1. Understanding business activities

Question 1

Method of measuring business size

Answer 1

1. Number of employees
2. Value of output
3. Value of sales
4. Capital Employed

Question 2

Weakness of each business size measuting method

Answer 2

Number of employees: Does not work on capital intensive firms that use machinery
Value of output: Does not take into account people employed. Does not take into account sales revenue.
Value of sales: Does not take into account people employed
Capital employed: Does not work on labor intensive firms. High capital but low output means low efficiency

Question 3

Why some businesses stay small:

Answer 3

Type of industry the business is in: Industries offering personal service or specialized products. They cannot grow bigger because they will lose the personal service demanded by customers. E.g. hairdressers, cleaning, convenience store, etc.

Market size: If the size of the market a business is selling to is too small, the business cannot expand. E.g. luxury cars (Lamborghini), expensive fashion clothing, etc.

Owners objectives: Owners might want to keep a personal touch with staff and customers. They do not want the increased stress and worry of running a bigger business.