Economic Analysis of Penny Blossoms in the Big Bang Theory

Blossoming Business?

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 however shattered by Sheldon when he told her, with her 20 penny blossoms/day production rate and an average profit of 50 cents, she only earns 10 dollars a day - and that’s not a lot of money. “That’s 4.9 Penny Blossoms per hour. Based on your cost of materials and your wholesale selling price, you’ll effectively be paying yourself… $5.19 a day.”

She was working inefficiently because she did not have access to a lot of labour and physical capital. She was doing everything manually; and she was limited by her slow pace. 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....