In April 2023, a French cosmetics firm merged with an Australian cosmetics firm. It is expected the merger will lower average total cost as the new firm is likely to benefit from greater internal economies of scale. A manager stated that a key aim is to make the firm's production more sustainable by using raw materials taken from renewable sources. In most countries, the cosmetics firm's products, including perfume, are taxed at a higher rate than food.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2025). The mark or mark type is shown in brackets.

1. [2] Total cost divided by output (2). Cost per unit (1).
2. [4] Logical explanation which might include the following. Using renewable resources may be more expensive (1) increase costs of production (1) reduce profits (1). Can advertise that renewable resources which create less pollution / improve environmental sustainability are being used (1) increase image of the firm (1) raise demand (1) increase profits (1). Using renewable resources may be subsidised (1). May become cheaper to use renewable resources in the long run (1). Resources will not be depleted / firms have a constant supply of raw materials (1) raise profits (1).
3. [6] Coherent analysis which might include the following. Buying / purchasing economies (1) buy ingredients in bulk at a discount (1). Labour economies (1) workers specialising e.g. designing the packaging (1). Managerial economies (1) e.g. specialist human resource manager (1). Technical economies (1) advanced technology could be used to produce perfume (1). Financial economies (1) the firm finding it cheaper / easier to borrow from banks (1). Research and development economies (1) develop new perfumes (1). Selling / marketing economies (1) lower average advertising costs (1). Risk-bearing economies (1) selling perfume in more markets (1).
4. [8] Why it should: perfume is a luxury whereas food is a necessity rich spend more on perfume than the poor taxing food more may increase poverty as poor spend a high proportion of their income on food perfume is less likely than food to be a merit good a higher price for perfume will not significantly contribute to inflation, not a significant item in CPI perfume may be imported while food may be supplied by domestic firms. Why it should not: demand for perfume may be elastic and so may not raise much revenue. In contrast, inelastic demand for food so may raise high tax revenue perfume may be an important domestic industry. Higher taxes may result in closure / unemployment some food is a demerit good e.g. food with a high sugar content taxing demerit food may improve health taxing food may reduce obesity.