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A furniture producer pays rent of €5,000 to use premises - Leaving Cert Economics - Question 3 - 2007
Question 3
A furniture producer pays rent of €5,000 to use premises. The producer also pays wages of €50,000 each month to workers. Other costs include the bill for timber €35,... show full transcript
Worked Solution & Example Answer:A furniture producer pays rent of €5,000 to use premises - Leaving Cert Economics - Question 3 - 2007
Step 1
Define the terms: fixed costs and variable costs.
Answer
Fixed costs are expenses that do not change regardless of the level of production or output. They remain constant even if the production volume increases or decreases. Examples include rent and loan repayments.
Variable costs, on the other hand, are expenses that vary directly with the level of output. As production increases, variable costs increase, and as production decreases, variable costs decrease. These costs fluctuate based on the volume of goods produced.
Step 2
Step 3
If this producer receives €120,000 from the sale of the furniture produced, calculate the profit he makes. Show your workings.
Answer
To calculate profit, we need to subtract total costs from total revenue.
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Total Revenue: €120,000
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Total Costs:
- Rent: €5,000
- Wages: €50,000
- Bill for timber: €35,000
- Loan repayment: €10,000
Total Costs = €5,000 + €50,000 + €35,000 + €10,000 = €100,000
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Profit = Total Revenue - Total Costs
Profit = €120,000 - €100,000 = €20,000
Step 4
State and explain TWO reasons why entrepreneurs are important for the Irish economy.
Answer
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Create Jobs: Entrepreneurs are crucial for job creation. By starting and expanding businesses, they provide employment opportunities which reduce unemployment rates and stimulate economic growth.
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Encourage Innovation: Entrepreneurs drive innovation by developing new products and services. Their efforts in research and development lead to technological advancements that can improve productivity and competitiveness in the market.
Step 5
State and explain TWO ways in which the Irish government could encourage more individuals to become entrepreneurs.
Answer
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Emphasis on Enterprise Education: By integrating entrepreneurship education into the school curriculum, the government can inspire young individuals to pursue entrepreneurial endeavors and equip them with necessary business skills.
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Tax Incentives: Offering tax breaks or grants for new startups can encourage more individuals to take the risk of starting their own businesses, thereby fostering a culture of entrepreneurship.
Step 6
Step 7
State and explain TWO reasons why an entrepreneur might employ additional workers.
Answer
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Increase in Demand for the Firm’s Output: When there is an increase in market demand for products, an entrepreneur may need to hire more workers to meet this demand and increase production capacity.
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Increased Productivity: By employing additional workers, the firm may improve its overall productivity, allowing it to operate more effectively and generate higher profits.
Step 8
Outline ONE reason why workers who train for longer periods generally receive higher wage rates.
Answer
- Improved Skills: Workers who undergo extensive training tend to acquire specialized skills that enhance their productivity and efficiency. Employers are often willing to pay higher wages to skilled workers, as their expertise translates into better performance and increased output for the company.