The Sole Trader Business Commerce Essay

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The sole trader business is run by one individual and he is the sole owner of the business. The business is very straight forward and easy to setup and all the important decisions of the business are made by the owner himself. The business can be found in each and every corner of the world.

ADVANTAGES

One of the best advantages of setting up a sole trader business is that the owner is his boss. And this means that all the strategic decisions of the business will be made by the owner himself. Legal formalities for setting up this business are very few because it is an unincorporated business and not an incorporated business like the limited companies for which one has to get the certificate of incorporation in order to start the business and register the company (COMPANIES). The other advantage of this business is that the set up costs are very low unlike other businesses.

DISADVANTAGES

The business can be very risky to operate because the liability is unlimited. This means that the personal possessions of the owner of the business will be at stake in case the business fails or the company goes bankrupt. Another disadvantage of this business is that there is no one to advice the owner of the business in making strategic decisions which increases the likelihood of errors in the decision making process. One of the top disadvantages of this business is that the advantages of economies of scale cannot be derived by the owner of the business, which means that the business is neither efficient nor effective.

Answer 2)-There are many factors that an owner of the business should consider before finalizing the structural decisions of the business (MySmallBusiness, 2009). for a business with operations in more than one are it is better to operate as a partnership or limited company business because then the management of the business will become very easy. If it is a sole trader business then the management of the business will become very difficult for the owners of the business. Secondly the liability consideration should be in mind of the owner. The sole trader business is an unincorporated business with unlimited liability. It is not even a registered business. it also means that the personal possessions of the owners of the business are at stake in case the business.

Therefore, it is better for the owner of the business should look forward to turn the business into a private limited company. This is because his business is expanding and he will need some other managers alongside him who can support him in decision making and invest capital into the business when needed by the manager. The biggest advantage of the change of business will be that the liability of the owner of the business will get limited. This depicts that his or her personal possessions will not be at stake in case the business fails.

PART B

Answer 1). Diesel cars are very common around the world and are preferred by many customers. But the cars emit a lot of harmful gases which can easily pollute the atmosphere and cause a lot of problems to many people (Chang, 2011). When the atmosphere is polluted then the air we breathe becomes poisonous and can cause severe consequences, because the lungs are severely damages by those rusty fuel emissions.

If the automobile companies don’t advertise their products properly then they can face serious marketing constraints and the consumers might stop buying their vehicles.

Answer 2) the companies have responded to the issue using media advertising and newspapers. Some have also used posters and billboards to address the issues. Although the advertising media used by the companies is expensive, but it does address the problem in the best possible manner

PART C

Answer 1)

LAW OF DIMINSHING RETURNS

The law states that by employing successive variable factors in the fixed factors of production, there comes a stage when the marginal output starts to diminish. This state is called the law of diminishing returns.

For example if a maximum of 10 people can work in the office, then if more workers come for work there will no extra work to offer to them which means that the new workers will add nothing to the production process. This concept is known as the law of diminishing returns.

Answer 2

SHORT RUN

The short run is a period in which at least one or more factors are fixed (Moffatt). This is because there is not much time available in the short run to increase all the factors of production. The short run usually stretches to one year. In the short run the supply of the business is inelastic.

LONGRUN

LONG RUN is a period in which all the factors of production become variable. This depicts that the fixed factors along with the variable factors can be altered to arrange for the demand and supply in the market. The time range for long run varies from industry to industry. The supply in the long run is elastic.

ANS 3)

The profit Maximizing situation for a business is the point where the marginal costs of the business equate to the marginal revenue of the business. This is the profit maximizing point for many businesses.

The other objectives of the business can include profit satisficing, survival, and Growth. Profit satisficing is making enough profit to keep the owners of the business happy and comfortable. Survival strategies are used when the business is facing a lot of competition from its competitors in the market. On the other hand the growth strategy is used to diversify the business operations. this strategy is usually pursued when the business is in a very strong position in the market.

PART A

The sole trader business is run by a single entrepreneur. It can rightly be called a one man show type of business with total authority lying with the owner of the business. The business is very common around the world and exists in almost each and every setting.

ADVANTAGES of a SOLE TRADER Business

The sole trader business is very easy to setup. The biggest advantage of this business is that it does not require a lot of capital investment and is very easy to finance this business. The decision making process is simple because the owner of the business is his or her own boss and does not have to take orders from anyone (structures). Another advantage of this business is lesser taxes and less legal formalities unlike the private and public limited companies for which a lot of legal formalities have to be followed.

Disadvantages of a Sole Trader

One of the biggest disadvantages of this business is that the liability is unlimited. This means that in case of bankruptcy the personal possessions of the owner of the business can also be sued. The other disadvantage of this business is that the specialization cannot be practiced. Specialization requires the advantages of economies of scale which the sole trader business lacks completely. On the other hand all the important decisions have to be taken alone by the owner of the business (structures), this Is because there is no one else taking part In the decision making process. This depicts that the owner of the business can conduct many errors because of a bad judgment.

Answer 2) The first and the foremost factor that the manager of the firm should consider is as to whether the business is manageable by a single person or not. If the business is expanded throughout the origins of the country then the sole trader business will be the least effective one to deal with the situations (MysmallBusiness, 2009). Secondly the scope of the business should be kept in mind. For instance, if the business is not an expanded business then the scope of the business is narrow and can be easily managed by a single owner. But if the business is an expanded one, then the partnership or limited company business will be a better option.

PART B

ANS 1) Beef burgers are an essential product produced by most of the fast food companies around the world (Mcdonalds). But if the burgers being sold by various fast food chains are not of proper quality then they can lead to many diseases among the people. If the meet of the animal used in the products was expired then it can cause severe illnesses and food poisoning to people. If the outlets such as Mcdonalds, Hardees, and Burger King start producing low quality products then their businesses will not work.

On the other hand rumors related to the products of the company can seriously hamper the brand image of the company products. Therefore the company should focus on promotional campaigns to create right awareness among the potential customers.

Answer 2)

The companies such as Mcdonalds, Hardees, and Burger king promote their products a lot in the market and give full assurance that their products are made up of best quality meet and vegetables. Promotions in the form of media advertising are the most common route taken by these fast food business giants to create awareness among the potential customers.

Answer3)

PART C.

THE LAW OF DIMINSHING RETURNS

The law states that by adding successive units of a single variable factor to the fixed factors of production the marginal output of the business will eventually decline (wikipedia, 2011). For instance, land is a fixed factor of production and labor is a variable factor of production. Assuming that maximum 50 people can work on that piece of land, then If 100 people are employed in place of 50 people then the marginal productivity per worker will decrease because excess workers are not needed and does not contribute in the production process.

SHORT RUN

Short run is a period in which at least one factor of production is fixed. The fixed factor of production includes land and sometimes capital as well. The short run is usually less than 1 year. As some of the factors are fixed so the supply might not be enough to cater for the sudden rise in demand.

LONG RUN

In the long run all the factors of production become variable and there are no fixed factors of production. This means that the fixed factors like land and capital can also be altered in the future. The tenure of long run cannot be determined because it varies from industry to industry.

Ans3) the Profit maximization condition for a business or a firm is the situation where the

Marginal cost of the business is equal to the marginal revenue for producing a particular product (MC = MR)

The other objectives of the business include survival of the business and the growth of the business. survival strategy is basically used by the business when facing a lot of competition. And the sales growth strategy is pursued by the business when it is in a very strong position in the market.

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