus becoming the best brand.

Our personal preference on certain brands has such a strong influence that we already
use certain brand names as generic terms. An example is the term XEROX to mean photocopy.
Another example is COLGATE to refer to toothpaste. In this market structure, “consumer’s
loyalty” is experienced by the seller, when certain consumers prefer their brand over others.

The common problem that a monopolistic competitor faces is how to be unique and
different from its competitors. Being unique is not only through advertisements; it must also yield
loyal customers and this will be the basis of your market share. Otherwise, you belong to pure
competition where you cannot dictate a price and you have no distinguishing quality that will
set you above the rest.

TABLE 1 The Types of Market and their Characteristics

ENTRY OF COMMON
TYPE SELLERS PRODUCT EXAMPLE
NEW FIRMS PROBLEM
Pure Profit/
Many Homogenous Free Sugar
Competition Market Share

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 Applied Economics
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: Grade 12- ABM
Email: [email protected]; Website: www.uc-bcf.edu.ph

MODULE 10 – Applied Economics Subject Teacher:

Improvement
Monopoly One One No Telecom of product/
service
High capital
Oligopoly Few Differentiated Restricted Oil/Fuel
requirement
Monopolistic Distinguishing
Many Differentiated Free Shampoo
Competition Quality

References:
 Azarcon, et al. (2008). Principles of Economics. Baguio City: Valencia Book team.
 Caoile, P. V. (2017). Applied Economics. Quezon City: Phoenix Publishing House, Inc.

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 Applied Economics
Governor Pack Road, Baguio City, Philippines 2600
Tel. Nos.: (+6374) 442-3316, 442-8220; 444-2786;
442-2564; 442-8219; 442-8256; Fax No.: 442-6268 Grade Level/Section: Grade 12- ABM
Email: [email protected]; Website: www.uc-bcf.edu.ph

MODULE 10 – Applied Economics Subject Teacher:

ACTIVITY 10:
On a one whole sheet of paper or any size of bond paper, provide what is being asked/required in
each problem. You may encode your solution and answer if you have the available resource.
Handwritten if otherwise.

Rubric for Both Activity:

5 pts – Complete and Correct Answer
4 pts – Incomplete but Correct Partial Answer
3 pts – Complete but Incorrect Partial Answer
2 pts – Incomplete and Incorrect Partial Answer

ACTIVITY 10.1: Cost-Volume Profit Analysis

Problem: At a price of P25, Capsule Corporation, owned by Bulma, was able to sell 40,000 units of their
mini-capsule product during the month. The contribution margin ratio of the company was computed
to be 40%. The company also incurred P150,000 for their operating expenses during the first half of the
month and another P50,000 for the second half.
Answer the following questions with proof by showing your solutions. Encircle your final answer.
A. What is the company’s profit for the month?
B. What is the company’s break-even units?
C. What is the company’s break-even sales?
D. If the price will be increased to P27.50, what will be the new break-even units?
E. What is the rate of change in break-even units?
F. If the government will implement a price control to only P20 and the company will be able to
sell 40,000 units, will the company incur a profit, a loss, both, or neither?

ACTIVITY 10.2: Quantity Demanded, Quantity Supplied, Market Equilibrium

Problem: Presented below is the Demand and Supply Schedule of COVIDO Siomai Co.

PRODUCT: SIOMAI RICE

PRICE QUANTITY 1 QUANTITY 2
PHP 25 350 #4
PHP 50 #1 185
PHP 75 290 #5
PHP 100 #2 255
PHP 125 230 #6
PHP 150 #3 325
PHP 175 170 #7
Requirements:
1. Complete the table. No need to show all solutions in your paper. Show only 1 solution for each
Quantity.
2. Solve for the Demand Function.
3. Solve for the Supply Function.
4. Solve for the Market Equilibrium:
a. Price
b. Quantity
5. Graph

“Some people dream of success, while other people get up every morning and make it happen.”
Wayne Huizenga

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