Study Guide Questions

2 ONG provides electricity to 16 million customers. It is a limited company which means DNG's shareholders benefit from limited liability. ONG is planning to stop using coal to produce its electricity. Pressure groups had an influence on this decision. The Managing Director knows there will be an opportunity cost to making this change. She is considering the best way to communicate this important information to DNG's 6500 employees. (a) Define 'opportunity cost'. [2] Page 1

Answer explanation

The term 'opportunity cost' refers to the loss of potential gain from other alternatives when one alternative is chosen. In the context of the question, the Managing Director of ONG is aware that the decision to stop using coal for electricity production will have an opportunity cost, implying that there will be a trade-off or a potential benefit that will be given up as a result of this decision.

1 S&V imports high quality spices and herbs and sells them to local restaurants and shops. S&V wants to increase added value. It is a business partnership so its owners do not have limited liability. One of the partners, Serena, is worried that supplies from some countries do not arrive on time or the wrong items are delivered. She said: 'S&V cannot have communication barriers with its many suppliers. In addition, our customers demand up-to-date information about spices and herbs that are in season.' Serena has to decide whether e-mail is the best way to communicate with S&V's customers. (b) Identify two ways S&V can increase added value. Way 1: Way 2: [2] Page 2

Answer explanation

S&V can increase added value by improving their supply chain management and enhancing their communication with customers. By ensuring timely and accurate delivery of supplies, they can reduce costs and increase customer satisfaction. Additionally, providing up-to-date information about in-season spices and herbs can help customers make informed decisions, thereby adding value to their purchases.

1 DWT makes solar panels in country Y. This is a low-cost country which is experiencing rapid economic growth. DWT's production method makes use of specialisation. All 120 of DWT's employees know that ensuring quality production is important. DWT imports some of its raw materials. The Government of country Y plans to introduce import tariffs of 50%. DWT's Managing Director said: 'This decision will affect all of our stakeholders. Why do governments introduce trade restrictions such as import controls?' (a) Define 'specialisation'. [2] Page 9

Answer explanation

Specialisation refers to the process of focusing on a specific task or aspect of production, allowing for increased efficiency and expertise. In the context of DWT, specialisation means that each employee is dedicated to a particular aspect of solar panel production, ensuring quality and efficiency. Governments may introduce trade restrictions like import controls to protect domestic industries, promote self-sufficiency, or address trade imbalances.

1 DWT makes solar panels in country Y. This is a low-cost country which is experiencing rapid economic growth. DWT's production method makes use of specialisation. All 120 of DWT's employees know that ensuring quality production is important. DWT imports some of its raw materials. The Government of country Y plans to introduce import tariffs of 50%. DWT's Managing Director said: 'This decision will affect all of our stakeholders. Why do governments introduce trade restrictions such as import controls?' (a) Define 'resources'. [2] Page 9

Answer explanation

Resources are things a company uses to make its products or services. These include land, labor, capital needed for production. The entrepreneur knows how to use resources to make the product. For DWT, resources include its special way of making solar panels, the 120 employees who know how to make good panels, the money they have, and the materials they import.

4 Tom wants to leave his job to become an entrepreneur. He and his sister plan to start a window cleaning business. Tom has been told that new businesses are at a greater risk of failure than established businesses. Tom has to decide whether a partnership is a suitable form of business organisation for the new business. He has calculated the business will need $700 as start-up capital. Tom knows that every decision he makes will have an opportunity cost. (c) Identify four reasons why a new business might be at greater risk of collapse than an established business. Reason 1: Reason 2: Reason 3: Reason 4: [4] Page 40

Answer explanation

The question asks to identify four reasons why a new business might be at greater risk of collapse than an established business. Some reasons include: 1. Lack of experience and knowledge, 2. Limited resources and funding, 3. Difficulty in building a customer base, and 4. Challenges in establishing a brand and reputation. These factors contribute to the higher risk of failure for new businesses compared to established ones.

4 BMT is a business partnership owned by 2 brothers. The brothers received government support when they started BMT 6 years ago. BMT now has 30 employees who make high quality watches. The business tries to achieve lean production. Demand has increased each year and in 2019 BMT sold 8000 watches. BMT makes some parts for watches and all the other parts are imported. BMT had to consider a number of factors, including exchange rates, when deciding whether to import parts for watches. (a) Identify two reasons why a government might support business start-ups. Reason 1: Reason 2: [2] Page 37

Answer explanation

Two reasons why a government might support business start-ups are: 1) to stimulate economic growth by creating jobs and increasing production, as seen with BMT's 30 employees and high-quality watches; and 2) to encourage innovation and competitiveness in the market, which can lead to better products and services for consumers. In the case of BMT, they received government support and have experienced increasing demand for their watches.

2 Lola and Raul are in a business partnership. They make a range of hand-printed products including t-shirts, bags and posters using job production. Most of Lola and Raul's customers are tourists. Lola designs and prints all the products at the back of a small shop. Raul is responsible for sales and finance. Production is slow and it is difficult for Lola to keep up with demand. Raul wants to increase output. One way of doing this is to introduce some machinery into the process. Raul also wants to develop a website. (b) Identify two reasons why a business might want to expand. Reason 1: Reason 2: [2] Page 30

Answer explanation

The question asks for two reasons why a business might want to expand. From the context, it can be inferred that Raul wants to expand their business to increase output and meet demand. He also wants to develop a website, possibly to reach a wider customer base. Therefore, the two reasons for business expansion could be to increase production and to reach more customers.

1 Zadkiel and Mary have formed a business partnership. They own an ice cream shop on the main street in Capital city. The shop has 3 part-time employees and sells high quality ice cream to a niche market. Mary and Zadkiel gain feedback by asking customers to complete questionnaires. Customers do not like the long queues and poor customer service. Mary thinks these problems are caused by the shop always being busy. Zadkiel has suggested moving to a larger shop in a different location in Capital city. (e) Do you think Mary and Zadkiel should move to a larger shop? Justify your answer. [6] Page 42

Answer explanation

Moving to a larger shop could potentially solve the problem of long queues and improve customer service by providing more space for customers and employees. However, it's important to consider the costs and potential loss of their niche market in the main street location. Therefore, the decision should be based on a thorough cost-benefit analysis.

2 NPX is an online retail business. All orders are sent directly to customers from its warehouse. NPX employs 60 full-time workers. The Operations Manager is analysing NPX's cash-flow forecast. An extract is shown in Table 2.1. To improve productivity, the manager plans to introduce new technology that can select and pack all the items for each order. This will make 35 workers redundant. The technology will cost $40000. The manager is considering using either internal sources or external sources to finance this technology. (e) What is a tertiary sector? Do you think it is better for a tertiary sector business to use full-time employees rather than part-time employees? Justify your answer. [6] Page 187

Answer explanation

The tertiary sector is the part of the economy that provides services to consumers and businesses. It includes retail businesses like NPX. Whether full-time or part-time employees are better depends on the specific needs of the business. In this case, NPX is considering automation to improve productivity, which may reduce the need for full-time employees.

1 RGP owns a number of luxury hotels. The directors are planning to open a new hotel with 200 rooms. The hotel's location will be in the city centre. The Human Resources Director said: 'One of my roles is to recruit the 300 employees RGP will need from the local community. I think selecting new employees with the right personality is more important than their experience. Everyone will have 6 weeks of induction training.' She knows that effective communication between employees and customers will be important to the success of the hotel. (e) Do you think selecting employees with the right personality is more important than their experience for a tertiary sector business? Justify your answer. [6] Page 199

Answer explanation

In a tertiary sector business like a luxury hotel, selecting employees with the right personality is crucial. This is because effective communication and customer service skills are vital for success. While experience is important, personality traits such as empathy, adaptability, and problem-solving abilities can be more valuable in creating a positive customer experience. Additionally, the 6 weeks of induction training will help bridge any gaps in experience.