Economics · Unit 8

Businesses and Production

Firms, costs, profit, and entrepreneurship

A firm exists because organising some activity inside one is cheaper than buying it from the market every time, and that logic sets its boundaries.

The unit covers firms and businesses, the factors of production, costs, revenue and profit, and entrepreneurship.

This unit breaks down into 23 short steps and 120 questions, starting at difficulty 1 and building to 5. Below you can see exactly what it covers, how the path is structured, and worked examples with explanations.

Steps: 23
Questions: 120
Difficulty: 1-5

What this unit covers

Costs
Factors of Production
Revenue and Profit
Firms and Businesses
Entrepreneurship

Where this fits

Follows Markets, Prices and Competition.

Where people slip

Profit is revenue minus cost, and economic cost includes opportunity cost. A business making an accounting profit can be making an economic loss.

How the unit is structured

Businesses and Production runs as 23 short steps that unlock in order. 17 are practice rounds and 6 are challenge rounds that pull together everything before them. Questions start at difficulty 1 and climb to 5 as you progress.

Step 1 · easierStep 23 · harder

Challenge rounds

Example questions

30 real questions from this unit, with the answer and the reason behind it, grouped by what they practise. There are 120 in the unit altogether.

Costs

Multiple choiceLevel 1
1. Which of these is a cost for a lemonade stand?
- Buying lemons and sugarcorrect
- Selling cups of lemonade
- Getting a thank-you from a friend
- Counting how many customers came
Buying lemons and sugar is money the stand spends, so it is a cost.
True or falseLevel 1
2. Costs are the money a business spends, not the money it takes in.
Answer: True
True. Costs are money going out, while revenue is money coming in.
Fill the blankLevel 2
3. A cost that changes with how much you produce, like the flour used to bake more bread, is a ____ cost.
- variablecorrect
- fixed
- free
- lucky
A variable cost goes up or down depending on how much you make.
Odd one outLevel 2
4. Which of these is NOT a cost for a bakery?
- Money customers pay for cakescorrect
- Flour and sugar
- Wages for the bakers
- Electricity for the oven
Money customers pay for cakes is revenue coming in, not a cost going out.
Put in orderLevel 2
5. Put these steps in order for a small business handling its money.
Answer: Spend money on supplies -> Make the product -> Sell the product -> Count the money earned
First you spend money on supplies, then make and sell the product, and finally count what you earned.
Choose all that applyLevel 4
6. Which statements about fixed and variable costs are correct? (Select all that apply)
- Fixed costs do not change with output in the short runcorrect
- Variable costs change as output changescorrect
- Total cost equals fixed cost plus variable costcorrect
- Fixed costs fall to zero as output rises
- Marginal cost is always zero
Fixed costs stay flat in the short run, variable costs change with output, and total cost is their sum.

Entrepreneurship

True or falseLevel 1
7. Starting your own business usually involves taking a risk, because it might not succeed.
Answer: True
True. A new business may not work out, so starting one means taking a risk.
Choose all that applyLevel 2
8. Which of these describe an entrepreneur? (Select all that apply)
- Takes a risk to start something newcorrect
- Tries out a new business ideacorrect
- Hopes to earn a profitcorrect
- Is promised free money by the bank
- Never has to make any decisions
An entrepreneur takes a risk, tries a new idea, and hopes to earn a profit.
Match the pairsLevel 2
9. Match each word to its meaning.
Answer: Entrepreneur = Person who starts a business; Risk = Chance of losing money; Profit = Money earned after costs; Idea = Plan for a new product or service
These are the basic words used when talking about starting a business.
Multiple choiceLevel 2
10. An entrepreneur is a person who...
- Starts a new business and takes on its riskscorrect
- Only ever works for a big company
- Collects taxes for the government
- Never takes any risk at all
An entrepreneur starts a new business and takes on the risks of running it.
Odd one outLevel 2
11. Which word does NOT describe an entrepreneur?
- Guaranteedcorrect
- Risk-taker
- Idea-maker
- Business starter
Entrepreneurs take chances, so 'guaranteed' does not fit; success is never guaranteed.
Fill the blankLevel 3
12. The reward an entrepreneur hopes to earn for taking a risk and running a business well is ____.
- profitcorrect
- rent
- a fine
- a tax
Profit is the reward an entrepreneur earns when the business does well.

Factors of Production

Multiple choiceLevel 1
13. Which of these is one of the four factors of production?
- Labor, meaning people's work
- Weather
- Music
- Sleep
Labor, the work and effort of people, is one of the four factors of production.
True or falseLevel 1
14. Labor is the human effort and work people put into making goods and services.
Answer: True
True. Labor is the physical and mental work people do to produce goods and services.
Choose all that applyLevel 2
15. Which of these are factors of production? (Select all that apply)
- Landcorrect
- Laborcorrect
- Capitalcorrect
- Rainbows
- Applause
Land, labor, and capital are three of the four factors of production.
Fill the blankLevel 2
16. Machines, tools, and factory buildings used to make things are the factor called ____.
- capitalcorrect
- land
- weather
- music
Capital means the man-made tools, machines, and buildings used to produce goods.
Sort into groupsLevel 2
17. Sort each thing into the right factor of production.
Answer: A farmer's field = Land; A baker's work = Labor; A delivery truck = Capital; Iron ore in the ground = Land; A waiter serving food = Labor; A cash register machine = Capital
Fields and ore are land, a worker's effort is labor, and machines and trucks are capital.
Match the pairsLevel 4
18. Match each factor of production to the income it earns.
Answer: Land = Rent; Labor = Wages; Capital = Interest; Entrepreneurship = Profit
Each factor of production earns its own type of payment.

Firms and Businesses

Fill the blankLevel 1
19. A company that makes or sells things to earn money is called a ____.
- businesscorrect
- holiday
- planet
- song
A business is an organization that makes or sells goods and services to earn money.
Match the pairsLevel 1
20. Match each business to what it sells.
Answer: Bakery = Bread and cakes; Barber shop = Haircuts; Bookstore = Books; Flower shop = Flowers
Each kind of shop sells the goods that match its name.
True or falseLevel 1
21. A firm can sell services, like haircuts, and not just physical goods.
Answer: True
True. Businesses can sell services such as haircuts, cleaning, or teaching, as well as goods.
Choose all that applyLevel 2
22. Which of these are examples of businesses? (Select all that apply)
- A pizza restaurantcorrect
- A car factorycorrect
- A hair saloncorrect
- A thunderstorm
- A wild forest
A restaurant, a car factory, and a hair salon all sell goods or services, so each is a business.
Multiple choiceLevel 2
23. What is a 'sole proprietorship'?
- A business owned by one personcorrect
- A business owned by the government
- A business with thousands of owners
- A club that has no owner at all
A sole proprietorship is a business owned and run by just one person.
Odd one outLevel 2
24. Which one is NOT a business?
- A public playground everyone uses for freecorrect
- A toy shop
- A pizza place
- A barber shop
A public playground is free for everyone and does not sell anything, so it is not a business.

Revenue and Profit

True or falseLevel 1
25. Profit equals revenue minus costs.
Answer: True
True. You find profit by taking revenue and subtracting all the costs.
Choose all that applyLevel 2
26. Which of these would increase a business's profit, if nothing else changes? (Select all that apply)
- Selling more at the same pricecorrect
- Lowering its costscorrect
- Raising the price while sales stay the samecorrect
- Giving all products away for free
- Throwing money in the bin
Selling more, lowering costs, or raising the price while sales hold steady all leave more profit.
Fill the blankLevel 2
27. When a business spends more than it earns, it makes a ____ instead of a profit.
- losscorrect
- bonus
- sale
- gift
A loss happens when costs are bigger than revenue.
Guess the numberLevel 2
28. A shop sells a toy for $8 that cost it $5 to buy. How many dollars of profit does it make on one toy?
Answer: 3 dollars
Profit on one toy is the selling price minus the cost, so $8 minus $5 equals $3.
Multiple choiceLevel 2
29. What is profit?
- The money left after costs are subtracted from revenuecorrect
- The total money collected from sales
- The number of items sold
- The money spent on supplies
Profit is the money left over after you subtract costs from revenue.
Odd one outLevel 3
30. Which of these is NOT needed to work out a business's profit?
- The color of the packagingcorrect
- Total revenue
- Total costs
- The difference between revenue and costs
Profit comes from revenue and costs; the color of the packaging has nothing to do with it.

Where these questions come from. Each unit starts as a plan of the concepts it should cover and the difficulty it should span. Questions are written against that plan with AI assistance, then checked by a validator that rejects anything without a single defensible answer, an explanation, or plausible wrong options. How we write questions sets out the whole process, and corrections are fixed in the bank and reach the site and the app the same day.

How you practise

This unit mixes 10 different question formats, so you are recalling and applying rather than recognising the same layout every time.

Choose all that apply
Fill the blank
Guess the number
Match the pairs
Multiple choice
Odd one out
Put in order
Sort into groups
True or false
Type the answer

Practise Businesses and Production

120 questions across 23 steps. Start with step one and crawl at your own pace.

Play this unit

More units in Economics

See all 18 units in Economics →