1.3.6 The Competition — Practice Questions

Seven original multiple-choice questions on the competition: market maps, competitive advantage, product differentiation, pricing decisions, and stable and dynamic markets.

7 questions Edexcel B A-Level Multiple choice Model answers included

Not read the notes yet? Start with the 1.3.6 The Competition revision notes.

1. 1. Table 1 shows how a firm has placed six e-bike brands on a market map. A rating above 5 counts as high.
   Using Table 1, the gap in the market is at

   Data interpretation

   Table 1: Six e-bike brands, rated out of 10

   	Price rating	Quality rating
   Brand P	8	4
   Brand Q	2	2
   Brand R	3	7
   Brand S	7	3
   Brand T	1	3
   Brand U	4	6

   Select one answer

   A High price and high quality.

   B High price and low quality.

   C Low price and high quality.

   D Low price and low quality.
   Show model answer

   Answer: A (High price and high quality.). Sort each brand into a quarter of the map.
   High price, low quality: P and S.
   Low price, high quality: R and U.
   Low price, low quality: Q and T.
   No brand has both a price rating and a quality rating above 5, so the gap is at high price and high quality.

   Why the other options are wrong

   • B — Brands P and S both sit here, with high price ratings and quality ratings below 5.
   • C — Brands R and U both sit here, with low price ratings and quality ratings above 5.
   • D — Brands Q and T both sit here, with low ratings for both.

2. 2. A firm builds a market map of sun creams from a large, recent survey of customers. It shows that no brand offers the highest quality at the lowest price. Before launching a sun cream in that position, the most important thing for the firm to check is

   Applied reasoning

   Select one answer

   A Whether a rival could copy its packaging quickly.

   B Whether it could cover its costs at that price.

   C Whether its brand is better known than its rivals'.

   D Whether it has plotted the other brands correctly.
   Show model answer

   Answer: B (Whether it could cover its costs at that price.). A gap in the market is not proof of demand, and it may be empty for a reason. Top quality usually costs more to make, so no firm may be able to sell it at the lowest price and still make a profit. Before launching, the firm needs to know whether it can serve that gap at a profit.

   Why the other options are wrong

   • A — Packaging that is easy to copy is a weak advantage, but that matters only once the firm knows the product can be sold at a profit.
   • C — Brand awareness would help sales, but it does not tell the firm whether it can make money at the lowest price.
   • D — The map is built from a large, recent survey of customers, so the plotting is well founded. Checking it again does not answer whether the gap can be profitable.

3. 3. A pushchair maker wants a competitive advantage that rivals will find hardest to copy. The best choice is

   Definition in context

   Select one answer

   A A free gift with every order this month.

   B A patent on its new folding design.

   C A price cut of 10% on all its models.

   D A two-week advertising campaign on TV.
   Show model answer

   Answer: B (A patent on its new folding design.). A competitive advantage is worth most when it is hard to copy. A patent gives the firm the legal right to stop rivals using its folding design, so they cannot match it for years.

   Why the other options are wrong

   • A — A free gift is easy for any rival to match, and this one ends after a month.
   • C — A price cut can be matched by rivals the next day, and it cuts the firm's profit on every pushchair.
   • D — Rivals can run their own campaigns, and this one lasts only two weeks.

4. 4. A firm wants to make the most profit it can from a new desk lamp. Table 1 shows its monthly forecasts at four prices.
   Using Table 1, the price it should choose is

   Calculation

   Table 1: Forecast monthly sales and costs for a desk lamp

   Price per lamp	Forecast sales	Total costs
   £18	1,200	£16,400
   £22	900	£12,800
   £26	600	£9,200
   £30	350	£6,200

   Select one answer

   A £18

   B £22

   C £26

   D £30
   Show model answer

   Answer: B (£22). A firm aiming for the most profit picks the price with the biggest gap between revenue and costs. Revenue is price × forecast sales.
   £18: £21,600 − £16,400 = £5,200.
   £22: £19,800 − £12,800 = £7,000.
   £26: £15,600 − £9,200 = £6,400.
   £30: £10,500 − £6,200 = £4,300.
   The most profit comes at £22.

   Why the other options are wrong

   • A — £18 gives the most sales and the most revenue, £21,600. That suits a firm chasing market share, but costs are high too, and profit is only £5,200.
   • C — This is the second-highest profit, £6,400. It is easy to pick when profits are only roughly compared, but it is £600 below the profit at £22.
   • D — This picks the biggest profit on each lamp (about £12), but sales are so low that total profit is only £4,300.

5. 5. A bike shop starts giving free lifetime servicing with every bike it sells, which no other local shop offers. The most likely benefit to the shop is that

   Applied reasoning

   Select one answer

   A Customers switch to rivals more readily if its prices rise.

   B It must match rivals' prices more closely than before.

   C Its cost of selling each bike falls below rivals'.

   D Its sales hold up better when it raises its prices.
   Show model answer

   Answer: D (Its sales hold up better when it raises its prices.). Free lifetime servicing is a unique selling point that differentiates the shop's bikes. A differentiated product has fewer close substitutes → customers are less likely to switch when its price goes up → the shop can charge more without losing many sales.

   Why the other options are wrong

   • A — This reverses it. Differentiation makes customers less willing to switch, not more.
   • B — A product with no close substitutes gives the shop more freedom to set its own price, not less.
   • C — Free servicing adds to the shop's costs. The benefit comes through what customers will pay, not lower costs.

6. 6. Sales of bin bags change little from year to year, and so do the products and what customers want. A bin-bag maker that wants to grow its sales is most likely to have to

   Applied reasoning

   Select one answer

   A Launch a new kind of bin bag every few months.

   B Rely on rising total sales across the market.

   C Wait for tastes in bin bags to change.

   D Win customers from rivals on price or brand.
   Show model answer

   Answer: D (Win customers from rivals on price or brand.). Bin bags are a stable market: sales, products and tastes change little. Planning is easy, but growth is hard, because the market itself is not getting bigger. A firm mostly gains sales by taking them from rivals, so it competes on cost, price and brand loyalty.

   Why the other options are wrong

   • A — Constant new products are how firms compete in a dynamic market. In a stable one customers want much the same thing every year.
   • B — Total sales are not rising: the stem says they change little from year to year.
   • C — Tastes in a stable market change slowly, if at all. Waiting is not a plan for growth.

7. 7. A farm sells standard potatoes through a wholesale market where hundreds of other farms sell potatoes that buyers cannot tell apart. It sets its price 10% above the market price. The most likely result is that

   Applied reasoning

   Select one answer

   A Buyers switch to other farms, so it sells very little.

   B Its revenue rises, as most of its buyers stay.

   C Its sales dip slightly, as loyal buyers stay with it.

   D The market price rises to match its new price.
   Show model answer

   Answer: A (Buyers switch to other farms, so it sells very little.). In a market with many firms selling near-identical products, a firm has to accept the market price set by demand and supply. Buyers can get the same potatoes from hundreds of other farms at the market price, so almost none will pay 10% more. The farm sells very little.

   Why the other options are wrong

   • B — Buyers have no reason to stay when identical potatoes are cheaper elsewhere. Only a differentiated product lets a firm raise its price and keep most of its buyers.
   • C — Loyalty comes from a product customers value as different. Buyers cannot tell this farm's potatoes from anyone else's, so they have nothing to be loyal to.
   • D — One farm among hundreds is too small to move the market price. That price is set by demand and supply across the whole market.