Business Performance - Unit 1

Question 1

(4) How can business performance be measured?

Answer 1

• productivity (Output/number of workers)
• profitability (Total revenue - Total costs)
• Return on capital employed - (profit/capital invested) x 100
• Share price

Question 2

Who are stakeholders?

Answer 2

those with an interest in a business eg employees; shareholders; managers; suppliers; government; local community; interest groups

Question 3

What is competition?

Answer 3

the process in which businesses offer products for sale in the same market to the same customers

Question 4

(5) Benefits of operating in a competitive market:

Answer 4

Consumer - choice + quality + price

Firms - profitability + access to customers

Question 5

(4) Costs of operating in a competitive market:

Answer 5

• customers can switch to rivals
• may have to cut prices so profit may suffer
• may be forced out of business
• may have added expenditure on promotion & R&D to innovate

Question 6

What is a monopoly?

Answer 6

A business that dominates a market with 25% or more market share

Question 7

What is an oligopoly?

Answer 7

Where a few very large firms dominate a market

Question 8

What is market failure?

Answer 8

The inability of the market system to allocate resources efficiently (if there is market concentration)

Question 9

(4) What are sources of monopoly power?

Answer 9

• legal barriers (patents/licenses)
• cost barriers
• marketing barriers
• anti competitive behaviour (where a firm deliberately tries to reduce/remove the competition)

Question 10

Give 3 examples of anti-competitive behaviour

Answer 10

predatory pricing (pricing below cost)

• cartels (where firms jointly set prices and/or output)
• exclusive dealing is illegal

Question 11

How is anti competitive behaviour dealt with?

Answer 11

firms can be fined and employees imprisoned

Question 12

Give 3 examples of bodies that regulate behaviour of firms

Answer 12

• European commission
• The competition and markets authority
• OFWAT