Edexcel IGCSE Economics 1.2.4 Business Competition Questions

Use this business-competition set to analyse firm growth, market concentration, mergers, monopolies and oligopolies in real contexts.

Exam points

Explain consumer or firm effects from competition, mergers, growth and market concentration.
Interpret market-share or case data to classify monopoly, oligopoly or competitive pressure.
Evaluate stakeholder trade-offs from collusion, barriers to entry or business expansion.

Covered syllabus points

1.2.4.a Effects of competition on firms, consumers and the economy 1.2.4.b Advantages and disadvantages of large firms and small 1.2.4.c Factors influencing the growth of firms 1.2.4.d Reasons firms stay small 1.2.4.e Monopoly 1.2.4.f Main features of monopoly 1.2.4.g Advantages and disadvantages of monopoly 1.2.4.h Oligopoly 1.2.4.i Main features of oligopoly 1.2.4.j Advantages and disadvantages of oligopoly

[Maximum number: 2]

(a)

State one disadvantage to firms of increased competition.

[ 1 ]

(b)

Define the term takeover.

[ 1 ]

[Maximum number: 12]

Figure 6 shows financial data for a firm selling a selection of products.

Figure 6

NT Massage is a small but successful, family-run business in a residential part of Hong Kong. It offers traditional foot and head massages to local residents, many of whom have been customers for many years.

A younger member of the family, Mei, would like to expand the business. She wants to open a chain of shops offering foot and head massages in busier areas of Hong Kong. She would like her new employees to be fully trained, to advertise in hotels and to focus more attention on attracting custom from the 7.5 million population of Hong Kong.

Even though there would be competition from many other similar businesses, additional custom from tourists and business people would enable NT Massage to charge higher prices in the new shops.

With reference to the data above and your knowledge of economics, evaluate whether the family should expand the business rather than keeping it small.

AO2 (4 marks)/AO3 (4 marks)/AO4 (4 marks)

A02 and A03

- Expanding a business means serving a higher number of customers, to potentially increase profits

- Becoming a larger firm may mean NT Massage is able to make higher profits because it can charge higher prices to the tourists and business people in the new shops

- It may have a large increase in customer numbers because there would be shops in busier areas of Hong Kong, this would lead to an increase in revenue and therefore, possibly profits

- By having a chain of shops, advertising at hotels and targeting the 7.5 million population of Hong Kong as well as tourists/business people, NT Massage would be spreading its risks, rather than just relying on the original location and local residents

- Due to its success as a small business, NT Massage may have more access to finance to be able to grow the firm

- It may be possible for NT Massage to benefit from economies of scale, such as being able to spread advertising costs

A04

- However, NT Massage currently offers a very traditional service which may be negatively affected if the firm expands

- The long-standing customers may not like changes being made to the firm, especially if they value the traditional approach

- It may experience diseconomies of scale such as difficulty in coordinating and controlling the firm in more than one location, especially if Mei and her family are only used to having one shop

- There would be a lot of competition located near to the proposed new locations, meaning that it would be more difficult to attract custom

- It would require time and money to grow the firm, meaning that it may be a long time before any profit is made

- Raising finance may be difficult for a small business such as NT massage

- This could cause further problems for the existing business

- Therefore, it may depend on the strength of existing competitors, the ability of NT Massage to advertise successfully and the volume of tourism/business from which to attract potential custom

Level

Mark

Descriptor

0

No rewardable material.

Level 1

1-4

- Demonstrates isolated elements of relevant knowledge and understanding;
may lack development of relevant points. Limited application of economic terms, concepts, theories and calculations (AO2).

- Information presented will lack selectivity and organisation. Chain of reasoning may be attempted. Interpretation of economic information will be limited, with a lack of analysis of issues (AO3).

- Only offers one viewpoint, meaning there is an unbalanced and incomplete evaluation, showing limited understanding and awareness. A judgement or conclusion is unlikely to be attempted (AO4).

Level 2

5-8

- Demonstrates partial selectivity and some accurate knowledge and understanding by developing some relevant points. Partial application of economic terms, concepts, theories and calculations (AO2).

- Information presented will demonstrate some selectivity and organisation. Chain of reasoning will be present but may be limited. Interpretation of economic information will be good, with some analysis of issues (AO3).

- Offers more than one viewpoint but the argument may lack balance, leading to an evaluation that may not demonstrate full understanding and awareness. A judgement or conclusion is attempted, but may not be fully supported (AO4).

Level 3

9-12

- Demonstrates specific and accurate knowledge and understanding by developing relevant points. Appropriate application of economic terms, concepts, theories and calculations (AO2).

- Information presented will demonstrate excellent selectivity and organisation. Chain of reasoning will be coherent and logical. Interpretation of economic information will be excellent with a thorough analysis of issues (AO3).

- Offers more than one viewpoint. The argument is well balanced and coherent, leading to an evaluation that demonstrates full understanding and awareness. A supported judgement or conclusion is present (AO4).

[Maximum number: 7]

(a)

Define the term monopoly.

[ 1 ]

(b)

With reference to the data above and your knowledge of economics, analyse why Bupa may have decided to operate in a wider range of markets.

[ 6 ]

[Maximum number: 1]

State one disadvantage to firms of increased competition.

[Maximum number: 6]

With reference to the data above and your knowledge of economics, analyse why Bupa may have decided to operate in a wider range of markets.

[Maximum number: 6]

Despite his success, Robert has decided to keep his business small and not expand.

With reference to the data in 'Small but successful' and your knowledge of economics, analyse why Robert might have decided not to expand his business.

[Maximum number: 1]

Define the term monopoly.

[Maximum number: 3]

Explain one reason why Microsoft might have patents on its designs.

Fast food restaurants around the world use division of labour during the production of food and drinks. Employees are given different tasks. Burgers are fried before being placed in a bread 'bun'. Chopped lettuce and tomatoes are then added. Potatoes are also peeled and sliced in order to make fries.

[Maximum number: 3]

Robert is the only business specialising in handmade door signs in the local area.

Explain one disadvantage for customers of Robert being the only local firm specialising in handmade door signs.

[Maximum number: 1]

Market share by sales of firms in a market in Kuwait

Figure 2

Which one of the following options is the most suitable term for the type of market shown in Figure 2?

Monopoly

Oligopoly

Public sector

Labour

[Maximum number: 1]

State one main feature of an oligopoly.

[Maximum number: 9]

(Source adapted from: https://www.tanzaniainvest.com/telecoms/tanzania-add-50000-

mobile-subcriptions-in-6-months)

In November 2019, two Tanzanian telecoms firms, Zantel and Tigo, merged. Smart Telecoms, a small firm with a declining market share, stopped trading. A spokesperson said that Smart Telecoms could no longer compete with the increasing dominance of larger firms in the market.

Figure 4

With reference to the data above and your knowledge of economics, assess whether the oligopoly in the Tanzanian telecoms market is likely to benefit consumers.

AO2 and AO3
- An oligopoly is where there are a few dominant firms, such as Vodacom,
Airtel and Tigo (which have 86% of the market between them)
- As a result of their dominance, these firms may be able to benefit from economies of scale and therefore enjoy lower average costs. They may pass these lower costs on to consumers in the form of lower prices
- Firms like Vodacom may also be able to afford to use profits for research and development (R&D) which may lead to a better quality telecoms services for consumers
- The firms in the telecoms oligopoly may try to compete in price wars and keeping prices low would benefit the consumer
- They may also offer additional services to consumers who have subscribed to their networks in an attempt to gain market share from competitors
A04
- However, if the telecoms firms have high costs due to competing via non- price competition such as advertising, they may not be able to offer low prices to consumers
- Such costs may also lead to fewer firms in the market. For example Smart
Telecoms had to leave the market because it could not compete with the
larger firms
- This would mean there are fewer firms left to compete for market share and therefore there would be less choice available for consumers
- Even the successful small firms run the risk of being taken over or crowded out by dominant telecoms providers. This may be the case with the merger between Tigo and Zantel
- This may increase the barriers to entry as it will be difficult for new firms to enter the market to compete with the successful, dominant firms, meaning even less choice for consumers
- The firms in the oligopoly may collude in order to restrict choice and/or price competition, again causing a disadvantage to consumers

Level

Mark

Descriptor

0

No rewardable material.

Level 1

1-3

- Demonstrates basic knowledge and understanding by developing relevant points. Limited application of economic terms, concepts, theories and calculations (AO2).

- Information presented will lack selectivity and organisation. Interpretation of economic information will be limited, with a lack of analysis of issues (AO3).

- Only offers one viewpoint, meaning there is an unbalanced and incomplete evaluation, showing limited understanding and awareness (AO4).

Level 2

4-6

- Demonstrates partial knowledge and understanding by developing relevant points. Partial application of economic terms, concepts, theories and calculations (AO2).

- Information presented will demonstrate some selectivity and organisation. Interpretation of economic information will be good, with some analysis of issues (AO3).

- Offers more than one viewpoint but the argument may lack balance, leading to an evaluation that may not demonstrate full understanding and awareness (AO4).

Level 3

7-9

- Demonstrates clear knowledge and understanding by developing relevant points. Appropriate application of economic terms, concepts, theories and calculations (AO2).

- Information presented will demonstrate excellent selectivity and organisation. Interpretation of economic information will be excellent, with a thorough analysis of issues (AO3).

- Offers more than one viewpoint. The argument is well balanced and coherent, leading to an evaluation that demonstrates full understanding and awareness (AO4).

All question bank results loaded

Covered syllabus points

Question 1

Question (a)

Question (b)

Question 2

Question 3

Question (a)

Question (b)

Question 4

Question 5

Question 6

Question 7

Question 8

Question 9

Question 10

Question 11

Question 12