Chapter 3

Question 1

Who is an entrepreneur?

Answer 1

An entrepreneur is someone who takes the risk of setting up their own business

Question 2

what are the advantages of being an entrepreneur?

Answer 2

If the business is successful, it can be profitable which generates a source of income for the entrepreneur, as well as this. They are able to be independent and make use of their own ideas and personal interests.

Question 3

what are the disadvantages of being an entrepreneur?

Answer 3

being an entrepreneur means that there is an opportunity cost and choosing between your previous job, and this new business as well as this there is a high risk as if the business fails all can be lost, and as well as this there is a lot of capital that needs to be invested in starting up a new businessand the owner made knowledge and experience needed to maintain a business

Question 4

what are the characteristics of an entrepreneur?

Answer 4

Hard-working
Optimistic
Creative
Innovative
Communicative
Risk taker
Independent

Question 5

what is a business plan?

Answer 5

A business plan is a written plan of the business, and what it will do in the future during certain situations

Question 6

what is the advantages of a business plan?

Answer 6

It can persuade the bank to provide a loan for the business
This gives the business a clear sense of direction lead to achieving more goals

Question 7

what are the disadvantages of a business plan?

Answer 7

It is time-consuming and costly

Question 8

what does a business description need to include?

Answer 8

description of the business
The marketer operates in
Location
It’s products and services
Financial information
Strategy
Type of organization
Management

Question 9

Why does the government support business startups?

Answer 9

businesses can generate employment in a country
It can increase the GDP or the national income of a country
It can increase the output of a country
This can lead to improve services for the country
With more businesses, there is more competition which can lead to improve quality of products

Question 10

what are the four ways to measure business size

Answer 10

Value of capital employed
Value of sales
Number of people employed
Value of output

Question 11

what are the complications of all of the ways to measure business size

Answer 11

Capital employed: a business may be successful even if it is labor-intensive. Thus this is unreliable.
Sales: If two businesses are being compared with their value of sales, they need to be selling similar products or else this is unfair
People employed : even if there is a few people in the company, there may be high output due to intensive methods
Value of output : even if a business has a high output, it does not mean that they are selling their products the business may not be large

Question 12

why would a business want to expand?

Answer 12

in order to achieve higher profits, to have economies of scale
Larger share of market
More status (attracting customers)

Question 13

what are the two ways to expand a business?

Answer 13

Internal growth (opening a new branch of the business in another location)
External growth (takeover, or merger)

Question 14

what does horizontal integration mean?

Answer 14

This is when a company takes over another company that is in the same industry and the same production stage

Question 15

what are the advantages of horizontal integration?

Answer 15

There’s less competition in the market, which leads to higher market share
Lower average cost the leading to economies of scale

Question 16

what are the disadvantages of horizontal integration?

Answer 16

Because there’s no competition, this does not encourage workers or the business to produce high-quality outcomes. Thus quality will reduce which affects the consumers, and this can lead to a reduction in sales for the business.

Question 17

what is vertical integration? Forward? Backward?

Answer 17

vertical integration is when a business merges, or takes over another business that is in the same industry, but different stage of production
Forward: a business that is in a later stage of production for an example a retailer
Backward : a business that is in a previous stage of production for an example, a supplier of raw material

Question 18

what are the advantages of forward vertical integration?

Answer 18

There is an assured outlet for selling the product
The profit margin of the retailer is absorbed by the business meaning no extra costs need to be paid by the business
Information about consumers needs and are available

Question 19

what are the advantages of backward vertical integration?

Answer 19

The profit margin of the other company, is absorbed by the business
There is an assured supply of raw material or components
Cost of supplies can be controlled or even reduced due to discounts

Question 20

what is conglomerate integration

Answer 20

This is when two businesses merge from completely different industries, and this is also known as diversification

Question 21

what are the disadvantages of expansion?

Answer 21

Expansion can lead to lack of control which leads to business failure
Lack of communication
Shortage of finance, or the liquidity issues or insolvency
Compromised quality

Question 22

why do some businesses remain small

Answer 22

This is due to the type of industry they operate in
The owners objectives
The market size

Question 23

why may a business fail

Answer 23

Lack of experience or management skills
Poor financial management or liquidity
Overexpansion
Poor planning
Lack of resources

Question 24

What are the advantages of a takeover?

Answer 24

Same as horizontal integration:
Reduce competition, leading to hire market share
Reduce the average cost, leading to economies of scale and higher profits
Employees are already trained
Assets have already been purchased