Guillermo's furniture store operates based on a number of economics and business principles that combine to create an effective and unique enterprise. The principle of self-interested behavior involves the idea that "when all else is equal, all parties to a financial transaction will choose the course of action most financially advantageous to themselves" (Emery et al., p. 20). Guillermo follows this in that the entire purpose of his business and his activities is to further his own financial gains; he wishes to make money selling furniture, and all of his actions are geared toward that end.
The principle of two-sided transactions is also very important to Guillermo's business; in order to sell furniture, he must have a buyer (Emery et al., 21). The customers of his store come in requiring furniture, and Guillermo sells it to them for a price, thus completing the transaction. Given the problems that he has been having with shrinking profit margins, Guillermo decides to research the behavior of other companies in order to find out what they are doing to remain afloat. The signaling principle is applied here; businesses signal their position and their confidence through their actions, like the Norwegian operation that eschews outlets for chain distributors. Guillermo then decided to use this information for his own good; this is part and parcel of the behavioral principle (Emery et al., p. 24).
In the course of his investigation, Guillermo has come up with many new ideas for his furniture in order to increase the value and novelty of the goods he sells. The patented process that he has come up with for coating the furniture is a unique idea that no other competitor can emulate, thus making his merchandise more valuable. This is a good example of the principle of valued ideas (Emery et al., p. 25). Comparative advantage as a principle comes into play as part of Guillermo's advanced level of experience, as well as the quality of his work; when comparing it to lackluster products his competitors are releasing, it would make sense to go with his goods instead.
Guillermo has the option of purchasing another product that can be applied to his furniture in order to provide the same value instead of the coating. Despite the potential sunk cost inherent in purchasing the product, the potential benefit could outweigh that investment. This is also true of the laser lathe option that he was looking at from foreign competitors. He could get a small benefit out of that investment if people pay more for the furniture than it cost to implement it. In this way, Guillermo is heeding the principle of incremental benefits (Emery et al., p. 27).
Guillermo's business in general, as well as the potential hazards and benefits of trying these different options, follow the principle of risk/return trade-off; "if you want to have a chance at some really great outcomes, you have to take a chance on having a really bad outcome" (Emery et al., p. 28). One large example is his choice to remain independent; instead of having the safety net of working under a large company, he chooses instead to remain in his independent employ, even though he could completely lose his business if he makes the wrong choices.
One of Guillermo's most important things in life is focusing on his family and having time for them. This is true to the point where he is afraid of expanding his responsibilities as a manager; he does not want to take that time away from family. In his mind, that time is more important than the potential monetary benefits that could be reached. This follows the idea of the time value of money principle, where it is often more important to do things that will not directly earn you money, as it is more valuable to you than the income you would accrue by using that time to work (Emery et al., p. 31).
References
Emery, D. R., Finnerty, J., & Stowe, J. (1997). Corporate financial management. Alexandria, VA: Prentice Hall.
