role of business in the economuy

Question 1

definition of a firm

Answer 1

business/organisation that produces goods/services by using resources to satisfy consumer needs and wants with motive of profit

Question 2

types of industries

Answer 2

primary secondary tertiary quaternary quinary

Question 3

define primary industry

Answer 3

direct association with natural resources

Question 4

secondary

Answer 4

uses output of primary industry and processes it into a finished or half finished product

Question 5

tertiary

Answer 5

businesses that sell final goods and services to consumers or businesses

Question 6

quaternary

Answer 6

it services

Question 7

quinary

Answer 7

businesses that provide services that are traditionally performed in the home (personal services)

Question 8

define market share

Answer 8

business’ total share of industry sales

Question 9

define satisficing behaviour

Answer 9

idea that firms will pursue to meet satisfactory levels in all goals

Question 10

define productivity

Answer 10

volume of output an economy produces with given amount of inputs over a period of time

Question 11

list 3 things that improve productivity

Answer 11

division/specialisation of labour
- Breaking down transformation process into specific labour tasks to be performed by set workers to maximised efficiency and effectiveness

localisation of industry (specialisation of natural resources)
- Occurs when businesses that produce similar goods/services congregate in one area to reduce production costs by sharing common infrastructure

large scale production (specialisation of capital)
- Occurs when business grows so large, they can use specialised capital equipment in production process

Question 12

define the law of diminishing return

Answer 12

• As you add variable resources to fixed resources, the additional output (productivity) will eventually decrease

eg limiting sum, at a certain point you will reach a ceiling of profit marigns

Question 13

define the term economies of scale

Answer 13

factors which case average cost of production to fall as output increases

Question 14

define LRAC

Answer 14

LRAC stands for the Long run average cost curve, which represents a firms costs to its output

Question 15

which way do internal economies and diseconomies of scale shift the LRAC curve

Answer 15

left and right, towards and way from the technical optimum (relate to diminishing returns)

Question 16

which way do external econmies and diseconomies of scale shift the LRAC curve

Answer 16

since they are external, they shift the LRAC curve as a whole, UP AND DOWN

Question 17

provide some examples of internal economies of scale

Answer 17

costs savings accrued to firm from internal factors, within firm’s direct span of control,
Factors include:
- effective business allocation of its own internal resources (specialisation of labour)
- lower input costs (buying in bulk) (global sourcing)
- large businesses tend to have cheaper access to finance
- increased specialisation of capital (invest in more specialised equipment)
- can invest in R&D that proves beneficial in long term (lower wastage, higher efficiency)

Represented on the sloping down section of the LRAC curve!!!!

Question 18

provide some examples of internal diseconomies of scale

Answer 18

Factors include:

• Congestion in production process (workers, machinery, resources)
• No business communication due to complex business structure
• More variable resources required for higher output, but as variable costs increase, average costs do too
• expensive management or redundant employees

Question 19

provide some examples of external economies of scale

Answer 19

External Economies of Scale – costs savings gained from external factors (out of firm’s direct span of control)

Factors include:

• Lowered resource costs (due to proximity to natural resources)
• Improved transportation facilities provided by governments to assist in transportation of resources (Bus, train, air, ship)
• Close proximity to effective workforce (healthy, efficient, trained) to reduce HR costs
• Access to cheaper energy and infrastructure from government

Question 20

provide some examples of external diseconomies of scale

Answer 20

• Higher resource costs (supply and demand) (high demand from comp/low supply)
• Additional government regulation (higher compliance costs)
• Higher labour costs (due to skills shortage) (union movements/strikes)
• General population congestion and pollution which must be factored in by the business to account certain costs for (ventilation, transportation time – fuel)

Question 21

define the term “returns to scale”

Answer 21

relatinship between inputs and outputs

Question 22

what are the three types of returns to scale

Answer 22

increasing returns to scale (inputs are doubled and outputs are increased by more than double), constant returns to scale (inputs are doubled and outputs are exactly doubled) and decreasing returns to scale (inputs are doubled and outputs are increased by less than double)

Question 23

types of integration / diversitication

Answer 23

Vertical integration Horizontal integration Diversification

Question 24

define vertical integration

Answer 24

when aldi partners with steggles

Question 25

define horizontal integration

Answer 25

when aldi partners with coles

Question 26

define diversification

Answer 26

when aldi partners with apple