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An Australian tyre manufacturer is expanding its business - HSC - SSCE Business Studies - Question 21 - 2023 - Paper 1
Question 21
An Australian tyre manufacturer is expanding its business. In order to reduce operating costs and increase sales and profit, rubber will be sourced from the global m... show full transcript
Worked Solution & Example Answer:An Australian tyre manufacturer is expanding its business - HSC - SSCE Business Studies - Question 21 - 2023 - Paper 1
Step 1
Outline ONE potential issue this business could face in relation to both cost and quality of outputs.
Answer
One potential issue this business could face is the risk of sourcing rubber from different global suppliers, which may lead to a fluctuation in quality. While cheaper inputs could reduce overall costs, inconsistent quality in the rubber can result in lower quality tyres. This can adversely affect the reputation of the manufacturer and customer satisfaction.
Step 2
Explain the benefits of achieving economies of scale for both the business and consumers.
Answer
Achieving economies of scale can significantly benefit the tyre manufacturer by lowering the per-unit cost of production as output increases. This reduction in cost allows the business to either enhance profit margins or lower prices for consumers, thus increasing competitiveness in the market.
For consumers, lower prices due to economies of scale can lead to greater accessibility to quality tyres, offering better value for their money. Additionally, as production rises, the business can invest in further innovations and improvements, leading to enhanced product offerings that benefit consumers in terms of quality and performance.