Cambridge IGCSE · 0450

Business Studies

Enterprise and planning — Topic 1

Name: ____________________Date: September 28, 2026

1.
A new business sets the objective 'to increase annual revenue by 10% within two years'. This is best described as: A A mission statement B A stakeholder C A SMART objective D A diseconomy of scale
[1 mark] · no calculator
Marking points
- Selects C: a SMART objective, since it is specific, measurable and time-bound.
Examiner tip: A mission statement expresses a broad purpose; a SMART objective turns that purpose into a specific, measurable target.
2.
Explain one reason why an entrepreneur starting a new business faces risk.
[2 marks] · no calculator
Marking points
- Identifies that the entrepreneur commits money, time or other resources to the business.
- Explains that there is no guarantee the business will succeed or earn enough revenue to cover this commitment.
Examiner tip: Risk in enterprise means resources committed today may not be recovered if the business fails.
3.
Explain one benefit and one drawback to a business owner of writing a business plan before starting up.
[2 marks] · no calculator
Marking points
- States a benefit such as helping to secure finance from a bank or investor, or clarifying objectives and resources needed.
- States a drawback such as the time and cost of preparing it, or that forecasts may prove inaccurate.
Examiner tip: A business plan is most valuable for raising finance and testing an idea, but it cannot guarantee the forecasts it contains.
4.
Which is an example of an internal economy of scale for a large manufacturer? A Paying a higher price per tonne of raw material B Bulk-buying raw materials at a lower price per unit C Losing communication efficiency between departments D Higher average distribution cost per unit
[1 mark] · no calculator
Marking points
- Selects B: purchasing economies, where buying in bulk lowers the average cost per unit of raw material.
Examiner tip: Economies of scale lower average cost per unit as output grows; the other options describe rising costs or diseconomies.
5.
Explain one reason why a business might suffer a diseconomy of scale as it grows very large.
[2 marks] · no calculator
Marking points
- Identifies a cause such as poorer communication, slower decision-making or reduced employee motivation in a very large organisation.
- Explains that this raises the average cost per unit as output continues to increase.
Examiner tip: A diseconomy of scale is a rise, not a fall, in average unit cost, usually linked to the difficulty of managing a very large organisation.
6.
A local coffee shop owner is considering becoming a franchisee of a national coffee brand instead of continuing independently. Explain one advantage and one disadvantage of this for the owner.
[2 marks] · no calculator
Marking points
- States an advantage such as using an established brand name, proven business format or head-office support and training.
- States a disadvantage such as paying an initial fee and ongoing royalties, or losing independence over how the business is run.
Examiner tip: Franchising trades independence and a share of profit for a proven, lower-risk business format.
7.
A successful local bakery chain wants to grow. Analyse one advantage of growing organically (opening new branches itself) compared with growing by taking over a rival bakery.
[3 marks] · no calculator
Marking points
- States that organic growth is typically slower but lower-risk, since it is financed from the business's own resources or gradual borrowing.
- Explains that the business retains full control over how new branches are set up, maintaining consistent brand standards.
- Contrasts this with a takeover, which is faster but requires large upfront finance and integrating a different existing culture or systems.
Examiner tip: Organic growth trades speed for control and lower financial risk; external growth (takeover or merger) trades cost and integration risk for speed.
8.
A small business owner has $50,000 saved. She can use it to expand her existing shop, or use it as a deposit to buy a franchise of a well-known brand in a new location. Recommend one option using two relevant factors.
[3 marks] · no calculator
Marking points
- Analyses a relevant factor for expanding the existing shop, such as building on proven local customer loyalty and lower ongoing costs (no royalties).
- Analyses a relevant factor for the franchise, such as an established national brand reducing the risk of attracting customers in an unfamiliar new location.
- Makes a supported recommendation that weighs risk, cost and market knowledge.
Examiner tip: Compare what each option does with the owner's existing strength: local knowledge favours expansion, an unfamiliar market favours a recognised brand.
9.
Discuss whether 'maximising profit' is likely to be the most important objective for a newly-established small business in its first year of trading.
[4 marks] · no calculator
Marking points
- Explains that survival is often the more urgent objective for a new business, given limited customers, cash and brand awareness.
- Explains that building market share or customer loyalty early may matter more than short-term profit for long-term success.
- States that some profit is still needed to cover costs and remain viable, even if it is not the primary early objective.
- Reaches a judgement depending on the type of business, its funding, and the level of competition it faces.
Examiner tip: Objectives usually change over a business's life: survival first, then growth and market share, with profit maximisation more realistic once established.