APPLIED
ECONOMICS
Micro, Small
and Medium
Enterprises
Micro, Small and Medium Enterprises
MSME is an acronym for “Micro, Small and
Medium Enterprise.
According to the Magna Carta for MSMEs,
micro, small and medium enterprises are
classified based on the worth of the business
assets
Micro, Small and Medium Enterprises
An MSME in the Philippines, according to the
Magna Carta for MSMEs, is any business
activity or enterprise engaged in industry,
agri-business and/or services that has: (1) an
asset size (less land) of up to PhP100 million;
and (2) an employment size with less than 200
employees.
Micro, Small and Medium Enterprises
Magna Carta for MSMEs
Firm Type Number of employees Asset Size Range (P)
Micro 1-9 Up to P3,000,000
Small 10-99 P3,000,001 to P15,000,000
Medium 100-199 P15,000,001 to
P100,000,000
Micro, Small and Medium Enterprises
A micro-enterprise is a small business with
fewer than ten people and whose asset size
does not exceed 3 million pesos.
Small Businesses are firms that operate with a
crew of 10-99 employees and assets worth
above 3 million pesos to 15 million pesos
Medium enterprises are organizations that
have 100-199 employees and possess assets
of over 15 million pesos to 100 million pesos
Micro, Small and Medium Enterprises
MSMEs play an essential role in the economy
of many countries particularly in developing
nations where they provide employment
opportunities and contribute to economic
growth
The employment threshold varies by country
Contributions of Philippine MSMEs on the
Philippine Economy
1. Employment Opportunities
These MSMEs generated a total of 5,714,262 jobs
or 63.19% of the country’s total employment in
2018.
The micro-enterprises produced the biggest share
(28.86%) closely followed by small enterprises
(27.04%) while medium enterprises were far
behind at 7.29%.
Contributions of Philippine MSMEs on the
Philippine Economy
2. Exports Contribution of MSMEs
MSMEs account for 25% of the country’s total
export revenue.
It is also estimated that 60% of all exporters in
the country belong to the MSME category.
MSMEs can contribute in exports through a
subcontracting arrangement with large firms, or as
suppliers to exporting companies
Government Programs to Support
MSMEs
1. Barangay Micro Business Enterprise (BMBE )
Act or R.A 9178
The “BMBEs Act of 2002” encourages the
formation and growth of Barangay micro business
enterprises by granting them incentives and other
benefits.
Government Programs to Support
MSMEs
1. Barangay Micro Business Enterprise (BMBE )
Act or R.A 9178
According to Section 7-8 of the article: “All BMBEs
shall be exempt from tax for income arising from
the operations of the enterprise”. “The BMBEs shall
be exempt from the coverage of the Minimum
Wage Law, provided, that all employees covered
under this Act shall be entitled to the same
benefits given to any regular employee such as
social security and healthcare benefits.”
Government Programs to Support
MSMEs
1. Barangay Micro Business Enterprise (BMBE )
Act or R.A 9178
The income tax exemption from income arising
from the operations of the enterprise;
Exemption from the coverage of the Minimum
Wage Law(BMBE employees will still receive the
same social security and health care benefits as
other employees);
Government Programs to Support
MSMEs
1. Barangay Micro Business Enterprise (BMBE )
Act or R.A 9178
Priority to a special credit window set up
specifically for the financing requirements of
BMBEs; and
Technology transfer, production and management
training, marketing assistance programs for BMBE
beneficiaries.
Government Programs to Support
MSMEs
2. Go Negosyo Act or R.A 10644
The law aims to encourage "job generation and
inclusive growth through the development of
MSMEs" in the country. It promotes "ease of doing
business and facilitates access to services for
MSMEs within its jurisdiction" through the
establishment of Negosyo Centers in all provinces,
cities, and municipalities.
Socioeconomic factors
affecting Business and
Industry:
Consumer
Behavior
Consumer Theory
is the study of how people decide to spend
their money based on their individual
preferences, and budget constraints.
Consumer theory shows how individuals make
choices, subject to how much available
income they have to spend, and the prices of
products.
Consumption refers to the use of goods and
services to satisfy human wants.
Consumer theory seeks to predict
individuals’ purchasing patterns by making
the following three basic assumptions
about human behavior:
Consumer Theory
Three basic assumptions about human behavior:
1. Utility Maximization
2. Non satiation
3. Decreasing marginal utility
Consumer Theory
1. Utility Maximization
Individuals are said to make calculated decisions
when shopping, purchasing products that bring
them the greatest benefit known as a maximum
utility
The main objective of this model is to help
individuals and firms to make decisions that are in
their best interest.
Consumer Theory
2. Non satiation
People are seldom satisfied with one trip to the
shops and always want to consume more.
is the state of never being satisfied and assumes
that consumers always want more of a quantity
and choice.
Consumer Theory
3. Decreasing marginal utility
The law of decreasing marginal utility emphasizes
that customers lose satisfaction in a product the
more they consume it.
states that for any good or service, the marginal
utility of that good or service decreases as the
quantity of the good increases,
The Utility Function
The utility is a term in economics that refers
to the total satisfaction received from
consuming a good or service
The economic utility of a good or service is
important to understand, because it directly
influences the demand, and therefore price, of
that good or service.
The Utility Function
In practice, a consumer's utility is impossible
to measure and quantify.
In order easily understand the concept of
utility, we shall assume that it is measurable
in units, which is called util.
Util is one unit of satisfaction
The Utility Function
The utility function shows the relationship
between utility and consumption.
In the equation form, it is U = f(C), which is
simply stated as: utility is a function of
consumption.
Also, the utility for the consumption of goods X
and Y can be expressed as U = f(X,Y).
Total Utility and Marginal Utility
The important measures of utility are Total
Utility and Marginal Utility.
Total Utility refers to the combined utility
derived from consuming an additional unit of a
good.
Marginal Utility refers to the additional
utility derived from consuming an additional
unit of a good.
Total Utility and Marginal Utility
Hypothetical schedule for milktea
Consumption per Total Utility Marginal Utility
day
1 12 12
2 22 10
3 30 8
4 36 6
5 40 4
6 41 1
7 39 -2
8 34 -5
The Law of Diminishing Marginal Utility
The Law of Diminishing Marginal Utility states
that, as additional units of goods are
consumed, the additional utility derived from
each additional unit tends to diminish.
Therefore, as an individual consumes more
and more units of goods, the intensity of his
want for that goods declines, to the point that
he no longer wants to consume more goods
The Law of Diminishing Marginal Utility
The Law of Diminishing Marginal Utility states
that, as additional units of goods are
consumed, the additional utility derived from
each additional unit tends to diminish.
Therefore, as an individual consumes more
and more units of goods, the intensity of his
want for that goods declines, to the point that
he no longer wants to consume more goods
Socioeconomic factors affecting
Business and Industry:
Production Theory
Production
is a process of combining various inputs to
produce an output for consumption.
It is the act of creating output in the form of a
commodity or a service that contributes to the
utility of individuals.
Input refers to the resources used to produce
goods and services. Output refers to the
product created as a result of the combination
of input in the production process.
Production Theory
In economics, production theory explains the principles in
which the business has to take decisions on how much of
each commodity it sells, how much it produces and how
much of raw material ie., fixed capital and labor it employs.
It defines the relationships between the price of the
commodities and productive factors on one hand, and the
quantities of these commodities and productive factors that
are produced on the other hand.
Production Function
The Production Function is an equation showing the
maximum output of a commodity that a firm can
produce per time with each set of inputs.
The Production function is expressed as
Q=f(i) ,Where: Q = output and i = input
To be more specific, output depends on the quantity of
land, labor, and capital available. Thus, Q =
f(Ld,Lb,C).
Production Analysis
The is concerned with the analysis in which resources
such as land, labor, and capital are employed to
produce a firm’s final product.
to produce goods, the basic inputs are classified into
two divisions: fixed inputs and variable inputs. Fixed
inputs are resources that remain constant in the short-
run.
Law of Diminishing Marginal Returns
If more variable factors of production are used in a
combination with a fixed factor of production, the marginal
product, and then the average product will eventually
decline
The law of diminishing marginal returns is a theory in
economics that predicts when the optimal level of capacity
is reached, adding a factor of production will actually result
in a smaller increase in output.
Law of Diminishing Marginal Returns
The law of diminishing marginal returns is a theory in
economics that predicts when the optimal level of capacity
is reached, adding a factor of production will actually result
in a smaller increase in output.
If more variable factors of production are used in a
combination with a fixed factor of production, the marginal
product, and then the average product will eventually
decline
Output produced is measured in three
forms
Output produced is measured in three
forms
1. Total Product
2. Marginal Product
3. Average Product
Output produced is measured in three
forms
1. Total Product
is the combined production of several units of a given
input
Output produced is measured in three
forms
2. Marginal Product
is the additional output produced by an additional unit of
the input and is equal to change in total product/change in
input.
Output produced is measured in three
forms
3. Average Product
refers to the average contribution per unit of input and is
equal to TP/i.
Production Schedule
Production Schedule
Units of Labor Total Product Marginal Product Average Product
0 0 0 0
1 57 57 57
2 118 59 61
3 177 59 59
4 228 57 51
5 270 54 42
6 300 50 30
7 322 46 22
8 336 42 18
9 342 38 8
10 340 34 -2
Significance of Production Theory in
Business
A business is engaged in providing goods and services to
customers to make profits. Although some businesses are
engaged in retailing goods that they bought from
producers, many businesses produce the goods that they
sell.
It is therefore important for the business proprietors to be
aware of the production behavior that will maximize output
within limited quantities of inputs available. This in turn will
help maximize profits for the enterprise
Socioeconomic factors
affecting Business and
Industry:
Government
Policies
Government Policies
The government uses two tools in addressing
the economic and social problems in the
country.
These are the Monetary Policy and Fiscal
Policy.
Government Policies
Monetary policy and fiscal policy refer to the
two most widely recognized tools used to
influence a nation's economic activity.
Both the Monetary Policy and Fiscal Policy are
macroeconomic tools used to manage or
stimulate the economy.
Fiscal Policy
Fiscal policy is a collective term for the taxing
and spending actions of governments.
Fiscal policy is a tool by which a government
adjusts its spending levels and tax rates to
monitor and influence the nation's economy.
Fiscal policy is based on the theories of British
economist John Maynard Keynes, known as
Keynesian Economics.
Fiscal Policy
The theory states that the government can
influence macroeconomic productivity levels by
increasing or decreasing the tax levels and
public spending.
The enactment of Tax Reform for Acceleration
and Inclusion (TRAIN) is one of the examples of
fiscal policy
Monetary Policy
Monetary policy refers to central bank activities
that are directed toward influencing the
quantity of money and credit in an economy
Pertains to the actions undertaken by a
nation's central bank to control the money
supply to achieve macroeconomic goals that
promote sustainable economic growth.
Monetary Policy
Monetary policy consists of management of money
supply and interest rates, aimed at achieving
macroeconomic objectives such as controlling
inflation, consumption, growth, and Liquidity
Monetary policies can be categorized as
expansionary or contractionary
Significance of Government Policies
in Business and Industry
Both fiscal and monetary policy plays a large role in
managing the economy and both have direct and
indirect impacts on household finances and
business operation
One example relating to Fiscal policy is that if
government wants to spend more, they will hire
people and also tap businesses to carry out the
projects. Moreover, if the government spends more
on infrastructure, specifically in paving roads,
transportation of goods can be fast and on time
Significance of Government Policies
in Business and Industry
Monetary policy can boost consumer spending
through lower interest rates that make borrowing
cheaper on everything from credit cards to
mortgage
APPLIED
ECONOMICS