Business Unit 1 Summary
3 types of diseconomies of scale - ANSWER Communication problems: large-scale
operations often meet with communication problems where it causes poor decisions to be made
with delayed information.
Alienation of the workforce: the bigger the business, the harder it is to involve every person into a
sense of purpose and achievement. They might become demotivated, causing a delay in terms of
production.
Poor coordination and decision-making: Business expansion leads to many departments, divisions
and products. It makes it hard for senior management to coordinate these operations to an extent it
makes it hard to make good decisions for the business.
5 types of economic scales - ANSWER bulk-buying economies: large firms are able to
negotiate cheaper prices for inputs
Technical economies: The lower unit costs which come about from larger firms being able to use
more efficient techniques of production and the fact that a larger plants are often cheaper to run.
This is often helped by the principle of increased dimensions.
Financial economies: A situation where large firms are able to borrow money on better terms than
smaller firms which makes the cost of financing investment and therefore unit costs lower.
Marketing economies: A situation where larger firms are able to lower the unit cost of advertising
and promotion perhaps through access to more effective marketing media.
Managerial economies: larger firms have greater scope to benefit from the specialisation of labour at
supervisory and manager level in each of the functional areas of the firm
Adding value - ANSWER the difference between the price of the finished product/service
and the cost of the inputs involved in making it.
Advantage and disadvantage for arbitration (method of stakeholder conflict) -
ANSWER Advantage: getting to hear both arguments from both sides and come up with an
equal solution
Disadvantage: both sides won't get what they exactly wanted, if the arbitration proposes high wages
or better work conditions than the cost of business will rise.
Advantage and disadvantage for profit-sharing schemes (method of stakeholder conflict) -
ANSWER Advantage: the workforce is shared within profits from the business
,Business Unit 1 Summary
Disadvantage: paying workers a share of the profits can reduce profits that can be used for expansion
Advantage and disadvantage for share-ownership schemes (method of stakeholder conflict) -
ANSWER Advantage: Allows employees to benefit from the success of the business within
the right to buy shares
Disadvantage: if the share price falls then employees can be demotivated.
Advantage and disadvantage for worker participation (method of stakeholder conflict) -
ANSWER Advantage: worked get to contribute into making business decisions
Disadvantage: managers believe these participation from workers is a waste of time.
Advantage and disadvantage of partnership - ANSWER Advantage:
Shared decision-making
Additional capital by both partners
Business losses shared between both partners
Partners may attract new customers
Disadvantage:
Unlimited liability for all partners with some exceptions
Profits are shared
If a partner dies then the partnership is finished.
Advantage and disadvantage of PLC - ANSWER Advantage:
Limited liability
Continuity
Ease of buying and selling of shares for shareholders
Disadvantage:
Legal formalities in formation
Risk of takeover due to the availability of the shares
Directors influenced by short-term objectives of profit
Advantage and disadvantage of sole traders - ANSWER Advantage:
, Business Unit 1 Summary
Easy to set up
Owner has full control
Full profit
Ability to choose timing and pattern for working
Disadvantage:
Full load of work
Have to pay all the finances
Unlimited liability (All of owner's asset is at risk)
Intense competition
Advantages and disadvantage of public cooperations - ANSWER Advantage:
Finance raised mainly from the government so no limitations from banks
Managed with social objectives rather than profit objectives
Loss-making service can be kept if the social benefit is good enough
Disadvantage:
Government may interfere in business decisions within political reasons
Inefficient work loads as objective is based on social not profit.
Advantages and disadvantages of franchises - ANSWER Benefits: less chance of new
business failing as an established brand and product being used, advice and training are offered by
the franchiser, and national advertising paid for by franchiser.
Limitations: shares of profits and sales are shared with the franchiser, no choice of supplies or
suppliers to be used, initial franchise license is expensive.
Aims - ANSWER The aim of a business is what it wants to achieve by a future date and time
Ansoff's matrix - ANSWER a model used to show the degree of risk associated with the four
growth strategies:
3 types of diseconomies of scale - ANSWER Communication problems: large-scale
operations often meet with communication problems where it causes poor decisions to be made
with delayed information.
Alienation of the workforce: the bigger the business, the harder it is to involve every person into a
sense of purpose and achievement. They might become demotivated, causing a delay in terms of
production.
Poor coordination and decision-making: Business expansion leads to many departments, divisions
and products. It makes it hard for senior management to coordinate these operations to an extent it
makes it hard to make good decisions for the business.
5 types of economic scales - ANSWER bulk-buying economies: large firms are able to
negotiate cheaper prices for inputs
Technical economies: The lower unit costs which come about from larger firms being able to use
more efficient techniques of production and the fact that a larger plants are often cheaper to run.
This is often helped by the principle of increased dimensions.
Financial economies: A situation where large firms are able to borrow money on better terms than
smaller firms which makes the cost of financing investment and therefore unit costs lower.
Marketing economies: A situation where larger firms are able to lower the unit cost of advertising
and promotion perhaps through access to more effective marketing media.
Managerial economies: larger firms have greater scope to benefit from the specialisation of labour at
supervisory and manager level in each of the functional areas of the firm
Adding value - ANSWER the difference between the price of the finished product/service
and the cost of the inputs involved in making it.
Advantage and disadvantage for arbitration (method of stakeholder conflict) -
ANSWER Advantage: getting to hear both arguments from both sides and come up with an
equal solution
Disadvantage: both sides won't get what they exactly wanted, if the arbitration proposes high wages
or better work conditions than the cost of business will rise.
Advantage and disadvantage for profit-sharing schemes (method of stakeholder conflict) -
ANSWER Advantage: the workforce is shared within profits from the business
,Business Unit 1 Summary
Disadvantage: paying workers a share of the profits can reduce profits that can be used for expansion
Advantage and disadvantage for share-ownership schemes (method of stakeholder conflict) -
ANSWER Advantage: Allows employees to benefit from the success of the business within
the right to buy shares
Disadvantage: if the share price falls then employees can be demotivated.
Advantage and disadvantage for worker participation (method of stakeholder conflict) -
ANSWER Advantage: worked get to contribute into making business decisions
Disadvantage: managers believe these participation from workers is a waste of time.
Advantage and disadvantage of partnership - ANSWER Advantage:
Shared decision-making
Additional capital by both partners
Business losses shared between both partners
Partners may attract new customers
Disadvantage:
Unlimited liability for all partners with some exceptions
Profits are shared
If a partner dies then the partnership is finished.
Advantage and disadvantage of PLC - ANSWER Advantage:
Limited liability
Continuity
Ease of buying and selling of shares for shareholders
Disadvantage:
Legal formalities in formation
Risk of takeover due to the availability of the shares
Directors influenced by short-term objectives of profit
Advantage and disadvantage of sole traders - ANSWER Advantage:
, Business Unit 1 Summary
Easy to set up
Owner has full control
Full profit
Ability to choose timing and pattern for working
Disadvantage:
Full load of work
Have to pay all the finances
Unlimited liability (All of owner's asset is at risk)
Intense competition
Advantages and disadvantage of public cooperations - ANSWER Advantage:
Finance raised mainly from the government so no limitations from banks
Managed with social objectives rather than profit objectives
Loss-making service can be kept if the social benefit is good enough
Disadvantage:
Government may interfere in business decisions within political reasons
Inefficient work loads as objective is based on social not profit.
Advantages and disadvantages of franchises - ANSWER Benefits: less chance of new
business failing as an established brand and product being used, advice and training are offered by
the franchiser, and national advertising paid for by franchiser.
Limitations: shares of profits and sales are shared with the franchiser, no choice of supplies or
suppliers to be used, initial franchise license is expensive.
Aims - ANSWER The aim of a business is what it wants to achieve by a future date and time
Ansoff's matrix - ANSWER a model used to show the degree of risk associated with the four
growth strategies:
