Following a substantial rise in output, a commercial laundry-equipment manufacturer is choosing one management proposal and one sales proposal for its expanded business.
| Management proposal | Organisation of the business |
|---|---|
| 1 | The owner continues to make the production, marketing and finance decisions. |
| 2 | Separate full-time managers specialise in production, marketing and finance. |
The forecast annual revenue for each sales proposal is shown below.
| Sales proposal | Customer market | Revenue in Year 1 | Revenue in Year 2 |
|---|---|---|---|
| 1 | Hotels | £6.0 million | £3.5 million |
| 1 | Leisure centres | £4.0 million | £2.5 million |
| 2 | Hotels | £5.0 million | £3.5 million |
| 2 | Care homes | £3.0 million | £4.5 million |
Explain which combination of one management proposal and one sales proposal is most likely to lower the manufacturer's average cost while making it less vulnerable to weak demand in one customer market. Use the information in the tables.
138 exam-style questions on AQA GCSE Economics 1.4 Production, costs, revenue and profit, covering 1.4.1a Business objectives, 1.4.1b Types of costs and revenue, 1.4.1c Calculating profit, 1.4.1d Profit as an incentive to produce, 1.4.1e Moral and ethical considerations, 1.4.2a Production versus productivity, 1.4.2b Factors and benefits of productivity, 1.4.3a Economies of scale and business behaviour, 1.4.3b Types of economy of scale, and 1.4.3c Diseconomies of scale. Each one has a worked solution and a mark scheme showing where the marks go.