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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 sales, such as rent and loan repayments. In contrast, variable costs fluctuate with the quantity produced, such as wages depending on hours worked or materials used.
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 the profit:
Total Revenue = €120,000
Total Costs = Fixed Costs + Variable Costs
Fixed Costs = Rent (€5,000) + Loan Repayment (€10,000) = €15,000 Variable Costs = Wages (€50,000) + Bill for Timber (€35,000) = €85,000
Total Costs = Fixed Costs + Variable Costs = €15,000 + €85,000 = €100,000
Profit = Total Revenue - Total Costs = €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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Organising production: Entrepreneurs coordinate various resources including labor and materials, creating products and services that drive economic growth.
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Create Jobs: By establishing businesses, entrepreneurs contribute to job creation, which reduces unemployment and supports the local community.
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 promoting entrepreneurship education in schools and colleges, the government can inspire more individuals to take risks in starting their own businesses.
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Tax incentives: Providing tax relief or grants for startups can encourage individuals to invest in new ventures and reduce financial risks.
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: If there is a rise in consumer demand, the entrepreneur may need more workers to increase production to meet this demand.
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Improved productivity: Employing skilled workers can lead to enhanced productivity, thereby increasing profits for the entrepreneur.
Step 8
Outline ONE reason why workers who train for longer periods generally receive higher wage rates.
Answer
Workers who undergo extensive training often bring enhanced skills to their roles, making them more valuable to employers, which can command higher wages due to the specialized knowledge and expertise they possess.