In the episode, Penny tries her hand at forming a business. She enters a market with relatively no barriers to entry, coming in with almost zero start-up costs. She comes in with a slightly differentiated product - hair accessories she calls the “Penny Blossom.” She earned 156 dollars in a week from her co-workers orders, enticing her to go into a full blown business. With those initial earnings, she starts her firm with the dream she will soon be making the big bucks and she could eventually quit being a waitress in the long run. Basically, her aim is to earn and maximize profits (accounting profits). This is the goal of every firm. Without profits, there would be no incentive for new firms to enter or for existing firms to stay in.
Her dream of earning enough to retire from waitressing was ...view middle of the document...
Penny couldn’t take advantage of economies of scale. With economies of scale, she could have reduced the costs of producing each penny blossom as she increased her production, resulting to higher profits. This problem of inefficiency was somewhat improved when Sheldon helped her with the working song and the introduction of an assembly line. She got to produced more Penny Blossoms in less time, maximizing the time she puts into production.
To further increase profits, a firm often participates in activities that will expose them to new markets. Research and development and innovative ideas to improve the product are examples of such. They actually thought of adding blue-tooth to the Penny Blossom to expand their market share. The most common technique firms use to get their product out there would be advertising. Leonard took care of her marketing and distribution. For a small start up company like hers, they made a website where customers can directly order Penny Blossoms. As Howard put it, “let’s remove the middle man.”
When they removed the middle man, they also reduced transaction costs, another perk of being a firm. Instead of dealing with different firms that promote and distribute products, Penny’s team of nerds functioned as a single unit. They had people on production, distribution, and so on. They were like a typical firm with hierarchies. With a hierarchy, there is a pyramid of control levels which increases accountability. In the episode, when Leonard, Howard, and Raj were grumbling about the work, Sheldon yelled “Less talk and More work!” to get them to work better. Supervision and control on his part enabled them to work more efficiently.
If Penny learned anything from this project of hers, it’s that firms are difficult to manage and profits don’t come as easily. You have to be able to keep up with the demands of your product, have enough capital and labour, and try to take advantage of economies of scale.