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7115 · 1.1

Business activity — practice questions

Practice and worked examples for 7115 Business activity. Short previews only — attempt the full question in MarkScheme against the official scheme.

Worked example 1

Coffee shop buys beans for $2 per cup served, sells drinks for $5. Explain adding value and name two factors of production used.

Show solution outline

Adding value = 5−5 − 2 = $3 per cup — covers labour (barista wages), capital (machine, rent), enterprise (owner's risk), and profit.

Factors used: Land (premises location), labour (staff), capital (espresso machine), enterprise (owner planning and risk).

Opportunity cost: Owner could have rented premises to another tenant — forgone rent is opportunity cost of running the shop.

Worked example 2

Woodcraft Ltd, a furniture maker, produces oak dining tables. Each table sells for £450. The cost of bought-in materials (wood, varnish, fittings) for each table is £180. The business has £50,000 to invest and is choosing between buying a new automated cutting machine or launching a marketing campaign.

  1. Calculate the total value added from producing and selling a batch of 50 tables.
  2. Explain the opportunity cost if the business decides to buy the new machine.
Show solution outline

1. Calculate Total Added Value:

  • Step 1: Calculate value added per table. Value Added = Selling Price - Cost of Bought-in Materials Value Added = £450 - £180 = £270 per table

  • Step 2: Calculate total value added for the batch. Total Value Added = Value Added per table × Number of tables Total Value Added = £270 × 50 = £13,500

2. Explain Opportunity Cost:

The opportunity cost is the benefit lost from the next best alternative forgone. If Woodcraft Ltd. spends the £50,000 on the new machine, the opportunity cost is the potential outcome of the marketing campaign. This would be the increased sales, higher brand awareness, and potential profit that the marketing campaign could have generated but is now given up.

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