Mark Scheme

Section A — Structured Questions

1. (a) (up to 2) A sole trader = a business owned and controlled by one person, who keeps all the profits and has unlimited liability. [2] (b) (up to 4) Advantage — Priya has full control and keeps all the profits / can make quick decisions; Disadvantage — unlimited liability (personally responsible for debts) / hard to raise finance / long hours. 1 + 1 development each. [4] (c) (up to 4) Two aims: survival (especially with new competition); growth/expansion; providing a good service to customers; customer satisfaction/loyalty; the owner's personal satisfaction/independence. 1 + 1 development each. [4]

2. (a) Product, Price, Place, Promotion (all four for [2], any three for [1]). [2] (b) (up to 4) Two promotion methods explained: social media/advertising locally to raise awareness; special offers/loyalty cards to attract and keep customers; leaflets, local sponsorship. 1 + 1 development each. [4] (c) (up to 4) Market research would help Priya find out whether there is enough demand in the new town, what customers want and will pay, and how much competition there is; this reduces the risk of the second café failing and helps her plan. Developed points. [4]

3. (a) Profit = revenue − total costs = 120,000 − 95,000 (M1 M1) = $25,000 (A1). [3] (b) (up to 4) A fixed cost does not change with the level of output/sales (e.g. rent for the café); a variable cost changes with output/sales (e.g. cost of coffee beans/ingredients). Definition + example each. [4] (c) (up to 5) One source explained: a bank loan (borrowed money repaid with interest) / retained profit / a partner bringing in capital (up to 3); one risk: a loan must be repaid with interest even if the new café does not do well, and may require security — increasing financial risk (up to 2). [5]

4. (a) (up to 4) Two methods: financial (fair pay, bonuses) motivates through reward; non-financial (praise/recognition, responsibility, good working conditions, training) makes work more satisfying. 1 + 1 development each. [4] (b) (up to 4) One benefit explained: training improves staff skills, so they work better/faster and provide better service; it can improve quality and motivation, and reduce mistakes and staff turnover. Benefit + development. [4] (c) (up to 4) Good quality matters because customers have choice (especially with a national chain nearby); poor quality would lose customers and damage the café's reputation, while consistent quality builds loyalty and repeat business. Developed reasoning. [4]

Section B — Extended Response

5. (16 marks) Levels-marked discussion.

• Benefits of expanding: more customers/revenue and potential profit; spreads the brand; economies of scale in buying.
• Risks: high cost/finance needed; the new national competitor may take customers; a second site is harder to manage; if it fails, losses could threaten the whole business (unlimited liability).
• Reducing risks: carry out market research first; start small/test demand; secure suitable finance; ensure the first café remains strong; differentiate from the chain (personal service, local feel, quality).
• Level 4 (13–16): developed, balanced discussion applied to Café Verde, with a justified recommendation; Level 3 (9–12): both sides with some development and application; Level 2 (5–8): limited/one-sided; Level 1 (1–4): basic. Credit a reasoned recommendation either way.

Sample Answers with Examiner Commentary

Question 3(b) — Sample Answers

Grade A response. "A fixed cost is a cost that stays the same no matter how much the café sells. For Café Verde, an example would be the rent on the café premises — Priya pays the same rent whether she sells a lot of coffee or very little. A variable cost is a cost that changes depending on how much is sold or produced. For Café Verde, an example would be the cost of coffee beans and milk, because the more drinks she sells, the more ingredients she has to buy."

Mark: 4/4. Examiner commentary: A full-mark answer. The candidate defines each type of cost clearly in terms of its relationship to output, and — importantly for the marks — gives a relevant, business-specific example for each (rent as fixed; ingredients as variable), drawn from the café context rather than generic. Applying the definitions to Café Verde is exactly what the question rewards; two correct definitions without examples, or with unrelated examples, would score lower.

Grade C response. "A fixed cost is a cost you have to pay and a variable cost is one that can change. For example rent and wages."

Mark: 2/4. Examiner commentary: The candidate has a rough sense of the difference — that a variable cost "can change" — which earns some credit, but the definitions are imprecise. A fixed cost is not simply one "you have to pay"; it is one that does not change with the level of output. The examples are also not clearly matched: "rent and wages" are given together without saying which is fixed and which is variable (and wages can be either). Defining each cost by its link to output and pairing it with a clear café example would gain full marks.

Question 5 — Sample Answers

Grade A response (extract). "There are good reasons for Priya to open a second café. It could bring in more customers and revenue, spreading her successful brand to a new town, and buying supplies in larger quantities might lower her costs. However, there are serious risks. Opening a second café is expensive and she would probably need to borrow money, which must be repaid with interest even if the new café struggles. The biggest risk is the new national coffee chain, which has more money for advertising and may take customers. Running two cafés is also harder to manage than one, and as a sole trader Priya has unlimited liability, so if the second café failed she could lose personal assets.

To reduce these risks, Priya should carry out market research in the new town first to check there is enough demand and not too much competition. She could keep her first café strong so it continues to provide income, and make sure her cafés stand out from the chain by offering personal service, local produce and high quality — things a big chain finds harder to copy.

In conclusion, expansion could help Café Verde grow, but the risks are significant, especially the new competition and the cost. I would advise Priya to research the new market carefully first and only go ahead if the demand is strong and she can secure affordable finance; otherwise it may be wiser to strengthen her existing café before expanding."

Mark: 15/16. Examiner commentary: A Level 4 answer that is thoroughly applied to Café Verde throughout, rather than generic. It weighs real benefits (revenue, brand, economies of scale) against specific risks (cost, borrowing, the national chain, unlimited liability), and — crucially — addresses how to reduce those risks (market research, keeping the first café strong, differentiating from the chain). The conclusion gives clear, conditional advice that follows from the argument. Consistent use of the case-study detail and business terminology is what places this at the top of the mark range.

Question 4(a) — Sample Answers

Grade A response. "One way Priya could motivate her staff is through financial rewards, such as fair pay and a bonus when the café does well. This motivates staff because they are rewarded directly for their effort and feel their hard work is recognised. A second way is through non-financial methods, such as praising staff for good work and giving them more responsibility, for example letting an experienced member of staff train new employees. This makes work more interesting and satisfying, so staff are more likely to work hard and stay with the business, which reduces staff turnover."

Mark: 4/4. Examiner commentary: A full-mark answer. The candidate gives two genuinely different methods — one financial, one non-financial — and, importantly, explains how each one motivates (reward and recognition; more interesting, satisfying work), rather than just naming them. Adding the business consequence (reduced staff turnover) shows strong understanding. For a four-mark "explain two" question, it is this development of each point, not the number of methods listed, that earns the marks.

Grade C response. "Priya could pay them more money and be nice to them. This would make them happier and work harder."

Mark: 2/4. Examiner commentary: Two relevant ideas are present — paying more and treating staff well — earning two marks, and the candidate links them to working harder. But each is undeveloped. "Pay them more money" needs to be explained as a financial motivator that rewards effort, and "be nice to them" is vague — it could be developed into a specific non-financial method such as praise, recognition or giving responsibility, with an explanation of why that motivates. Turning each general idea into an explained method would gain full marks.