CAIE A-Level Business A2 9.1.2 Scale of Operations Topic Practice

Analyse two benefits to CD resulting from internal economies of scale.

Note:

- Only reward benefits.

- If more than two benefits are referred to, reward the best two.

All annotation ( K , APP $\mid \mathrm{AN} L^{\mathrm{L} 2}$ ) should be in the left margin.

1

Indicative content

Responses may include:

AO1 Knowledge and understanding

Definition of internal economies of scale (max K1 mark)

- Internal economies of scale result from the increase in scale of operations of the business.

- Internal economies of scale include: marketing, purchasing, technical, financial and managerial.

Knowledge of benefits of internal economies of scale to CD

Benefits include:

- Reduced unit costs.

- Increased productivity due to greater technical economies.

- Being able to recruit higher quality managers.

- Lower costs for finance.

AO2 Application

Max one ${ }^{\text {APP }}$ for application for the first element and max one ${ }^{\text {APP }}$ for application for the second element.

- Household cleaning product market is competitive.

- Competition from MNCs (likely to have low unit costs).

- Competition from smaller businesses in the environmental market segment (CD can gain price advantage).

- Substantial marketing budget (keep unit marketing costs low).

- Increased costs of chemicals and other materials due to inflation.

- Shareholder pressure for higher returns (link to profit margins).

Accept all valid responses.