Answer to Question #218286 in Microeconomics for Abhay pahariya

Question

“If the business operates in the economy, there will be stage of peak, slow down and losses

also. That’s the part of business”. Which concept is explain in the statement?

Answer 1

The concept that clearly explains this phenomenon in business is the Business cycle.

In this concept, there are economic wide fluctuations in the production of a business. The Business Cycle is the upward and the downward movement of the economic activities in a nation or firm.

There are 4 phases in this Cycle namely;

expansionary phase

peak 

Contraction 

Trough

During the peak phase there is more production and profit margins are highly maximized in the case of a firm or company. There is usually boosting of units of production including capital and labor.

During the trough, there are losses incurred, less production is achieved and units of labor minimized leading to layoffs consequently.

There are two transitional phases, that are the expansion and contraction.

Contraction phase is when a business was at the peak and then starts slowing down and incurring manageable losses. However this is more adverse during the trough.

Expansionary on the other hand is the transition from recession ( trough ) to boom( peak). Here the firms start gaining traction as the production gradually increases, more labor and capital increased to accommodate the growing demand for the good the company produces that is already in the market