IGCSE Economics Paper-2: Specimen Questions with Answers 53 - 54 of 100

Passage

The cost of production of a firm decreases as the business expands.

Question 53 (2 of 5 Based on Passage)

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Short Answer▾

Discuss the advantages of sole proprietor

Explanation

Sole Proprietorship Offers Different Advantages to Its Owner

  • Ease of startup: Under sole proprietorship a small amount of paperwork and legal expense is required. So, anybody can start a sole proprietorship with such ease.
  • Few regulations: In case of a sole proprietorship, the firm is the least regulates business by the government or any other authority. The owner is free from any kind of legality.
  • The sole receiver of the profit: A sole proprietor is the only person who gets the share of profit after the payment of all kinds of expenses and taxes. The owner is free from distributing the profit among others.
  • Full control: Sole proprietor runs the business without any external control. A sole proprietor is the risk-taker and decision-maker in the business.
  • Easy to discontinue: Besides paying off legal obligations such as taxes and debt, no other legal obligation is required to be met to stop doing business.

Question 54 (3 of 5 Based on Passage)

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Why some firms would benefit in small scale production

Explanation

Some firms benefit from small scale production because:

  • Time commitment: In a new business it may consume a lot of time of the entrepreneur in the initial stages as there are very few employees so all the decision has work and decision making must be done by the owner himself.
  • Risk: Risk cannot be eliminated from the business. Though a business structure may be designed to minimize risk and liabilities but still after some extent risk must be borne by the owner himself.
  • Uncertainty: external factors of the business are uncertain and cannot be predicted beforehand like- New competitors entering the market, change in the demand of the consumers. Even if the entrepreneur has planned everything still, he might not be able to foresee all the uncertainties.
  • Financial commitment: Many people starting their own business for their initial investment use their own personal savings. Commitment of savings may lead them with no money for their personal use. In some cases, the entrepreneur takes loan against some security which can be his house or any other personal asset.

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