Business activity — common mistakes

In exam questions, avoid simply defining opportunity cost. Apply it directly to the business in the case study. For example, 'The opportunity cost of the decision to open a new branch in London is the potential profit that could have been earned by upgrading their e-commerce website instead.'

This is a common misconception. In A-Level Business, 'Capital' as a factor of production refers to the physical assets (machinery, equipment, factories) used for production. Money, or 'financial capital', is not a factor itself because it cannot produce anything directly. Instead, it is the resource used to acquire the factors of production, particularly capital goods.

Yes, absolutely. This is known as vertical integration. For example, a large furniture company might own forests (primary sector), operate its own sawmills and factories to make the furniture (secondary sector), and sell the furniture through its own chain of retail stores (tertiary sector). This gives the business control over its supply chain.

No, adding value and making a profit are two different concepts. Adding value is the difference between selling price and the cost of raw materials. Profit is what remains after ALL costs (including wages, rent, marketing, and administration) are deducted from total revenue. A business can successfully add value to its products but still make an overall loss if its other operating costs are too high.