Lakeland Oysters (LO) is a private limited company in country G that was started by the Dar family in 2010. LO farms oysters in a lake that is owned by the business. Oysters are a type of shellfish. The business employs six people from the local town. LO has two markets for its oysters (see Table 2.1). [Table 2.1] LO believes that corporate social responsibility and its triple bottom line are important. There has been a recent news article on the internet about oyster farming (see Fig. 2.1). [Figure 2.1] The directors of LO would like to expand the business by purchasing a second location. The business has two options (see Table 2.2). [Table 2.2]

Mark scheme

Marking points from the official mark scheme (May/June 2021). The mark or mark type is shown in brackets.

1. [2] A correct definition
2. [1] A partial, vague or unfocused definition
3. [0] No creditable content
4. Content: Consumers who want a product/service / the demand for a product/service (1) from different types/groups/segments of consumers (1) who are willing/able to pay for it (1).
5. The term 'market' has a number of different meanings. Any legitimate definition can be used.
6. The most common definition (as a means of trade) is likely to include: • A system/place/facility whereby products are bought (1) and sold (1) • Where businesses and consumers (1) trade (1)
7. However other definitions may include: Market as a group of potential customers for a product: • The customers/consumers (1) who may potentially purchase a product (1) • The businesses (1) who are competing to sell a product (1) • The group of people (1) who the business is trying to sell to (1)
8. Market as a verb, i.e. to market a product • The combination/mix of decisions (1) that a business uses to target a group of customers (1)
9. Exemplar: Where buyers and sellers come to trade. [2] A correct definition.
10. Exemplar: Where you exchange goods and services [2] A correct definition
11. Exemplar: The market is a group of businesses [1] An idea of the market (from the businesses point of view) but not selling/competing
12. Award one mark for each point of explanation:
13. Rationale: C Example or some other way of showing good understanding – i.e. a use of profit margins, or two different profit margins – gross, net, operating). [1]
14. Rationale: B Understanding of the concept of a profit margin (in terms of a profit/percentage) [1]
15. Rationale: A Understanding of profit [1]
16. Content: A profit margin is the difference between the revenue and costs/revenue minus costs (1) expressed as a proportion of revenue/divided by revenue (1) used to determine/compare performance (1). Any profit margin is acceptable (gross, net, operating).
17. Exemplar: Net profit/revenue × 100. It can be used to compare business performance. [3] A, B and C
18. Exemplar: It is the proportion of revenue that is profit. A 15% profit margin means that for every $1 of revenue, the business makes $0.15 profit. [3] A, B and C
19. Exemplar: Gross profit / Revenue (x100) [2] A formula gains the A and B marks. Could be expressed as a ratio, not percentage.
20. Exemplar: The proportion of revenue that is profit. [2] Although there is not an explicit understanding of profit, if a candidate gains the B mark, then they also gain the A mark.
21. Exemplar: It is the difference between costs and revenue. [1] Understanding of profit, but no the margin.
22. Exemplar: It is how much profit a business makes. [0] No understanding of profit or the margin.
23. [2] Correct answer with or without correct working or $
24. [1] Correct calculation of the profit for restaurants or local customers
25. [0] No creditable content
26. Content: 15% of $100 000 = $15000
27. 25% of $150 000 = $37500
28. Total profit = $52 500 (2)
29. Content may include: • Consumers may be willing to pay a higher price (K) – of $3 per oyster. (APP) – because oysters are a premium product. (APP) – because consumers are purchasing customer service as well as the oysters (visit the farm). (APP) – because they do not buy in bulk. (APP)
30. Consumer market may have lower costs (K) – because the consumer market may be subsidised by the larger industrial market. (APP) – because the consumer market is 50% bigger, but may only be allocated half of the fixed costs. (APP)
31. Industrial market may demand a lower price (K) – of $1.25 per oyster. (APP) – because the restaurant industry is very competitive (many restaurants). (APP) – because each restaurant buys in bulk. (APP) – because there are many substitute foods that the restaurant could use. (APP) – because the restaurant must re-sell the oysters for a profit. (APP)
32. Industrial market may have higher costs (K) – because LO have to transport the Oysters to the restaurants (APP) – because restaurants use the website, which may be an additional cost to LO (APP)
33. Content: Knowledge includes: • economic (financial), social and environmental targets
34. Application and analysis may include: Economic (financial) • Dar family will require profit to be made as shareholders of LO – owners income. • Retained profit – need finance for expansion plans to purchase the new farm. • Potential grant from government for oyster farms – subsidise operations/growth.
35. Social • Provides employment for six local workers – improve image of LO in locality. • Provides an opportunity for local customers to purchase oysters – market opportunity. • Pays local taxes – improve locality. • Provides pleasant area for the local community – increases reputation.
36. Environmental • Oyster farming reduces pollution – improves area, quality of life for owners. • Better for the environment if lakes are managed / regenerating disused lakes - improves local area / reputation.
37. Content: Knowledge may include: • Any factor that may affect the location of a business.
38. Application may include: • LO is a private limited company (limited finance) • Consumer and industrial (restaurant) markets • The new location is to be a second location – it does not replace the original LO location • Data in Table 2.2
39. Analysis may include: Location A • Used to be an oyster farm – less time and cost to set up for LO • Lower purchase price – less finance needed to purchase • Lower start-up costs – LO could reduce price and/or increase profit • Lower operating costs – increased profitability.
40. Analysis may include: Location B • Much closer than Location A – lower costs, e.g. transportation, management, are easier • Can produce 50% more oysters than Location A – more profit in long-term? If there is the demand / additional oysters are sold at a good price • Higher operating costs, but lower variable cost of production ($1.33 per oyster compared with $1.5 at Location A)
41. Evaluation may include: • A judgement over the most appropriate promotion method for HB • Evaluation of the appropriateness of different promotion methods for HB • What the choice of promotion method may depend upon
42. Examples of how an answer could develop and how it should be annotated. Previous use (K) Location A is already an oyster farm (APP) Which may mean that LO can start selling oysters more quickly and keep the costs low. (AN) Which may allow LO to increase their profits. (DEV) Location A is the better option for LO. (EVAL) This is because there is less risk involved since the costs are lower. (EVAL) However, it depends on whether LO can make immediate use of the extra capacity since Location B could actually produce much higher output and profit in the long run. (EVAL)
43. Examples of how an answer could develop and how it should be annotated. Output (K) Location B can produce 50% more oysters than Location A. (APP) Which would allow LO to increase their sales more than Location A. (AN) Allowing the business to expand faster. (DEV)