Refer to lines 67–76. Calculate for 2021: cross elasticity of demand for GR's falafel meals following an increase of 5% in competitor prices

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2020). The mark or mark type is shown in brackets.

1. [1] CPED = %AQda / %Pb
2. [1] %∆Qd = 4(%)
3. [3] CPED = 4 / 5 = 0.8
4. [2] 0.8% or $0.8 (This indicates if units are wrong, still get 2 marks)
5. [1] AdED = %AQd / %AAd (if no relevant calculation)
6. [1] OR %∆Qd = AdED × %∆Ad (if no relevant calculation)
7. [1] %∆Ad = 30(%)
8. [2] %∆Qd = 0.2 × 30 = 6(%)
9. [3] Increase in revenue = 0.06 × 5.76m = $345 600 or $0.3456m
10. [2] 345 600
11. [2] Possible answers
12. [2] $6.1056m (Correct revenue following increase in promotion)
13. [full] OFR applies
14. [K] Marketing plan – detailed report on a business's marketing strategy – situational analysis, market research, objective, budget, mix
15. [K] Estimating elasticity aids making decisions about pricing and promotion
16. [K] Understanding of different elasticity concepts, including promotional elasticity
17. [K] Knowledge of PED, YED
18. [APP] OFR from (a) applies i.e. candidate using own figure should be rewarded
19. [APP] Estimated demand for falafel meals is cross price inelastic (0.8) – Qd is less than proportionally responsive to changes in price of competitor products
20. [APP] Estimated demand is advertising inelastic (0.2) – Qd is less than proportionally responsive changes in advertising expenditure.
21. [APP] Comparing revenues with and without the change in price/advertising expenditure
22. [APP] Proposed increase in advertising expenditure is $45000 (195 000 – 150 000)
23. [APP] Estimated revenue after proposed increase in advertising is 5.76 + 0.3456 = $6.1056m (5.99% change in revenue)
24. [APP] Objective for 2021 is to increase revenue by 10%
25. [APP] Reference to the competitive nature of the restaurant market
26. [AN] Although AdED is inelastic an increase in spending of $45 000 could lead to increase in revenue of $345 600 i.e. ratio of 7.68. This would significantly contribute to meeting the objective for GR in 2021.
27. [AN] Knowledge of CPED will help shape marketing mix. Although it is a competitive market low elasticity suggests that competitor products are not close substitutes
28. [AN] Knowledge of PED will also be useful to Leff in making decisions about pricing. For example, low PED would indicate that an increase in price would increase revenue.
29. [AN] In marketing plan, Leff will also consider other factors e.g. changing menu, improvements to quality of meals. These changes to the marketing mix can increase sales and impact profit.
30. [EVAL] Measurement of elasticity is difficult and likely to be inaccurate due to large range of factors that will affect outcomes, particularly competitor decisions. Other things don't remain equal in markets.
31. [EVAL] Most important factor in marketing plan could be identified and explained.
32. [EVAL] Other elements of marketing plan are important e.g. integrated marketing mix to ensure consistency in message communicated to potential customers and therefore attract sales.
33. [EVAL] Competitive rivalry will be an important factor
34. [EVAL] Objective needs to be realistic.