Question 9

9 marks
Content - 2 marks
Application - 2 marks
Analysis - 2 marks
Evaluation - 3 marks
Content
1 mark - Defines the term profitability or gives one example of how decreasing prices can impact profits
2 marks - Defines key term and one example or two examples
Application
1 mark - Limited application
2 marks - Good application
Analysis
1 mark - Limited application
2 marks - Good application
Evaluation
1-2 marks - Limited evaluation
3 marks - Good evaluation

Possible answers
By lowering prices Pete will be decreasing his profit margin
Profit = total revenue - total costs
If pete lowered his prices he may increase his business therefore earning more revenue and overall profit
The impact of a decrease in price would depend on the elasticity of demand for Petes service
As Pete is providing an essential service you would expect elasticity of demand to be inelastic therefore by lowering price he will not increase revenue as much