Cambridge IGCSE · 0450

Business Studies

Case-study decisions — Paper 2

Name: ____________________Date: October 14, 2026

1.
Noura's Café can either open a second city-centre branch with high rent and heavy footfall, or start a delivery service from its current kitchen with lower fixed costs but strong online competition. Recommend one option using two relevant factors.
[4 marks] · no calculator
Marking points
- Analyses one relevant benefit or cost of the second branch.
- Analyses one relevant benefit or risk of delivery.
- Uses case evidence such as rent, footfall, fixed cost or online competition.
- Makes a supported recommendation that weighs the alternatives.
Examiner tip: A recommendation earns strength from comparing the rejected option as well as supporting the chosen one.
2.
A manufacturer can buy an automated machine for $120,000 that is expected to reduce annual labour costs by $30,000. Evaluate whether the business should buy it, considering the simple payback and one non-financial factor.
[4 marks]
Marking points
- Calculates a simple payback of 120000 ÷ 30000 = 4 years.
- Interprets whether four years is acceptable in relation to risk, finance or machine life.
- Analyses a non-financial factor such as quality, reliability, flexibility, training or employee impact.
- Reaches a conditional judgement identifying information still needed.
Examiner tip: Payback informs the decision but does not measure profit, quality or human impact.
3.
A tech startup is launching a genuinely new type of wireless earphone with no direct competitors yet. It can launch at a high price to target early adopters, or a low price to build market share quickly before competitors arrive. Recommend one pricing strategy using two relevant factors.
[3 marks] · no calculator
Marking points
- Analyses a relevant factor for a high launch price (price skimming), such as recovering development costs quickly from customers willing to pay a premium for something new.
- Analyses a relevant factor for a low launch price (penetration pricing), such as building a large user base quickly before competitors can copy the product.
- Makes a supported recommendation that weighs how quickly competitors are likely to enter the market.
Examiner tip: Skimming suits a genuinely new, hard-to-copy product; penetration suits a product competitors can quickly imitate.
4.
A new clothing retailer can rent a shop on a busy high street with high rent and heavy footfall, or a cheaper unit on the edge of town with ample parking but far less passing trade. Recommend one location using two relevant factors.
[3 marks] · no calculator
Marking points
- Analyses a relevant factor for the high street unit, such as high footfall generating passing trade without needing much advertising.
- Analyses a relevant factor for the out-of-town unit, such as lower fixed costs and easier parking for customers arriving by car.
- Makes a supported recommendation that weighs rent cost against the value of passing footfall for this type of shop.
Examiner tip: A high-footfall location can justify higher rent for a shop that relies on casual, walk-in customers.
5.
A profitable business needs $40,000 to buy extra stock for a busy season. It can use its own retained profit, or take out a short-term bank loan. Recommend one option using two relevant factors.
[3 marks] · no calculator
Marking points
- Analyses a relevant factor for retained profit, such as avoiding interest charges and not needing the bank's approval.
- Analyses a relevant factor for a loan, such as keeping retained profit available as a cash buffer for other unexpected needs.
- Makes a supported recommendation that weighs the cost of interest against the value of keeping cash in reserve.
Examiner tip: Retained profit is free to use but reduces the cash buffer available; a loan preserves cash but adds an interest cost.
6.
A business needs a new supervisor. It can promote and train a junior employee who already knows the business well, or hire an experienced supervisor from outside at a higher salary. Recommend one option using two relevant factors.
[3 marks] · no calculator
Marking points
- Analyses a relevant factor for promoting internally, such as lower cost and the employee's existing knowledge of the business.
- Analyses a relevant factor for hiring externally, such as bringing in proven experience and skills the business currently lacks.
- Makes a supported recommendation that weighs cost and training time against the value of immediate, proven experience.
Examiner tip: Internal promotion is usually cheaper and faster to arrange; external hiring brings skills and experience the business does not yet have.
7.
A successful independent restaurant owner wants to expand to a second city. She can open a second restaurant herself, keeping full control, or sell a franchise to an experienced local operator. Recommend one option using two relevant factors.
[3 marks] · no calculator
Marking points
- Analyses a relevant factor for opening it herself, such as keeping full control over quality, recipes and brand standards.
- Analyses a relevant factor for franchising, such as faster expansion with lower upfront investment, using the franchisee's local knowledge and capital.
- Makes a supported recommendation that weighs control against speed and shared risk.
Examiner tip: Opening it herself maximises control but uses her own capital and time; franchising shares the cost and risk but gives up some control.
8.
A clothing company can buy fabric from a cheaper overseas supplier with poor working conditions, or a more expensive supplier that is independently certified for fair labour practices. Evaluate which supplier the company should choose.
[4 marks] · no calculator
Marking points
- Explains the cost advantage of the cheaper supplier and the risk of reputational damage if poor conditions are exposed.
- Explains the ethical and reputational benefit of the certified supplier, despite its higher cost.
- States a further relevant factor, such as customer expectations in the company's target market regarding ethical sourcing.
- Reaches a judgement depending on the company's brand image, target customers, and ability to absorb the higher cost.
Examiner tip: Ethical sourcing decisions weigh short-term cost savings against longer-term reputational and brand risk.
9.
A manufacturer currently has 5% of its products returned as faulty, costing $25,000 per year in refunds and replacements. It could spend $15,000 per year on a stricter quality control process expected to cut faults to 1%. Evaluate whether this investment is worthwhile.
[4 marks]
Marking points
- Estimates that cutting faults from 5% to 1% could reduce the $25,000 cost roughly in proportion, to around $5,000.
- Compares the saving (around $20,000) with the $15,000 cost of the new process, suggesting a net benefit.
- States a non-financial benefit, such as improved brand reputation and customer trust from fewer faulty products.
- Reaches a judgement, noting that the estimate depends on faults being reduced as expected.
Examiner tip: Compare the expected saving in returns cost against the cost of the new process, then consider reputation as an extra, harder-to-quantify benefit.
10.
A small business with a limited marketing budget can pay a popular social media influencer to promote its product, or buy an advertisement in the local newspaper. Recommend one option using two relevant factors.
[3 marks] · no calculator
Marking points
- Analyses a relevant factor for the influencer, such as reaching a younger, highly engaged online audience that trusts the influencer's recommendation.
- Analyses a relevant factor for the newspaper advert, such as reaching an older local audience that still reads print media regularly.
- Makes a supported recommendation based on the business's actual target customer group.
Examiner tip: The right advertising channel depends on where the target customers actually spend their attention, not simply which option seems more modern.
11.
A growing manufacturer has outgrown its current premises. It can upgrade its ageing machinery to produce more in the same space, or move to a larger rented premises and keep the existing machinery. Recommend one option using two relevant factors.
[3 marks] · no calculator
Marking points
- Analyses a relevant factor for upgrading machinery, such as increased output per worker without the cost and disruption of moving location.
- Analyses a relevant factor for moving premises, such as more space for future growth, which new machinery in the same building would not provide.
- Makes a supported recommendation that weighs the cost and disruption of each option against the business's longer-term space needs.
Examiner tip: Upgrading equipment solves an output problem; moving premises solves a space problem — identify which constraint is actually limiting the business.
12.
A business has one very successful product that generates almost all of its profit. Discuss whether it should invest in developing a second, related product rather than focusing entirely on its existing one.
[4 marks] · no calculator
Marking points
- Explains a benefit of diversifying, such as reducing the risk of relying on a single product if demand for it falls.
- Explains a benefit of staying focused, such as continuing to invest fully in what is already working well, without diverting resources.
- States a risk of diversifying, such as the cost and uncertainty of developing and marketing a genuinely new product.
- Reaches a judgement depending on how vulnerable the main product is and how much spare capital the business has to risk.
Examiner tip: Relying on one product is efficient but risky; diversification spreads risk but costs money and management attention.