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A business must control both its fixed costs and variable costs so that it can earn normal profit - Leaving Cert Economics - Question 3 - 2012
Question 3
A business must control both its fixed costs and variable costs so that it can earn normal profit. (i) Explain the underlined term. (ii) Define fixed cost and vari... show full transcript
Worked Solution & Example Answer:A business must control both its fixed costs and variable costs so that it can earn normal profit - Leaving Cert Economics - Question 3 - 2012
Step 1
Explain the underlined term
Answer
Normal profit refers to the minimum profit required for a business to remain operational. It is the level of profit that allows the entrepreneur to cover all opportunity costs, including the return on their investment. In simpler terms, it is the amount of profit needed for a business to sustain its existence and ensure that the entrepreneur continues to operate.
Step 2
Define fixed cost and variable cost and state one example of each
Answer
Fixed costs are expenses that do not change with the level of output, such as rent or salaries. An example of a fixed cost is the monthly rent for a business premises.
Variable costs, on the other hand, are costs that vary with the level of production, such as materials and labor costs associated with producing goods. An example of a variable cost is the cost of raw materials used in manufacturing.
Step 3
State and explain two reasons why it is important for a business to continue to earn profit
Answer
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Sustainability: Profit is essential for the sustainability of a business. It allows businesses to reinvest in operations, enhance productivity, and innovate. Without profit, a business cannot grow or maintain its market position.
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Attract Investment: Profitable businesses are more likely to attract investors and secure funds for expansion. Investors look for returns on their investments, and a consistent profit margin can instill confidence in potential stakeholders.
Step 5
Outline two reasons why entrepreneurs are important to the development of the Irish economy
Answer
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Job Creation: Entrepreneurs create new jobs by establishing businesses which not only provide employment opportunities but also stimulate the local economy.
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Innovation and Competitiveness: Entrepreneurs drive innovation by developing new products and services, which enhances competitiveness in the market and contributes to economic growth.
Step 6
Outline one action each of the following could take to encourage enterprise: The Irish Government
Answer
The Irish Government could provide financial incentives, such as grants or low-interest loans, to support new and existing businesses. These incentives can help reduce the initial financial burden on entrepreneurs.
Step 7
Outline one action each of the following could take to encourage enterprise: Schools / Colleges
Answer
Schools and colleges could offer entrepreneurship programs that educate students about business management and the skills needed to start a business, thereby fostering a culture of enterprise from a young age.
Step 8
State and explain two methods a Local Authority could use to encourage more consumers to shop local
Answer
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Promotional Campaigns: Local Authorities can run promotional campaigns that highlight local businesses and encourage residents to support them through advertising and community events.
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Support Local Markets: Organizing local markets or fairs where local vendors can sell their products can promote the importance of shopping locally and create a sense of community.
Step 9
Discuss two benefits to the local economy if more consumers shop locally
Answer
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Job Creation: Increased local shopping leads to higher revenue for local businesses, allowing them to hire more staff and contribute to lower unemployment rates in the area.
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Economic Multiplier Effect: Money spent locally tends to circulate within the community, leading to more local investment and further enriching the local economy through increased demand for services and goods.