IGCSE, A Level Business Student Forum

Q10 Analyse the reasons, why value of output can’t be a good approach to measure business size. [6]

Possible Structure:
[KN]
[AN]
[AN+]

[KN]
[AN]
[AN+]

[KN] Inflation.
[AN] Changes in the general price level over time can distort the value of output. If prices increase, the value of a business's output will increase even if the physical quantity produced remains the same.
[AN+] Conversely, deflation can make the business appear smaller, even if it is producing the same amount.

[KN] Changes in technology.
[AN] Technological advancements can lead to increased efficiency and reduced costs.
[AN+] This can result in a reduction in the value of output even as the business grows in terms of physical output or productivity.

[KN] Economic Conditions
[AN] economic conditions and market dynamics can influence the value of output. A business may experience changes in its output value due to factors like inflation, changes in consumer demand, or shifts in market conditions
[AN+] which may not accurately reflect its underlying business size or performance.

[KN] advanced technology
[AN] Advancements in technology and automation can increase a business's output value without a corresponding increase in the number of employees or operational complexity.
[AN+] This may lead to a mismatch between the value of output and the business's actual size and labor force.

KN: Economies of Scale
AN: Larger businesses often benefit from economies of scale, which means their cost per unit is lower
AN+: They can produce more for less, leading to higher revenue.
KN: Seasonality
AN: Many businesses experience seasonal fluctuations in revenue, which can make comparisons difficult
AN+: They might look much larger in a high season and much smaller in a low season.

[KN] the amount of profit
[AN] some of the firms would be still producing in high quantity but operating on breakeven and not able to expand
[AN+] the size of the business is directly related to the profit made by the business

[KN] seasonally
[AN] some firms would be only working in some times of the year
[AN+] during that time they would be producing high value of output but that does not defines it's size

[KN]Variability in Pricing and Costs
[AN]different price points means that a business with a high-value output may not necessarily have a large physical presence or workforce.
[AN+] Some businesses may excel in producing high-value, specialized products with a relatively small team, thanks to technological advancements and process efficiencies.

[KN]Customization and Niche Markets
[AN]Businesses that specialize in customized or niche products or services may have a high value of output despite serving a smaller customer base.
[AN+] A business may have a high value of output, but a significant portion of this value may go to suppliers or intermediaries.

[KN] Inflation
[AN] Changes in the general price level over time can change the value of output If prices increase the value of a business output will increase even if the quantity produced remains the same.
[AN+] Thus the value of output to calculate the business size isn't accurate
KN] Seasonal Businesses
[AN] some firms operate half a year or seasonally
[AN+] Thus half a year there is no production and output and hence calculating a business from its output isnt reliable

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Good Job
Syed Mustafa Ali
--Moderator

[KN] Variations in Profit Margin
[AN] Businesses can have different profit margins. A company with high revenue but low profits may not be as significant as a smaller business with higher profitability.
[AN+] Revenue alone doesn't reflect the financial health or economic impact of a business.

[KN] Economic externalities
[AN] Businesses can have both positive and negative externalities on society and the environment, which aren't reflected in revenue figures.
[AN+] Measuring size solely by output value ignores these broader effects.

[KN] Variability in Pricing and Costs
[AN] Different price points means that a business with a high-value output may not necessarily have a large physical presence or workforce.
[AN+] Some businesses may excel in producing high-value, specialized products with a relatively small team, thanks to technological advancements and process efficiencies.

[KN] Customization and Niche Markets
[AN] Businesses that specialize in customized or niche products or services may have a high value of output despite serving a smaller customer base.
[AN+] A business may have a high value of output, but a significant portion of this value may go to suppliers or intermediaries

KN]seasonal output [AN] goods that are produced seasonally like sugar cane cannot be measured for the time the industry is inactive [AN+]thus the proportionality cannot be measured against the time it is not active with those firms that remain active throughout the year

[KN]niche markets[AN]business that by choice operate in a niche have a low value of goods than those of a mass market[AN+]a business having high value of output wont even matter if most of it is given away due to costs like paying suppliers

(kn) different prices
(an) some products with low prices could be sold more and some with high prices can be sold less
(an+) which further puts different between its output
(kn) seasonal products
(an) some business producing in winters and summer its output can change every season
(an+) and its output sold can be different every season hence not a good idea to measure business through value of output

[kn] a high output does not mean that the business is huge in size when looking at other measurements
[an] for example firms may have a low level of employed people but high value of output
[an+] this can lead to an overestimation of how big the business actually is
[kn] owners' choice
[an] many businesses operate in a niche market therefore by choice have a low value of goods then that of mass markets
[an+] thus the business may be huge or successful but most of its output is given to suppliers

[KN] Varying pricing structures.
[AN] A business with many operations may be charging different prices in each operation which can lead to disparities in recorded value of output.
[AN+] Thus this can lead to overestimation or underestimation of the size of the business.

[KN] Seasonality.
[AN] businesses whose demand for products is dependent on the season like ice-creams in summer is likely to have greater value of output in the particular season than compared to the whole year.
[AN+] Thus this will lead to mismatch between the value of output in summer which will be high than compared to all other seasons.

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Moderator Comment: Perfect Answer!!! BRAVO!!!

[KN] All output produced may not be sold
[AN] hence a business with high output may have low revenue and high storage costs
[AN] Leading to low profits


[KN]It ignores other measures
[AN] A firm employing few employees might produce several expensive units of output each year
[an]This might give higher output figure than a firm selling cheaper products but employing more workers

Moderator Comment: Please recheck.

[KN]Different prices
[AN]Different businesses in different areas may set different prices for their products. A business having higher output may not have a better or healthy workforce
[AN+]Thus this leads to inaccurate measurement

[KN]High costs
[AN]A business in a mass market might have higher output than a niche market however if most of the earned revenue is used to pay expenses in a mass market then the business may not be very successful
[AN+]Thus this shows that the business with higher output is not always more successful