BUSINESS OPPORTUNITIES (Manning) Flashcards
What is revenue?
The amount of money a business makes from selling their goods and services
What are costs?
Amount of money a business spends in running operations
What are profits?
Excess of revenue once all costs have been deducted
What are fixed costs?
Costs that do not vary with output
What are variable costs?
Costs that do vary with output
What are semi-variable costs?
Costs that do vary with output, but not in direct proportion
What are indirect costs?
Costs that are do not relate directly to the product/ proportion process
What are direct costs?
Costs that do relate directly to the product/ proportion process
What are total costs?
All costs involved in running a business
Total revenue formula
Selling price x Quantity sold
Total costs formula
Fixed + Variable costs
Profit formula
Total revenue - Total costs
Average costs formula
Total costs/ Output
What is the importance of profit?
- expansion
- attract share holders
- reward staff (motivate)
How to draw a breakeven chart?
- Draw and label axis
- Draw and label fixed costs (horizontal)
- Variable costs (starts at 0)
- Total costs (starts at FC, parallel to VC)
- Revenue (starts at 0, should cross TC)
- Draw and label breakeven
Contribution per unit formula
Selling price - Variable costs
Total contribution formula
(selling price-variable costs) x output
Breakeven output formula
Fixed costs/ contribution per unit
Margin of safety formula
Current of output - breakeven output
What are benefits of breakeven?
- calculate profit figures
- generate sales targets
- generate ‘what if’ scenarios
What are the drawbacks of breakeven?
- assume all units will be sold and at the same price
- figures can date quickly
- diagram assumes everything will be sold
What is a local market?
Products/ services exchanged within a limited geographical location
What is a global market?
P/S traded internationally
What is mass market?
Products that sell to the whole market
What is a niche market?
Products that sell to a very small market, usually specialised goods
What is trade?
Business to business trading
What is a product?
Traded goods that have a physical presence and can be touched
What is a service?
An action carried put in return for a payment
What is seasonal markets?
P/S bought at certain times in the year
What is a market?
A place where buyers and sellers meet to bring about an exchange
What are examples of methods of exchange?
- retail
- internet
- telephone
What is the definition of competition?
Process by which businesses strive against each other to capture a larger market and increase their market share
What is the definition of market research?
Process of collecting information and data about a businesses customers, the market place and the activities of competitors within the market place
Define primary research
First hand information directly relevant to the needs of a business
Define secondary research
Second hand research adapted to fit the needs pf a business
What is quantitative data?
Statistical, numerical data that can be compared objectively
What is qualitative data?
Involves attitudes and opinions and is compared subjectively
What methods gather quantitative data
Surveys/ questionnaires
Government reports
How can you gather qualitative data for a business
Interviews
Consumer panels
Market share formula
Sales of business/ total sales of market x100
Market growth formula
Sales in year 2- year 1/sales in year 1 x100
What can marketing data be affected by?
- state of economy
- competition
- consumer trends
What is random sampling?
Each member of a group has an equal chance of being chosen
What is quota sampling?
Representative individuals are chosen out of a specific sub-group that share similar characteristics
Why is sampling beneficial?
- Save finances- selected group researched
2. Saves time- more time devoted to ensuring the research is useful from sampling group
What are drawbacks of sampling?
- Sample may be too small
2. May be biased- in random, may happen to be elected from only high income people
Define market segmentation
Process of breaking the market into sections where consumers share similar characteristics and needs and developing products or services for each of them
Define barriers of entry
Factors that can prevent new firms entering the market
Eg: customer loyalty
What are homogenous products?
Products that are exactly the same and unchangeable
Eg: travel money
What are differentiated products?
Products that have unique features that set them apart from other products in the market
What are methods of differentiation?
- celebrity endorsements
- brand name
- packaging
What is a monopoly?
One firm has total control over the market
25% of market share
What are features of oligopolies?
A few main firms dominate the market
What is monopolistic competition?
Large numbers of relatively small businesses in competition with each other, there aren’t any dominant firms
What are methods of monopolistic competition?
- product differentiation
- price makers
- low barriers of entry
What is perfect competition?
Large numbers of small businesses in competition with each other, producing a homogenous product
How does population affect demand?
Increase in population=increase in demand
Will shift to the right on graph
How does advertising affect demand?
Good advertising=^demand
How do substitutes affect demand?
Increase it
How do interest rates affect demand?
When they are high, people don’t want to borrow because they have less disposable income
So with higher rates, demands decrease
How do fashion and trends affect demand?
Increases demands when they increase
How does income affect demand?
As is increases, so does demand (more able to as they have more money)- tend to buy higher end products
When income is low, demand is low for high end but high for low end products
How do complementaries affect demand?
Things that come together (strawberries and cream)
If one increases, people may be less likely to buy the other therefore complimentary demand will decrease
Define demand
The quantity of a good or service that consumers are willing and able to buy at a given range of prices over a given period of time
What are rules of how to draw a demand curve?
- Label y-axis price, x-axis quantity
2. Draw demand curve downward, from left to right (label D)
How does an increase in productivity of workers affect supply?
Increases supply
How does an increase in cost production affect supply?
Decreases
How does the increase in use of technology affect supply?
Increases
How does bad weather affect supply?
Decreases
How does good weather affect supply?
Increases
How does an increase in indirect taxes affect supply?
Decreases
How does an increase in the number of firms affect supply?
Increases
How does an increase in subsidies affect supply?
Increases
When might consumer protection be needed?
In markets where firms have power over the consumer that may lead to exploitation
Eg: in monopolies and oligopolies
What do consumers need protection to ensure?
- prices are not too high, affordable to most customers
- customer service meeting needs a consumer
- quality of product is fit for purpose
How may consumer protection be achieved?
-government legislation (eg: price fixing is illegal between firms)- more likely in oligopolies
How do monopolies impact businesses?
Charge higher prices to increase profit
Use profit to invest in new/improved products to retain high barriers of entry
How do oligopolies impact businesses?
Engage in non-price competition to increase market share (eg: promotion, branding, loyalty rewards)
Avoid price competition as price wars are expensive
How does monopolistic competition impact businesses?
Price competition to attract customers
May merge/takeover with competition to reduce competition
How does perfect competition impact businesses?
Invest in methods to differentiate their product so they can attract more customers
Define laws of demand
States that the higher the price the lower the quantity demanded- the slope is downwards on graph
What are factors that affect demand?
Changes in population Change in taste and fashion Increase or decrease of income Advertising Interest rates Complementary
What are factors that affect supply?
Change in cost of production Technology Weather Productivity of workers Number of firms
What does high elasticity mean?
That a change in price will cause a more than proportional change in the quantity demanded
-price increase= demand decrease
What is price inelastic/ insensitive?
If a good has inelastic price elasticity of demand than a change in price causes a less proportional change in the quantity demanded
-price increase= demand decreases (just a little)
How can businesses make demands for their goods more price inelastic?
- encourage customer loyalty
- reduce/ restrict competition in market
- increase brand value
What are rules on how to draw a demand curve?
- Label Y (price) and X (quantity)
2. Draw demand curve downward, from left to right (label; D)
