Photo AI
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 the business could face is the risk of compromising the quality of its tyres. Sourcing rubber from the global market may lead to variability in quality, as the materials may differ from those traditionally used. While cheaper rubber might reduce costs, it can result in inferior quality products, which could affect customer satisfaction and damage the brand's reputation.
Step 2
Explain the benefits of achieving economies of scale for both the business and consumers.
Answer
Economies of scale allow the business to lower its production costs by increasing the volume of output. This can lead to significant cost savings per unit, enabling the business to reduce the price of its tyres for consumers.
For the consumers, this means they can purchase higher quality tyres at more competitive prices. Moreover, as the business grows, it can invest in better technology and processes, enhancing product quality further and ensuring long-term profitability.