Question 1

Is money considered a factor of production?

Accepted Answer

This is a common misconception. In A-Level Business, 'Capital' as a factor of production refers to the physical assets (machinery, equipment, factories) used for production. Money, or 'financial capital', is not a factor itself because it cannot produce anything directly. Instead, it is the resource used to acquire the factors of production, particularly capital goods.

Question 2

Can a single business operate in more than one economic sector?

Accepted Answer

Yes, absolutely. This is known as vertical integration. For example, a large furniture company might own forests (primary sector), operate its own sawmills and factories to make the furniture (secondary sector), and sell the furniture through its own chain of retail stores (tertiary sector). This gives the business control over its supply chain.

Question 3

If a business is adding value, does that guarantee it is making a profit?

Accepted Answer

No, adding value and making a profit are two different concepts. Adding value is the difference between selling price and the cost of raw materials. Profit is what remains after ALL costs (including wages, rent, marketing, and administration) are deducted from total revenue. A business can successfully add value to its products but still make an overall loss if its other operating costs are too high.

The nature of business activity

What you need to know

The nature of business activity