Theme 2

Question 1

Owner’s capital (internal finance)

Answer 1

> an owners own personal savings, or even redundancy payment

> only relevant in a start-up or small business context

Question 2

Retained profit (internal finance)

Answer 2

> once all costs have been covered and dividends paid to shareholders, any profit left is retained in the business and can be used as a source of finance.

> probably the safest and most common form of internal finance

> the business must have made a profit and not spent it on anything else. This is not possible for a new business start-up

Question 3

Sales of assets (internal finance)

Answer 3

> especially available when businesses are changing strategy, is the cash generated from the sale of assets

> there may be assets that are no longer needed and thus can be sold to generate cash for other projects

> only for an established business

Question 4

Family and friends (external finance)

Answer 4

> family and friends can provide extra start-up capital

> this may be taking an equity (shareholding) stake in a business set up as a limited company.

> family and friends may provide loans where banks may be unwilling

> almost certainly limited to small business contexts

Question 5

Banks (external finance)

Answer 5

> loans to start-ups are not very common

> banks see start-ups as an extremely risky proposition

> where a loan is provided, banks will insist on some collateral as security, either. business asset or a personal asset belonging to an owner

> most widely applicable source of finance

Question 6

Peer-to-peer funding (external finance)

Answer 6

> relies on websites that can match investors willing to lend to business start-ups with start-ups needing finance

> these loans will generally be at a fairly high rate of interest

> rare, most likely to be used for a particularly risky start-up

Question 7

Business angels (external finance)

Answer 7

> these are extremely rich individuals who provide capital to high risk, small business ventures or start-ups

> willing to invest and become involved in the strategic management of the business in the hope of high returns

Question 8

Crowdfunding (external finance)

Answer 8

> allows small investors to find business start-ups in which they are willing to invest through crowdfunding websites

> no single investor is likely to be big enough to provide all the finance needed for each business using the site

> the beauty of crowdfunding is that many small investors can be gathered in order to provide all the finance necessary

Question 9

other business (external finance)

Answer 9

> some businesses, especially large firms, actively seek out small businesses either starting-up or in their early stages and help them out by providing finance

> in return, they will take a shareholding

> commonly, this practice occurs in technology-based industries

Question 10

Loans (methods of finance)

Answer 10

> loans can be provided by banks, friends and family or directors of the business

> a loan involves providing a lump sum of cash, which will be repaid over an agreed period of time

> interest payments will also be made over the course of the loan

> interest rates can be variable or fixed, decided at the time the loan is taken out

Question 11

Share capital (methods of finance)

Answer 11

> when a private company is formed, the ownership of the business is split into shares

> these shares can be sold, putting capital into the business

Question 12

Venture capital (methods of finance)

Answer 12

> this is generally through a mix of loans and share capital

> as the investment is high risk, the loan is likely to be at a relatively high interest rate and the venture capitalist is likely to expect a relatively high shareholding

> generally used to a fund a significant period of growth for an established small business

Question 13

Overdrafts (methods of finance)

Answer 13

> a facility offered by a bank to allow spending money even when the account becomes negative

> the interest rate is likely to be higher than that on a loan, but as long as the business stays out of their overdraft the cost is not great

> suitable for a short-term cash-flow problem

Question 14

Leasing (methods of finance)

Answer 14

> avoids large chunks of cash outflows each time a major new asset is purchased

> although in the long term leasing will be more expensive than purchasing an asset outright

Question 15

Trade credit (methods of finance)

Answer 15

> goods or services provided by a supplier are not paid for immediately

> start-ups or those with a poor record of payment in the past my be refused credit by suppliers

Question 16

Grants (methods of finance)

Answer 16

> handouts, usually to small businesses, from local or central government

> the only start-ups that may receive a grant are those likely to create jobs in areas of economic deprivation, or hi-tech firms competing with foreign rivals

Question 17

Business plan

Answer 17

a business plan is a document setting out a business idea and how it will be financed, marketed and put into practice.
preparation of the plan also :
> helps to ensure the entrepreneur has carefully considered potential problems

> has a reference point to maintain a clear sense of direction

> has some quantitive targets to aim for

Question 18

Interpreting cash flow forecasts

Answer 18

> cash inflow shows the places and timings from which cash flows into the business

> cash outflow shows how much cash level the business has each month

> monthly balance, sometimes called net cash flow, shows the net effect for the month on cash flow (cash inflow - cash outflow)

> opening balance (usually at the top of the table) shows the amount of cash the business has at the beginning of the month. This will be last month’s closing balance

> closing balance shows the amount of cash in the business at the end of the month, calculated by adding the monthly balance (net cash flow) to the opening balance

Question 19

Analysing cash flow forecast

Answer 19

> closing balance: if negative this shows the need for extra finance, quite possibly the need to arrange an overdraft so that the business can continue to spend after its bank balance has fallen to zero

> monthly balance (net cash flow): this will indicate how well each month is expected to go for the business

Question 20

Uses of cash flow forecasts

Answer 20

> to spot cash problems in advance so that action can be taken in time to repent a major crisis.

examples of actions that can help to improve cash flow include:
> producing and distributing products as quickly as possible, reducing the time between paying for materials and receiving cash for finished goods

> chasing customers to pay quickly. This could involve more careful credit control, getting credit customers to pay on time

> keeping stocks to a minimum as stock represent cash sent, but not yet converted back as a cash inflow

> minimising spending on equipment, using leasing or renting as methods of finance, or even postponing investments

Question 21

Limitations of cash flow forecasts

Answer 21

• the forecast is only as good as the estimations that have been made in order to generate the figures
• since most entrepreneurs tend to be fairly optimistic, there can be great danger that cash inflows are forecast too high, or too arrive predictably
• a table of figures can give the impression of factual data whereas, in reality, a cash flow forecast remains a best guess of what is likely to occur in the future
• if users of the cash flow forecast trust the accuracy of the document too much, they may be lulled into a false sense of security

Question 22

Purpose of sales forecast

Answer 22

> HR plan : in order to ensure that the right number of staff with the right skills are employed

> marketing budgets : in order to decide how to allocate its marketing budget, whether to boost sales of a star or to try to revive the sales of a struggler

> profit forecasts and budgets: when planning how much the firm is expecting to make in revenue and profit, it helps to shape the expectations of spending as shown in budgets for different departments

> production planning : if the business is to satisfy demand for their product they will need to ensure that enough products are made.

Question 23

Consumer trends (affecting sales forecasts)

Answer 23

effective sales forecasting must allow for the effect on demand of consumer trends changing
consumer trends may be based on :
> demographics : the UK has an ageing population, meaning increased demand for products aimed at the elderly

> globalisation : this is an increased willingness to buy products, from food to holidays, which recognise the global nature of today’s world

> affluence : despite short-term economic problems, over the past 70yrs, UK consumers have become wealthier, thus are more able and willing to spend on luxuries

> economic variables : economic fluctuation, such as a recession, can have a major impact on sales, especially of income elastic products.

Question 24

economic variables (affecting sales forecasts)

Answer 24

in addition to changes in the economic cycle, changes in individual economic variables can affect sales :
> value of the pound : a decrease in the value of the pound makes imports more expensive and may push consumers to favour UK-produced products

> changes in taxation : taxes on individual items, such as alcohol, can affect demand, as well as changes in general taxation, such as the rate of VAT

> inflation : if inflation is higher than the rate of increase of average incomes, consumers will need to tighten their belts, spending less and damaging sales of some products and services

Question 25

Actions of competitors (affecting sales forecasts)

Answer 25

> changing price : a competitor that begins to undercut your prices is likely, depending on price elasticity, to steal sales. > launching new products : a competitor launching a new product, or a new competitor entering your market, can have a dramatic negative effect on forecasted sales, leaving precautions looking overly optimistic > promotional campaign : competitors running successful promotional campaigns to try to steal market share from your product can leave sales forecasts looking overly optimistic

Question 26

Sales revenue (calculation)

Answer 26

sales volume x selling price

Question 27

Total costs (calculation)

Answer 27

fixed costs + variable costs

Question 28

Fixed costs

Answer 28

these are costs that do not change as output changes. They are linked to time rather than to how busy the business is. Fixed costs have to be paid even when the businesses is not producing. examples : > rent >interest charges > business rates > advertising spending > management salaries > heating and lighting

Question 29

Variable costs

Answer 29

these are costs that change in direct proportion to the level of output. examples : > raw materials > fuel costs > piece-rate pay > packaging

Question 30

Total variable costs (calculations)

Answer 30

variable cost per unit x number of units produced (output)

Question 31

Total costs

Answer 31

> a business with a high proportion of fixed costs is better off trying to boost sales volumes so that fixed costs are spread over more units of output > for a business with relatively low fixed costs but higher variable costs, it is easier to operate at low levels of output, since their fixed outgoing each month will be relatively low

Question 32

Profit (calculation)

Answer 32

sales revenue - total costs

Question 33

Break-even point (calculation)

Answer 33

fixed costs / (selling price - variable costs per unit)

Question 34

Break-even charts

Answer 34

> the fixed costs line is flat, showing that fixed costs are the same at all levels of output > the total cost line shows the affect of adding fixed costs and variable costs together, therefore it start at the fixed costs line and moves upwards in line with the rate of increase of variable cost > the total revenue line begins at point (0,0) since no revenue is generated if nothing is does > the break-even output is identified by dropping a vertical kine down forth point at which total revenue and total costs dross to read off the amount of output that needs to be sold to cover costs.

Question 35

Margin of safety

Answer 35

the horizontal distance between the actual output of a business and its break-even output is called the margin of safety. this shows how far demand can fall before the firm slips into a loss-making position, and can be a vital figure to look out for during difficult trading periods.

Question 36

limitation of break-even analysis

Answer 36

- variable costs are assumed to increase constantly - break-even analysis assumes that the firm sells all its output in the same time period, which may well be untrue - break-even analysis is based on a firm selling only one product at a single price - any break-even chart is a static model, showing only the possible situation at one moment in time. it can't show the effects of changing external variable such as consumer trends

Question 37

Budgets

Answer 37

a budget is a target for revenue or costs for a future time period. > income budget : this sets a target for the value of sales to be achieved > expenditure budget : this gives budget-holders a limit under which they must keep their department's costs setting both an income and expenditure budget allows for a budgeted profit figure to be identified in each month.

Question 38

Budget holders

Answer 38

1. directors agree a 'master budget' for the whole firm and divide it between ... 2. regional managers who allocate a budget to each ... 3. branch manager who divides the branch budget between ... 4. section managers who will try to get all their ... 5. shopfloor workers to help meet the budget targets

Question 39

Type of budget

Answer 39

> a historical budget : set using last year's budget as a guide and then making adjustments based on known changes in the circumstances for the department > zero-based budget - setting each budget to zero each year and then expecting each budget holder to justify a budget figure that they can work to for the common year. (this is very time consuming but can avoid the wastage that may occur if all budgets creep upwards each year under a system of historical budgeting)

Question 40

Variance analysis

Answer 40

involves looking back to calculate the difference between a budgeted figure and the actual figure that occurred > adverse : the actual figure was worse than the budgeted > favourable : the actual figure was better for the business than the budgeted figure

Question 41

Problems with budgeting system

Answer 41

> setting budgets : it can be hard to set realistic targets, but also to avoid budgets creeping up over time > agreeing or imposing budgets : imposing budgets is far less motivating and effect than giving budget-hours a say in setting their own targets > failing to understand the causes of a budget variance : blaming a budget-holder for failing to meet a target that turned out to be unrealistic, will result in demotivated workers > the costs of the system outweighing the benefits : in small businesses, there is less need for financial control to be delegated as a single boss maybe able to keep an eye on all the finances without taking the time to set up a system if budgets

Question 42

Gross profit (def and calc)

Answer 42

what is left after taking away the costs directly involved in making a product or providing a service total revenue - cost of sales

Question 43

Operating profit (def and calc)

Answer 43

the profit generated by the normal operating activities of the business gross profit - fixed overheads

Question 44

Profit for the year - net profit (def and calc)

Answer 44

profit of all costs including any interest costs except for corporation tax operating profit - (net financing cost and corporation tax)

Question 45

Statement of comprehensive income

Answer 45

> a document produced by public limited companies that shows revenue, a break-down of different types of cost and different types profit for a year > comparing this document with previous year's allows judgments to be made about the performance of the business for the current financial year

Question 46

Profitability

Answer 46

states profit as a percentage of sales revenue

Question 47

Gross profit margin (calculation)

Answer 47

( gross profit / sales revenue ) x 100 > a business that is able to take a relatively cheap raw materials and turn them into highly priced products would have a high gross profit margin

Question 48

Operating profit margin (calculation)

Answer 48

( operating profit / sales revenue ) x 100

Question 49

profit for the year - net profit - margin

Answer 49

( net profit / sales revenue ) x 100

Question 50

Increase selling price (improve profitability)

Answer 50

> increasing he selling price will increase profit margin but may decrease overall profit. This is because an increase in price may lead to a drastic drop in sales volume > dependent on how price elastic or inelastic the product is

Question 51

Cut costs (improve profitability)

Answer 51

> using cheaper materials or employing fewer staff can damage a company's reputation and thus revenue > only where genuine waste can be identified and painlessly removed from the business is cost reduction likely to lead to a straightforward increase in profitability

Question 52

Balance sheet

Answer 52

> this shows what the business owns, as well as what it owes and where it got its money from > test the firms liquidity - the ability to find the cash it needs to pay its bills

Question 53

Current ratio (calculation)

Answer 53

current assets / current liabilities

Question 54

Acid test ration (calculation)

Answer 54

(total current assets - stock) / current liabilities

Question 55

Improving liquidity

Answer 55

improving liquidity relies upon bringing extra cash onto the balance sheet. This could involve one or more of the following : > selling under-used fixed assets such as equipment or machinery > raising more share capital > increasing long-term borrowing through loans > postponing planned investments

Question 56

Managing working capital

Answer 56

working capital is the money that is available for the day-to-day running of the business actively managing the working capital cycle involves: > ensuring there is enough money in the system altogether > making sure cash moves through the cycle as quickly as possible

Question 57

Internal causes of business failure

Answer 57

> marketing failure - problems understanding the market and consumers can lead to a shortage of revenue > financial failure - managers need to manage finances actively, planning ahead and making adjustments when necessary. > systems or operations failure - if IT systems do not provide people with the correct information, and physical system break down, the business will fins itself unable to satisfy demand

Question 58

External causes of business failure

Answer 58

> changes in technology - can destroy a company's sales as their product struggle to compete with more advanced rivals > new competitors - a new rival entering a market that is able to operate far more efficiently, may drive existing businesses out > economic change - if economic growth does not recover quickly, some businesses will fin it hard to continue operating above their break-eve point (luxuries) > behaviour of banks - the banks have a vital role in providing finance to a business : - to fund long-term investments designed to raise competitiveness - to provide short-term finance to help working capital management

Question 59

Job production + -

Answer 59

making one-off items to suit each customers individual requirements + can charge a higher price as products can be tailored to meet exact specifications + work should be more interesting for staff - cost per unit is very high, due to high level of skill and low rates of production - finding staff with sufficient skill can be hard and pay will have to be high

Question 60

Batch production + -

Answer 60

makes a group of products to one specification at a time, allowing some variation + allows variation in the product being made + speedier than job production as making a batch of identical products speed up production - more costly set up than job production as some specialist machinery will be needed - cost per unit will still be higher than flow production as machinery will need to be adjusted between batches

Question 61

Flow production + -

Answer 61

continuous production of a single, standardised product + unit labour costs are extremely low + huge volumes allow huge levels of demand in a mass market to be met - high initial costs of installing production machinery - products need to be identical - no tailoring to suit different tastes

Question 62

Cell production + -

Answer 62

organising workers into small groups or sells that can produce a range of different products more quickly than job production allows + group working allows ideas to be generated within the cell for improvements to processes + the small, highly skilled cell can adjust products to suit customers' needs - as it is still heavily reliant on people rather than automation costs are relatively high - production volumes will not be as high as in floe production

Question 63

Productivity (def and calc)

Answer 63

a measure of the efficiency of the production process (the speed at which an employee completes their tasks total output / number of workers

Question 64

Factors influencing productivity

Answer 64

the speed at which workers can produce units of output may depend on workers or on the environment in which they are working key factors : > quality and age of machinery > skills and experience of workers > level of employee motivation

Question 65

Link between productivity and competitiveness

Answer 65

> higher levels of productivity lead to lower unit costs. this is because labour costs involved in making each unit falls as workers work faster > lower unit costs allow businesses tout prices while maintaining the same profit margin

Question 66

Efficiency

Answer 66

measures the extent t which the resources used a process generate output without wastage

Question 67

Factors influencing efficiency

Answer 67

> quality and age of machinery : newer machinery may work faster, and break down less > skills and experience of workers : highly skilled staff can produce things faster, while experience brings knowledge of how to complete tasks with high efficiency and quality > level of employee motivation : motivated staff are likely to focus on the task without distraction and work as quickly as they can

Question 68

Labour intensive (key factors)

Answer 68

means that a production process relies heavily on human input with little use of automation key factors : > labour costs will form a high proportion of total costs > managing labour costs becomes critical, perhaps forcing firm to move abroad to lower-wage countries or spend heavily on motivational methods > labour intensive production offers far greater scope for tailoring products to suit customers' needs, thus adding value and allowing a higher selling price

Question 69

Capital intensive (key factors)

Answer 69

uses high levels of automation, reducing the role of humans as much as possible, replacing them with machines key factors : > initial costs will be very high, with the need to invest specialist machinery > running costs will be relatively low > it may offer little flexibility in term of product variations

Question 70

Capacity utilisation (def and calc)

Answer 70

the proportion of maximum capacity being used by the business (current output / maximum possible output) x 100

Question 71

Implications of under-utilisation

Answer 71

the major negative implication is that fixed costs per unit will be higher, meaning a greater amount of revenue generated y each product must be used to cover fixed costs, reducing operating margins. under-utilisation of capacity can : > lead to fears for job security among staff, damaging motivation > cause poor morale among managers > contribute to a poor reputation for the business

Question 72

Implications of over-utilisation

Answer 72

if capacity utilisation stays close to 100% over a long period of time, 2 main problems can arise : > the firm may be unable to accept any new orders, potentially tuning away new customers to rivals > there will be little or no time to carry out maintenance on machines or to train staff

Question 73

Ways of improving capacity utilisation

Answer 73

> increase current output : this is likely to be accomplished using marketing methods to boost the volume of sales made by the business, perhaps through advertising or cutting the selling price > reduce maximum capacity : this will involve selling off assets or laying off staff. Although redundancies can be costly in the short-term, reducing maximum capacity reduces fixed costs

Question 74

Stock control diagrams (key features)

Answer 74

> the maximum stock level set by the business, strongly affected by the amount of space available and the firm's stock-holding policy > the minimum or buffer stock level > the re-order quantity is the vertical jump upwards in stock level that occurs at the start of a month. This is the amount of stock that is ordered each time an order is placed > the lead time, or delivery time, is the horizontal gap between a re-order being placed and the delivery of stock arriving

Question 75

Buffer stock

Answer 75

reasons for keeping buffer stock of are materials : > if deliveries are delayed, buffer stock allows production to continue > if a batch of supplies is found to be faulty, the buffer stock can be used to continue production reasons for keeping buffer stock of finished goods : > helps to ensure that the business can always supply customers when they need a product, with the right size and colour > allows the firm to accept rush orders from customers

Question 76

Poor stock control (too much)

Answer 76

> opportunity cost : this ties up capital, as stock, and prevents that money from being used in other ways > cash flow problems : stock represents cash that has been converted into to stock but not back into cash > increased storage costs : keeping stock costs money, it incurs space, security and even refrigeration costs > increased financing costs : if stock has been purchased using any form of borrowing, the business will experience extra interest costs > increased wastage : too much stock may lead to stock becoming obsolete

Question 77

Poor stock control (too little)

Answer 77

> lost customers : if an order or customer arrives expecting to receive their products immediately and there is none in stock, they may turn to rivals > delays in production : if there are no materials to process, machinery and workers may be left with no work. Stopping and starting machinery can be costly > loss of reputation : this may occur if word gets around that the business struggles to maintain enough stock to meet customers needs promptly

Question 78

JIT stock management

Answer 78

> suppliers must be willing to deliver frequently ( often several times a day) > deliveries must be absolutely reliable, missed deliveries leave the firm without stock > suppliers may need to relocate close to the company using JIT

Question 79

Waste minimisation

Answer 79

waste minimisation is fundamental in lean production. JIT helps to reduce waste in many ways : > less stock is held, meaning there is far less likelihood of stock wastage > cash is no tied up in stock, effectively wasting it > removing buffer stock help to highlight problems in production processes

Question 80

Lean production

Answer 80

JIT, kaizen and TQM used together to eliminate waste from business processes this can improve : > input form staff > focus on quality > the number of wasted resources (JIT and TQM) > focus on reducing wasted time (speed can be a competitive advantage) Competitive advantage : > higher levels of productivity, reducing labour cost per unit > less space and stock, reducing fixed costs > higher quality, leading to repetitional advantages > faster development of new products, leading change

Question 81

Quality control + -

Answer 81

involves checking output to find any faults in production. + can be used to guarantee that no defective item will leave the factory + requires little staff training, therefore suits any business - leaving quality for the inspectors may mean that poor quality is built into the product - QC cannot be trusted based on sampling, meaning it takes a lot of time

Question 82

Quality assurance + -

Answer 82

focuses on producing methods of preventing quality problems arising + makes sure the company has a quality system for every stage in the production process + some customers like the reassurance provided by keeping records about quality checks - QA does not promise a high quality product, only a reliable process - QA may encourage complacency, it suggest quality has been sorted, whereas rising customer requirements mean quality should keep moving ahead

Question 83

Total quality management + -

Answer 83

less of a system and more of a way of encouraging all staff to think about the business (right first time) + should become deeply rooted into the company culture + once all the staff think about quality, it should show through every aspect of the business - staff may be skeptical as it doesn't have a clear programme like QC and QA - to get TQM into the culture of a business may be expensive as it requires extensive training of staff

Question 84

Quality circle

Answer 84

a group of staff who meet regularly to fins quality improvements

Question 85

Kaizen

Answer 85

empowering staff to make changes to their working systems brings quality and productivity improvements based on cell production, each small group of employees biomes expert in their area and so is best placed to fins improvements Key aspects : > cell production > quality circles > small but frequent changes > regular suggestions > quality and productivity improvements

Question 86

Competitive advantage from quality management

Answer 86

spending money on quality management systems to ensure high quality production and service delivery brings rewards : > it allows a price premium to be charged > it helps to gain distribution, with retailers confident they will not need to deal with product returns or refunds > it creates brand loyalty and repeat purchase > it can help to build a brand reputation that spreads to other products within a firm's portfolio

Question 87

Inflation

Answer 87

the percentage rate at which average prices rise during a year within the whole UK economy effects on business : > a firm with a long-term fixed price contract may fond that id costs rise rapidly while the contract is being completed, the fixed price does not even cover their higher level of costs, damaging profitability > firms with substantial long-term borrowings will find the real value of the money they repay will be lower following a period of high inflation > if inflation in the UK is higher than in otter countries, UK businesses may lose competitiveness against foreign rivals

Question 88

Exchange rates

Answer 88

the value of one currency expressed in terms of another SPICED WPIDEC

Question 89

Interest rates

Answer 89

the amount charged by a lender per year for borrowing money. effects on business : > consumers are likely to have less money to spend , reducing demand > the amount paid in interest on any borrowing by the business will rise, pushing up costs > consumers are less likely to 'borrow to buy' so products that are often bought on credit will see demand fall > businesses are less likely to invest, as the opportunity cost of investment will be greater

Question 90

Taxation and government spending

Answer 90

to help reduce the level of unemployment - governments spending goes up on services with big workforces, government puts taxes down to enable families to keep and spend more to cut the growth rate of the economy - cut spending on health, education to take form the economy, increase on income tax to force people to think before buying to improve the competitiveness of British firms - extra spending on education, and cut company taxation to cut the rate of imports - cut benefits to reduce people's ability to buy imports and increase tax on all goods other than food and drink

Question 91

The business cycle

Answer 91

economic growth in the UK tends to follow pattern where strong growth (boom) is followed by a recession , where the economy actually contracts effects on business : > if the economy slows, consumers will reduce their spending > while in a boom period, consumer demand rises rapidly > changes in consumers' incomes are the result of changes n wages or even changes in the level of unemployment

Question 92

Effects of consumer protection laws

Answer 92

to ensure that businesses actually deliver on what they promise the consumer the driving force is to ensure that no business can gain an unfair advantage over its rivals through deceitfulness Acts of Parliament : > the sales of goods act > the trade descriptions act

Question 93

Effects of employee protection laws

Answer 93

aims to state and uphold minimum standards of treatment that employees can expect from their employer such as : > fair pay > sick leave > relationships with trade unions almost all businesses would prefer less protection for staff, since this gives them greater flexibility in term of their human resources

Question 94

Effects of environmental protection laws

Answer 94

> materials that firms must use for certain products > processes firms are allowed to use to make certain products > the need to use recyclable materials for certain products > landfill tax > the need to carry out environmental risk assessments for different parts of a business's activities businesses try to resist new laws, arguing that costs will rise making it harder for them to compete against foreign rivals

Question 95

Competition and Markets Authority (CMA)

Answer 95

CMA is responsible for : > investigating proposed takeovers and mergers > investigating allegations of anti-competitive practices > taking legal action against those who collude to maintain high prices within a market

Question 96

Effects of health and safety

Answer 96

designed to protect employees and customers in the workplace key aspects : > safe physical conditions > precautions that firms are required to take when planning their work > the way in which hazardous substances should be treated in the workplace

Question 97

One dominant business

Answer 97

bad for consumers : > consumers have little choice > prices tend to be high > there is little incentive for the dominant firm to innovate or provide great customer service

Question 98

A few giants

Answer 98

rivalries are intense however companies rarely compete on price as they fear a price war would start, leading to lower profit margins non-price competition : > branding > product features > product design > advertising > technical innovations

Question 99

Fiercely competitive market

Answer 99

> many small businesses competing with one another, often on the basis of price > this keeps profit margins low and ensures consumers usually get a bargain > may be little choice of strategy other than keeping costs as low as possible in the hope of undercutting rivals while still making some profit

Question 100

Collusion

Answer 100

overs when two or more rivals companies trying to survive in a highly competitive market agree to fix supply or prices within their market (this is illegal)