Paper 1 Flashcards
What are the characteristics of variable costs?
Variable costs are costs that change with the level of output.
What are some examples of variable costs within CalMac? (3)
Fuel for the ferries
Hourly wages
Raw Materials
What is profit maximisation?
Where MR=MC
Profit maximisation is where a firm can maximise profits if it produces at an output where marginal revenue equals marginal cost.
What is marginal revenue?
The revenue gained by producing one additional unit of a good.
What is marginal cost?
Cost of producing one more unit of a good.
What are economies of scale?
Economies of scale are the advantages of large scale production.
How will economies of scale impact CalMac?
By expanding their output to an optimum level they should be able to reduce average cost per unit as the cost of production will be spread over a larger number of units.
If CalMac put more crossings on they will reduce average costs as they will be spread out over the more crossings which will bring in more revenue.
What is elastic demand? (2)
Where demand is responsive to price changes.
For example if one time return crossings price increases demand will reduce as it is too expensive for tourists, for example, who just wanted a cheap trip to an island and back.
What is inelastic demand?
Inelastic demand is where demand is unresponsive to price changes.
For example demand will be inelastic within CalMac for islanders making trips to the mainland as it is a necessity and they have no other option so will use their services regardless of ticket price.
Is depreciation a cashflow item?
No as it is not bought or sold as a transaction.
What is depreciation?
An accounting practice used to spread the cost of a tangible good or physical asset over its useful lifetime.
Are turnover and profit the same thing? (3)
No.
Turnover is the level of sales that are made by a business whereas profit is the difference between revenue and costs.
Profit is the financial benefit that exceeds expenses, costs and taxes.
Some businesses can have a high turnover but low profit.
CalMac is government funded what are the impacts of this? (5)
Increased revenue as they have more money to invest in the business for example more crossings or ferry routes.
Government support protects CalMac monopoly over the private companies for example western ferries.
CalMac don’t have to pay the money they received from the government back unless they make a profit over £1.8 million as agreed in contract.
It is your responsibility to ensure you make a profit or at least have contingency built in
Money on offer from government contract insufficient to deliver the work in the way you prefer, so you can lose money.
What is a cashflow and why is it important to CalMac?
A cashflow is the net amount of cash and cash equivalents transferred in and out of a company.
Cashflow is important to CalMac as it helps them track if cash is coming into the business to pay creditors.
CalMac must have a balance between money coming in and going out or creditors could cause the business to go into liquidation.
What are the differences between operational and strategic decisions?
Operational decisions are day to day decisions made by junior managers or supervisors surrounding issues that come up in the daily workings of a business.
Within CalMac an example of an operational decision is how many staff to employ for a ferry crossing.
A strategic decision is a long term decision made by senior managers or owners surrounding a business’ future.
Examples of strategic decisions within CalMac are changing recruitment methods or considering reducing green house gas emissions within the business to future proof it.
