IGCSE Economics Paper-2: Specimen Questions with Answers 56 - 57 of 100

Passage

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

Question 56 (5 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.

Passage

Managers today, regard buying of a company as an access into the market.

Question 57 (1 of 5 Based on Passage)

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Short Answer▾

What factors limits the growth of the firm?

Explanation

The Following Factors Limit the Growth of the Firm

  • Labor or capital: If adequate labor or fresh capital is not available the growth of a business will be restricted.
  • Nature of the market: Demand for a product in the market affects the growth of a firm. If there is fluctuating demand for the product then it would not be feasible to increase the size of the firm.

  • Managerial Capacity: Limitation on the part of the capacity of the manager also affects the expansion of a firm. After a point in business it becomes difficult for the manager to successfully manage the operations and functioning of the firm which may lead to vanishing away of profits.

  • Nature of Industry: The nature of the industry affects the growth of a firm. As in some industries operating on a large scale will not give profits because they require close supervision. Like- Making of jewelry.

  • Law of Diminishing returns: Sometimes expansion of industry leads to increase in the cost of production due to increase in the number of output and the profits will decrease eventually.

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