Edexcel A-Level Economics A2 3.3.1 2e Reasons Some Firms Tend to Remain Small and Others Grow Questions

Indicative content guidance

Answers must be credited by using the level descriptors (below) in line with the general marking guidance. The indicative content below exemplifies some of the points that candidates may make, but this does not imply that any of these must be included. Other relevant points must also be credited.

Quantitative skills assessed:

QS4: Construct and interpret a range of standard graphical forms.

QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms.

Knowledge, Application, Analysis ( 12 marks) - indicative content

- Businesses can grow either organically or inorganically through mergers and takeovers

- Business objectives goals/targets for business including profit maximisation, revenue maximisation, sales maximisation and satisficing

- Increase in demand leading to higher revenue and profits/higher profits generates more funds for investment, improves innovation, further increasing profits

- Businesses such as Visinema would benefit from having more control over every aspect of their business allowing them to expand into new areas such as animated films

- Businesses may benefit from increased profits by internalising new areas of the business that they previously outsourced. This reduces costs and increases profits. Fall in AC to AC1and MC to MC1 showing a new equilibrium with a higher profit level P1 x Q1 (TR) - AC1 x Q1 (TC)

- Businesses can benefit from economies of scale and a fall in long-run average total costs

- The cost savings could be passed onto the consumer in the form of lower prices increasing competitiveness

- Businesses may be able to achieve monopsony power over suppliers and labour enabling them to negotiate better terms when purchasing supplies and workers reducing costs

- Increased market share gives higher price-setting ability, potentially increasing prices and profits

- Businesses such as Visinema can benefit from risk diversification. If the animated film industry declined other areas of their film production may offset the losses

Accept reverse argument as KAA

Restrict to a maximum of Level 3 if no appropriate diagram provided

Level

Mark

Level 0

Level 1

1-3

Level 2

4-6

Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models.

Limited application of knowledge and understanding to economic problems in context.

A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.

Level 3

7-9

Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models.

Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer.

Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.

Level 4

10-12

Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question.

Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.

Evaluation (8 marks) - indicative content

- Firms may wish to stay small to avoid diseconomies of scale if they move beyond their MES

- Some businesses benefit from operating in a niche market and are able to be profitable from selling at a higher price with a lower output

- Small businesses can maintain high levels of flexibility/innovation as the market changes

- Some businesses do not have the finances to grow and therefore getting bigger is not an option

- Large businesses can attract the attention of the competition authorities. Therefore a business may wish to stop growing to stop any form of intervention

- Business owners may have an objective of staying small and keeping total control of all aspects of the businesses

- Alternative business objectives e.g. satisficing

Level

Mark

Descriptor

0

No rewardable material.

Level 1

1-3

Identification of generic evaluative comments.

No supporting evidence/reference to context.

No evidence of a logical chain of reasoning.

Level 2

4-6

Evidence of evaluation of alternative approaches.

Some supporting evidence/reference to context.

Evaluation is supported by a partially-developed chain of reasoning.

Level 3

7-8

Evaluation recognises different viewpoints and/or is critical of the evidence, leading to an informed judgement.

Appropriate reference to evidence/context.

Evaluation is supported by a logical chain of reasoning.