Business management · 2001 · May · Paper 2 · SL · Markscheme

MARKSCHEME May 2001 BUSINESS AND ORGANISATION Standard Level Paper 2 20 pages M01/370/S(2)M INTERNATIONAL BACCALAUREATE BACCALAURÉAT INTERNATIONAL BACHILLERATO INTERNACIONAL [4 marks]1. (a) Explain the benefits of vertical integration. Benefits: economies of scale (marketing, technical, different ways of expressing benefits are welcome) control of outlets quality of service control of human resources, wages lower final price supply one’s own firm, in the right place, in the right quantity and at the right price. The better answers will distinguish backward from forward vertical integration [4 marks] Provides a very complete answer, identifying economies of scale and includes the concepts of backward and forward integration, though not necessarily by name. [2 to 3 marks] Considers benefits, although may not specifically include the term economies of scale. Understands that prices will go down and service will improve. [1 mark] A very limited response. [4 marks] (b) Analyse the advantages and disadvantages of financing growth with reinvested profit. Advantages: no creditors, no explicit interest rate. Cheapest way to finance growth. Shareholders are owners and can’t sue. The alternative of borrowing from a banking institution is more expensive, creating creditors and taking away freedom from the firm. Disadvantages: Dividend distribution falls. Short term discontent of shareholders. It is time consuming and bureaucratic to borrow from a bank. Bank credit needs collateral security and a business plan that requires time investment. [4 marks] Analyses at least two advantages and two disadvantages, including references to costs of different types (interest rates, shareholders discontent, time and management costs). [2 to 3 marks] Considers both advantages and disadvantages but analysis is either brief, or missing for [2 marks]. [1 mark] Produces a cursory response lacking detail and/or providing only one side of the ar gument. – 3 – M01/370/S(2)M