The business described in this question paper is entirely fictitious.

Mark scheme

Marking points from the official mark scheme (May/June 2018). The mark or mark type is shown in brackets.

1. The external cost of large amounts of rubbish left on the beach
2. [1] Award 1 mark for an understanding of an external cost plus 1 mark for each example of an impact on a third party where the third party is identified
3. A maximum of 2 marks can be awarded if only examples of external costs are in the answer
4. The answer could be one external cost developed or several costs developed with the impacts on third parties identified for a maximum of 4 marks
5. Possible answers might include:
6. ∞ Costs paid for by the rest of society as a result of the business activity
7. ∞ The externality in this case is local people visiting the beach and leaving rubbish which then affects hotel guests and the hotel itself
8. ∞ Eye-sore spoils the view – puts off tourists so DH may lose trade
9. ∞ Increased cost of cleaning beach – to hotel or government
10. ∞ Harm to wildlife and environment – especially marine animals getting injured
11. Indicative response:
12. The rubbish makes it unpleasant for tourists and local people visiting the beach (1) and therefore may reduce demand for hotel rooms at DH. (1) Jobs at the hotel may be reduced (1) and so there may be more unemployment (1).
13. Maximum 4 marks
14. The external benefit of a new motorway from Main City to Downtown
15. [1] Award 1 mark for an understanding of an external benefit plus 1 mark for each example of an impact on a third party where the third party is identified
16. A maximum of 2 marks can be awarded if only examples of external benefits are in the answer
17. The answer could be one external benefit developed or several costs developed with the impacts on third parties identified for a maximum of 4 marks
18. Possible answers might include:
19. ∞ Benefits gained by the rest of society as a result of the business activity
20. ∞ The business activity in this case is the building of a new motorway which will help hotels / local residents / other businesses – wanting to reach Downtown quickly and easily
21. ∞ Easier journey time so guests can get to the hotel quicker
22. ∞ Encourage more tourists from other countries – increases hotel revenue
23. ∞ Less accidents for local people on side roads as more cars and lorries travel on the motorway
24. Maximum 4 marks
25. Relevant points might include:
26. Higher market share:
27. ∞ Increased growth in the market but could grow without taking a larger market share as market itself is growing.
28. ∞ May have to accept lower profit in a competitive market to increase market share
29. ∞ Improved brand image/good reputation from having a higher market share encourages sales
30. ∞ Increased influence over suppliers
31. ∞ May have to reduce prices or increase marketing costs to attract more customers
32. ∞ Possibly have more control over prices if more dominant in the market
33. Profit:
34. ∞ Dividends should be paid to shareholders to reward the investment or shareholders may want to sell their shares. However, it is a private limited company and shareholders can only sell shares to family and friends so there will be fewer opportunities to sell shares than if it is a public limited company.
35. ∞ Will need to make a profit in the long term or will not attract more investors in the future.
36. ∞ Profit should be made so that it may be retained for future investment without the need to borrow capital
37. Survival:
38. ∞ Need to make a profit in order to be worth staying in business but survival is usually an objective when the business is first starting out or if times are difficult such as in a recession, when expanding the business or facing increasing competition.
39. ∞ In the long term this may not be an objective – other objectives become more important.
40. Level 1 [1-3 marks]: 1 mark for outline of each objective (max of 3 marks) E.g. Need to cover all costs to survive in order to be worth staying in business.
41. Level 2 [4-6 marks]: Detailed discussion of each objective. 1 × L2 explanation can gain 4 marks and a further mark can be awarded for each additional L2 explanation (max 6 marks) E.g. Need to cover all costs to survive in order to be worth staying in business but survival is usually an objective when the business is first starting out or if times are difficult such as in a recession. The hotel has been successful for the last 9 years and in the long term survival is not an objective as other objectives are likely to be. (Level 2 plus one application mark for answering in the context of the hotel being established 9 years ago)
42. Level 3 [7-10 marks]: For L3 to be awarded there needs to be at least two L2 marks awarded and then a conclusion as to which objective is most important to DH. 7-8 marks for some limited judgement shown in the conclusion as to which objective is most important to DH OR why the other objectives are less important. 9-10 marks for well justified conclusion as to which objective is most important to DH AND why the other objectives are less important.
43. Award up to 2 additional marks for relevant application.
44. Possible application marks: Small hotel; 39 employees; private limited company set up 9 years ago; capital employed is $100 000; demand for hotel accommodation is increasing; hotel is located next to a beach; half full 6 months; full 4 months; empty 2 months; most guests are local tourists on coach tours; wants to expand by taking over a hotel; details of ABC / XYZ hotels; financial information from Appendix 2; information in Appendix 3 about ways to attract more customers.
45. There may be other examples in context that have not been included here.