An introduction to Business- Questions and Answers

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  1. Explain what is meant by the term opportunity cost: The loss of other alternatives, when one other alternative is chosen. 
  2. Identify 3 sectors of economic activity: extraction of raw materials (primary), manufacturing (secondary), and services (tertiary) 
  3. Define the term added value: The enhancement a company gives its product or service before offering the product to customers
  4. Explain different methods a business can use to add value: Building a brand (reputation of high quality, branded products), delivering excellent service, product features and benefits 
  5. Give two characteristics of a business that operates in the public sector: Usually large businesses, owned and ran by the government, paid for through taxes
  6. State a characteristic of a business that operates in the private sector: Aren’t owned by the government
  7. Identify ways used to measure the size of a business:  Number of employees, number of outlets(shops), total revenue, profit, capital employed, market value. 
  8. outline different ways in which a company can achieve economies of scale: Purchasing economies- when large businesses often receive a discount because they are buying in bulk. Marketing economies- from spreading the fixed cost of promotion over a larger level of output. Administrative economies- from spreading the fixed cost of management staff and IT systems over a larger level of output. Research and development economies- from spreading the fixed costs of developing new or improved products over a larger level of output.
  9. What is a limited company: A limited company is a company owned by shareholders 
  10. What is limited liability: investors can only lose money they have invested, unlike sole traders that have unlimited liability, which means they may have to uses their own personal savings to pay debt. 
  11. What is the difference between a private limited company and a public limited company: shares from a public limited company can be bought on the stock exchange by the general public, shares from a private limited company cannot be bought by the public, selling of shares can only be authorised by the board of directors & shareholders. 
  12. reasons why a private limited company may become a plc: Shares in a private company cannot be offered for sale to general public, Restricts availability of finance, especially if business wants to expand, it is also easier to raise money…

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