Sample Solution from
Understanding Business
12th Edition
ISBN: 9781259929434
Chapter 1.1
Problem 1.1AQ
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Summary Introduction

To determine: The risk and reward associated at the time of start of a new business by Person GF.

Introduction: Risk refers to the lower probability rate of success associated with a new start up in any field. It involves the risk of loss of time as well as money for the non profitable business.

Reward is the profit for an entrepreneur in return to handle the risk associated in the businesses.

Profit refers to the income of the entrepreneur that they earn after all the payments to all factors of production are made. It is the amount that is above the sum total of all the payments to be made outside the business.



The risk associated to the start of a new business is dependent over personal savings for day to day activities until the business is well established. Other interest payments and salary of employees are all risky until the advance set up of business venture. Moreover, this risk association gives in return the reward to the entrepreneurs such as the profits, individuality to run business to handle the risk.

Explanation of Solution

Given information:

Person GF in 1979 started with a small venture of oversized foam fingers to the sugar bowl. The invention was kept alive until the latest invented fingers that gained hit mainly among the students. Fortunately, it was appreciated by the crowd and thus it became a successful company that still runs well.


In 1979, with least expectation of what to be done next, Person GF took oversized foam fingers and eventually it became a ladder of success that still works well. To start the new venture, many risks were associated in the path to success such as:

  • The profit in a new start is a long way ahead. Person GF had to make payment of all the factors that were required in the production process and thus the profits might have remained unpaid to his own self.
  • The personal savings get reduced in order to satisfy living for the period of struggle in the business.
  • The place of business, is in City NO, as it decides the customer base of business and its success is of a huge risk.

On the other hand, Person GF experienced a great advantage to launch foam fingers that was the number of students in the universities as they were attacked by the symbol of love in the form of foam fingers. Moreover, this was used by various schools and clubs to raise funds and even for various corporate promotions. This is how, it led to the success of invention by Person GF.



Therefore, the above mentioned are several risks and gained reward with the foam finders by Person GF in the start of the business.

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