Business Environment and Concepts Flashcards

Which economic term describes the additional cost of producing one more unit of output?

Answer: Marginal cost

Marginal cost is the change in total cost resulting from producing one additional unit of a good or service.

A company adopts a cost leadership strategy. This means it aims to:

Answer: Be the lowest-cost producer in the industry

A cost leadership strategy focuses on achieving the lowest production and operational costs in the industry to offer competitive pricing.

In an ERP system, what is the primary advantage of integrating all business functions into a single database?

Answer: It allows real-time data sharing across departments

An integrated ERP database enables all departments to access consistent, real-time information, improving decision-making and coordination.

Which type of risk involves the possibility that a company's investments will decline in value due to overall market conditions?

Answer: Systematic risk

Systematic risk, also called market risk, affects all securities and cannot be eliminated through diversification.

According to the theory of constraints, a business should focus improvement efforts on:

Answer: The bottleneck that limits overall throughput

The theory of constraints holds that a system's output is limited by its bottleneck, so improving the constraint yields the greatest performance gains.

Which budgeting approach starts each period from zero, requiring all expenditures to be justified anew?

Answer: Zero-based budgeting

Zero-based budgeting requires managers to justify every dollar of spending from scratch each period rather than using the prior period as a baseline.

A company's weighted average cost of capital (WACC) is used primarily to:

Answer: Evaluate the minimum return required on new investments

WACC represents the blended cost of all capital sources and serves as the discount rate or hurdle rate for evaluating new investment projects.