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A retailer needs capital to commence business - Leaving Cert Economics - Question 3 - 2011
Question 3
A retailer needs capital to commence business. A retailer also needs to purchase stock for sale, pay wages and pay rent for premises. (i) Explain the term 'capital'... show full transcript
Worked Solution & Example Answer:A retailer needs capital to commence business - Leaving Cert Economics - Question 3 - 2011
Step 1
Explain the term 'capital' as a factor of production.
Answer
The term 'capital' refers to any man-made resource that aids in the production of goods and services. It encompasses financial resources, machinery, buildings, and equipment that a retailer uses to operate their business. Essentially, capital is a critical factor of production as it allows businesses to invest in and maintain their operations, leading to the generation of output.
Step 2
Define the terms fixed costs and variable costs.
Answer
Fixed costs are expenses that do not change regardless of the level of output produced. These are costs that a business incurs even when it is not producing anything, such as rent and salaries. Variable costs, on the other hand, are expenses that fluctuate with the level of production. As output increases, variable costs rise, and when production decreases, these costs diminish. Examples of variable costs include costs for materials and wages depending on the number of hours worked.
Step 3