business in the real world Flashcards
Q: What is a stakeholder?
A stakeholder is anyone with an interest in the decisions and operations of a business.
Q: Can you name three examples of stakeholders?
A: Customers, employees, and suppliers.
Q: What do customers expect from a business?
A: Quality products and good service.
Q: Why are employees considered stakeholders?
A: They contribute to the business and expect fair pay, job security, and good working conditions.
Q: How do suppliers influence a business?
A: They affect production by providing materials and ensuring timely delivery
Q: What is the main interest of shareholders in a business?
A: Profit through dividends and an increase in share value
Q: How does the local community act as a stakeholder?
A: By expecting the business to create jobs, act ethically, and minimize environmental impact.
Q: What might happen if a business prioritizes shareholders over employees?
A: It could lead to unhappy employees, reduced productivity, and a poor reputation.
: Why is balancing stakeholder interests important?
A: To maintain harmony, meet demands, and ensure the business operates successfully.
How can businesses balance conflicting stakeholder interests?
By using ethical practices, fair policies, and effective communication.
What are economies of scale?
Cost advantages a business gains as production increases, leading to lower unit costs.When a business produces more of something, it can often make each item cheaper. This is because the business spreads its costs over more items. For example, if a factory makes 10,000 toys instead of 1,000, it can buy materials in bulk (which is cheaper) or use its machines more efficiently. So, the more it produces, the less it costs to make each toy. This is called economies of scale.
- What are diseconomies of scale?
Answer: Increased costs per unit that occur when a business becomes too large and inefficient.Sometimes, when a business gets too big, it can become less efficient, and things start costing more. For example, with too many employees, it might be harder to communicate, or decisions might take longer. This can slow things down and increase costs for each item the business makes. This problem is called diseconomies of scale.
- Give an example of an internal economy of scale
Answer: Buying raw materials in bulk at a lower cost. When a business buys a large amount of raw materials at once, it can often get a discount, making each item cheaper. For example, if a factory buys 1,000 pieces of wood instead of 100, the supplier may give a lower price per piece. This is an internal economy of scale because it’s something the business does itself to save money.
- How can specialization lead to economies of scale?
Workers become skilled at specific tasks, increasing efficiency and reducing production costs.
What is an external economy of scale?
An external economy of scale is when a business saves money because the whole area or industry is growing. For example, if many factories are built in the same area, they might all use the same delivery trucks to bring in supplies. Because the trucks are making more deliveries, they can charge each factory less. So, the businesses save money just because they are part of a larger group in the same area.
- Name one cause of diseconomies of scale.
Poor communication as the business grows too large.
How does over-centralization lead to diseconomies of scale?
Decisions take longer, slowing down operations and increasing inefficiency.
What is the impact of economies of scale on unit costs?
Unit costs decrease as production volume increases.
How can diseconomies of scale affect customer satisfaction?
Poor communication and delays can lead to lower-quality products or services, reducing satisfaction
Why is understanding economies and diseconomies of scale important for a business?
It helps businesses balance growth and efficiency to remain competitive and profitable.
What is a unit cost?
A unit cost is the cost of producing one unit of a product. It is calculated by dividing the total cost by the quantity produced.
What is the formula for calculating unit cost?
The formula for unit cost is:
unit cost =total cost/ quantity produced
If a business produces 100 units at a total cost of $500, what is the unit cost?
So, the unit cost is $5.
What happens to unit costs as a business experiences economies of scale?
As a business experiences economies of scale, unit costs decrease because the business becomes more efficient and costs are spread over a larger number of units.
Give an example of an economy of scale.
Buying raw materials in bulk at a lower price per unit is an example of an economy of scale.
What are diseconomies of scale?
Diseconomies of scale occur when a business becomes too large, leading to inefficiencies and higher unit costs due to factors like poor management and logistical difficulties.
If a business experiences diseconomies of scale, what happens to the unit cost?
As diseconomies of scale take effect, the unit cost increases due to inefficiencies in the business’s operations.
What is the relationship between the size of a business and unit cost under economies of scale?
Under economies of scale, as the business grows and produces more, the unit cost tends to decrease because fixed costs are spread over a larger number of units
What is a typical graphical representation of unit costs under economies of scale?
A typical unit cost curve under economies of scale slopes downward as production increases, showing decreasing unit costs.
What might cause a business to experience diseconomies of scale?
Factors like poor management, overexpansion, complex logistics, and slower decision-making as a business grows can lead to diseconomies of scale, increasing unit costs.
What role does effective management play in avoiding diseconomies of scale as a business grows?
Effective management ensures that the business is organized and resources are allocated efficiently. Good leadership can help avoid confusion, miscommunication, and lack of coordination as the business expands, reducing the risk of diseconomies of scale
Why is investing in technology and automation important for maintaining efficiency and avoiding diseconomies of scale?
Technology and automation help businesses streamline processes, reduce human error, and increase production speed. This can lead to more consistent quality and lower costs per unit, allowing businesses to scale up without experiencing diseconomies of scale
What strategies can businesses use to streamline processes and maintain efficiency as they scale up?
Businesses can standardize procedures, reduce unnecessary steps, and continuously evaluate and improve their processes. Streamlining operations helps maintain efficiency and prevent waste or bottlenecks, ensuring that growth doesn’t lead to diseconomies of scale.
list reasons why unit costs may differ for a business
Production Volume
Technology and Automation
Labor Costs
Raw Material Prices
Production Efficiency
Overhead Costs
Supply Chain and Distribution Costs
Economies of Scale
Location and Geographic Factors
Management and Organizational Structure
Marketing and Advertising Costs
Regulatory and Compliance Costs
