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Economic Factors Essay

5836 words - 24 pages

Factors Affecting Investment Decision
A multitude of factors influence the investing agencies decision in the choice of projects the amount of initial investment itself in influenced by the choice of location. For instant, the central government of India in consultation with the respective state government has declared certain areas, districts and taluses backward and has given a subsidy of 15 per cent on the cost of land buildings, to encourage balanced growth of industries, Another significant factor is the service rendered by state governmental agencies in providing infrastructural facilities, managerial expertise, loans, technical assistance, etc. Third, the cost of capital is a very ...view middle of the document...

They have to make choices on matters such as what they will produce, how they will produce it and how to finance the production. Economic theory assumes a rational approach to decision-making that may not always be borne out in the real world.

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Factors Influencing Decision-Making in a Business Environment
What to Produce
In order to start running a business, an entrepreneur must decide on what he is going to produce. Maybe he is going to offer a service rather than a manufactured product. In deciding this, economic decision-making involves weighing the costs of the different choices and deciding which will generate the most earnings. In the real world though, there could be other factors that influence this decision. For instance, a nonprofit may be influenced more by its mission than by the need to generate earnings.
How to Produce
Once an entrepreneur decides what to produce, she will have to make a decision about how to actually go about the production. What sort of production method should she employ? What parts of the production should the entrepreneur undertake in-house and what parts should she outsource? Again, the economic decision-making boils the decision process down to the costs of the different solutions and what sort of profit they will generate. For example, if you have to choose between setting up a manufacturing plant in the United States and outsourcing your production to a plant in China, due to economic differences between the countries, you may find that outsourcing is more economically beneficial.
How to Finance the Production
How to raise the financing to fund the business is another aspect of economic decision-making. The entrepreneur will have to choose between using his savings and getting financing from others. For instance, he could apply for funding from banks, through a credit card line-of-credit, private investors or from friends and family. Each of these options carries a different cost. If the entrepreneur uses his own funds, he will not have to pay any interest, but he should set a goal to achieve a certain return on the money. This rate should compensate him for the risk involved and offer an investment return on the 'loan.' On the other hand, he may decide that he doesn't want to risk his money and approach outside sources for financing.
Every day, people are inundated with decisions, big and small. Understanding how people arrive at their choices is an area of cognitive psychology that has received attention. Theories have been generated to explain how people make decisions, and what types of factors influence decision making in the present and future. In addition, heuristics have been researched to understand the decision making process.

Several factors influence decision making. These factors, including past experience (Juliusson, Karlsson, & Gӓrling, 2005), cognitive biases...

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