Role of a business,factors of a business,finance,opportunity costs,liability and added value

Question 0

What are the factors of production

Answer 0

Capital
Enterprise
Land
Labour

Question 1

Define what a business is

Answer 1

It’s an organisation that tries to make as much profit as possible by producing a good or a service

Question 2

Define capital

Answer 2

The machinery used during production of a good or service

Question 3

Define enterprise

Answer 3

The three other factors of production create the enterprise (capital,land,labour)

Question 4

Define land

Answer 4

The land used for production of the good or service but also could be used for natural resources e.g. Diamonds/coal

Question 5

Define labour

Answer 5

This is the workforce used to produce the good or service for wages

Question 6

What are the 10 internal factors of a business

Answer 6

Human resources
Sales
Administration 
ICT  
Customer services
Distribution 
Finance
Production
Research and development 
Marketing

Question 7

What are the 8 external factors of a business

Answer 7

World affairs
Social factors
Environmental factors
Consumers tastes 
Competition
Pressure groups
Legislations
Population trends

Question 8

Define opportunity cost

Answer 8

The loss of an alternative when another is chosen

Since every resource can be put to an alternative use then every decision involves opportunity cost

Question 9

What are the two types of consumer good or service (include examples)

Answer 9

NON DURABLE
Packet of crisps
A match

DURABLE
Cooker
Toaster

Question 10

What are the two types of capital good or service (include examples)

Answer 10

NON DURABLE
fuels

DURABLE
Machinery / tools

Question 11

Where is value added

Answer 11

During the production service

Question 12

What is the formula for value added

Answer 12

Value of output -value of input

Question 13

How does a business add value

Answer 13

By…..
Building a brand from good quality or reputation

Convenience , customers will pay more to have the product or service straight away

New product features like updated software or models

Delivery of good customer service

Question 14

What is an internal factor in a business

Answer 14

It’s a factor that happens inside of a business they can be easily controlled or predicted

Question 15

What is an external factor in a business

Answer 15

It’s a factor that happens outside of a business they cannot be easily controlled or predicted

Question 16

Define economies of scale

Answer 16

The reduction in unit costs (average cost) as the level of output increases

Question 17

What are the internal economies of scale and explain

Think FAT MP

Answer 17

Purchasing- if a large business purchases in bulk then they pay less per item than a smaller business

Managerial- if a business is larger than they’re able to employ more people to specialise in certain departments rather than a small business having to deal with all departments

Financial- banks will lend at a lower rate of interest the larger the business

Technological- use of more sophisticated equipment due to being able to pay for it

Advertising- the price does not increase as a firm gets bigger so therefore they’re able to pay for more adverts than a smaller business

Question 18

What is the formula for average cost

Answer 18

Number of units produced

Question 19

What are the external economies of scale and explain

Think LIE

Answer 19

Education- local schools and colleges run courses in appropriate skills so businesses may be able to provide apprenticeships and therefore gain potential employees

Infrastructure- transport and support systems

Local population- skills and experience in the industry, if the local community have the skills required for jobs this helps gain social benefits for the local community

Question 20

Define diseconomies of scale

Answer 20

It’s when there is an increase in unit cost as a firm grows and there is an increase in the scale of production

Question 21

What are the 3 diseconomies of scale

Answer 21

Communication problems within the business or through multiagency

Problems in managing the production process

Reduction in employee morale

Question 22

Why is it hard for a new business to obtain finance

Answer 22

There is no record of success or progression

They’re High risk

Question 23

Why do firms need finance (7 reasons)

Answer 23

New equipment
Pay workers
Starting a new venture
Expansion
Buying premises
Buying stock
Paying bills

Question 24

What are internal sources of finance and give two examples

Answer 24

It's finance obtained sighing the business. It is the cheapest type of sourcing finance E.g. Sale of assets and retained profit

Question 25

What are external sources of finance and give 6 examples

Answer 25

``` Finance obtained from outside of the business, it usually costs more than internal E.g. Overdraft Leasing Trade credit Venture capital Debentures Loans ```

Question 26

What is sale of assets

Answer 26

It's the selling of a tangible or non tangible item for revenue

Question 27

What is a loan

Answer 27

A loan is given by the bank | It's usually paid back with interest and paid in periods

Question 28

What is a debenture

Answer 28

A debenture is a loan given to a business by another company with the security that if payments back don't occur then assets can be taken for the value of the debenture

Question 29

What is a venture capital

Answer 29

Money provided by investors of a business for start up costs It's very high risk but it's the most important source of funding for startup costs

Question 30

What's trade credit

Answer 30

It's the extended period of time for payment from suppliers until sufficient cash flow is available

Question 31

What is leasing

Answer 31

It's where you rent an asset and pay a payment each period over a span of time, but the asset still stays the leasing firms after the period of lease

Question 32

What is an overdraft

Answer 32

It's an agreed amount of credit that a business can go past £0 in an account without permission from the bank, interest is added periodically

Question 33

What is retained profits

Answer 33

It's profits a business has made but haven't used (saved) | They can be the easiest source of finance

Question 34

What are the two things a business must consider when obtaining finance

Answer 34

How long is it needed for Can the business do certain things to raise cash flow

Question 35

What are the types of timeframe in a business

Answer 35

Short term - maximum of 12 months Medium term - more than a year , less than 5 years Long term - more than 5 years

Question 36

What does unlimited liability mean (give 2 business types who have unlimited liability)

Answer 36

It means those who are the owners of the business are liable for any debts which may occur E.g. Sole trader Partnership

Question 37

What does limited liability mean (give 2 business types who have limited liability)

Answer 37

It means the shareholders are liable for debts They pay the percentage they put in (e.g. 20% of business means 20% of debts liable for) Private limited company Public limited company

Question 38

What is cash flow

Answer 38

It's the flow of cash through a business