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Introduction to Business Studies - Activity

The Functions and Purpose of Businesses - A Business Success?

eBay was founded in 1995 by Pierre Omidyar. In just ten years eBay has grown into one of the world's most recognised companies. eBay is an on-line auction house and market place, putting millions of buyers in touch with millions of sellers. These buyers and sellers traded goods worth nearly $20 billion in the first six months of 2005. They have 157 million users worldwide, sell $1,381 worth of goods every second and its gross profit for 2004 was $2.56 billion.

The company began when Omidyar received complaints from his wife who was an avid collector of small plastic dispensers of candy called Pez. She complained that there was little opportunity for people who collected these items to be able to exchange them! The company takes a commission from the transactions that occur between traders; in the first three months of 2005 it generated revenues of $1.032 billion (approximately £571,000,000)! The cost to the company of generating those revenues was $186,000,000, whilst overhead costs were $509,000,000.

'eBay's mission is to provide a global trading platform where practically anyone can trade practically anything.'

Source: eBay Company Information (http://pages.ebay.com/community/aboutebay/overview/index.html)

The eBay Web site

Image: The eBay Web site - an on-line auction house trading goods worth in excess of $15 billion.

Task:

Read the information above and answer the questions that follow:

  1. eBay does not 'make' anything in the traditional sense - is it therefore a business? Justify your answer. (5 Marks)
  2. Using examples, explain what inputs eBay might use in conducting its business. What are eBay's outputs? (5 Marks)
  3. Explain how eBay makes a profit - use appropriate terminology in your answer. (4 Marks)
  4. Using the figures in the evidence above, calculate the profit made by eBay in the first 3 months of 2005. Show all your workings and calculations clearly. (4 Marks)
  5. What might a company like eBay use this profit for? (4 Marks)
  6. What other factors might help you in deciding whether eBay has been a success as a business? (Hint: think of other objectives the business might have - the mission is one example!) (8 Marks)

Total Marks = 30