IB DP Business Management: Growth and evolution and Multinational companies (MNCs) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – the IB holds copyright in its own papers. Use these alongside the official past papers available through your school or the IB store.

These questions cover sections 1.5 (Growth and evolution) and 1.6 (Multinational companies (MNCs)) of the IB Business management guide, first assessment 2024. The guide gives neither section an HL-only label. All businesses are invented and all figures are in $. Study the study guide and revision notes first. The course hub and checklist show the rest of the course.

Questions

1. Distinguish between internal growth and external growth. [2]

2. Outline three reasons why a business might choose to stay small. [3]

3. Explain one internal economy of scale and one external economy of scale. [4]

4. Nolgarth Glassworks produces bottles. Its total cost is 85,000 at 10,000 bottles, 150,000 at 25,000 bottles and 288,000 at 40,000 bottles.

(a) Calculate the average cost at 10,000, 25,000 and 40,000 bottles. [3] (b) State the range of output over which diseconomies of scale appear. [1] (c) Explain one possible cause of these diseconomies. [2]

5. Veltane Burgers franchises six outlets, each with annual sales of 280,000. The royalty is 7% of sales. One franchisee has cost of sales equal to 55% of sales and other costs of 95,000, apart from the royalty.

(a) Calculate the franchisor’s annual royalty income. [2] (b) Calculate one franchisee’s annual profit. [3] (c) Explain one drawback of franchising for a franchisee. [2]

6. Zandrel Dairy has a market share of 18% in a market worth 250m. It takes over Torrowick Creamery, which has a market share of 7%.

(a) Calculate the combined market share and the combined sales revenue. [3] (b) Distinguish between a takeover and a merger. [2]

7. Distinguish between a joint venture and a strategic alliance. [3]

8. Explain two ways in which a multinational company (MNC) can benefit a host country. [4]

9. Kellarow Electronics, an MNC, earns a profit of 40m in its host country. The host government taxes profit at 20%, and the MNC sends 75% of after-tax profit to its home country.

(a) Calculate the amount sent to the home country. [3] (b) Comment on what this result suggests about the effect of the MNC on the host country. [2]

10. Ardenvale Textiles has sales revenue of 15.0m. It can grow organically by 5% a year or take over Isenhall Looms, which has sales revenue of 6.0m, for 9.0m. The takeover would save 0.6m a year in costs. Evaluate which growth method Ardenvale should use. [8]

11. Darrowmere Mining opens a mine in Casterland. It employs 900 local workers at 8,000 a year each. Annual profit is 24m, taxed at 25%, and 60% of after-tax profit is sent abroad. The clean-up of river damage is estimated at 3.0m, paid by the host government. Evaluate the impact of Darrowmere Mining on Casterland. [9]

Answers

1. Internal growth uses the business’s own resources, such as new products or outlets [1]. External growth involves another business, such as an acquisition or a joint venture [1]. [2] Examiner insight: A “distinguish” answer tends to earn credit when both sides are covered and contrasted, not when one is simply defined.

2. Any three, each outlined: keep control and personal service [1]; serve a niche too small for large firms [1]; avoid debt, risk or diseconomies of scale [1]. [3] Examiner insight: “Outline” wants a short statement of each point, so three distinct reasons beat one reason developed at length.

3. Internal, for example purchasing: bulk orders win supplier discounts [1], which lowers cost per unit [1]. External, for example a skilled labor pool in an industrial cluster [1], which cuts recruitment and training cost for every firm in the area [1]. [4] Examiner insight: “Explain” calls for a cause and a consequence, and answers lose credit when the type is named without saying why unit cost falls.

4. (a) 85,000 / 10,000 = 8.50 [1]; 150,000 / 25,000 = 6.00 [1]; 288,000 / 40,000 = 7.20 [1]. (b) Between 25,000 and 40,000 bottles [1]. (c) Coordination across a larger operation becomes harder [1], so mistakes and waste raise cost per bottle [1]. [6] Examiner insight: Showing the division for each output gives a marker something to credit even if one value slips.

5. (a) 6 x 280,000 x 7% [1] = 117,600 [1]. (b) Gross profit: 280,000 x 45% = 126,000 [1]; royalty: 280,000 x 7% = 19,600 [1]; profit: 126,000 - 19,600 - 95,000 = 11,400 [1]. (c) The franchisee pays the royalty whatever the profit [1], so a weak year leaves very little for the owner [1]. [7] Examiner insight: Written working for a “calculate” question matters: with only an answer, a slip leaves nothing for a marker to reward.

6. (a) Combined share 18% + 7% = 25% [1]; sales revenue of Zandrel is 250 x 18% = 45.0m and of Torrowick 250 x 7% = 17.5m [1]; combined 62.5m [1]. (b) A takeover gains control of a company, which may be against the board’s wishes [1]; a merger is an agreed combination of two firms into one new business [1]. [5] Examiner insight: Say that the definitions are the standard forms if the stimulus gives none, and keep the contrast explicit.

7. A joint venture creates a new, separate business [1] that the partners own together and share risk and profit from [1]. A strategic alliance is an agreement to cooperate in which the firms stay separate and form no new entity [1]. [3] Examiner insight: The deciding contrast is whether a new entity is formed, so state it directly.

8. Jobs and wages: workers gain income [1], and spending supports local shops [1]. Tax revenue: the government can fund services [1] from profits earned in the country [1]. (Other valid benefits include skills transfer and technology.) [4] Examiner insight: Answers often gain from linking each benefit to the host country by name rather than to “the economy” in general.

9. (a) Tax: 40m x 20% = 8m [1]; after-tax profit 32m [1]; sent abroad 32m x 75% = 24m [1]. (b) Of the 40m profit, 24m leaves the host country [1], while 8m tax and 8m retained stay, so the benefit is real but smaller than headline profit suggests [1]. [5] Examiner insight: “Comment” asks for a judgement based on the calculated result, so refer to your figures in the sentence.

10. Indicative content, one mark per developed point, up to 8.

• Takeover raises sales revenue to 21.0m, growth of 40% at once [1].
• Organic growth at 5% gives 15.75m after a year; reaching 21.0m takes about 6.9 years [1].
• Cost savings of 0.6m a year; price of 9.0m repaid in 15 years [1], which is slow [1].
• Takeover risks: overpaying, culture clash, staff losses [1].
• Organic growth is lower risk and preserves culture, but is slower and may lose market share to rivals [1].
• Takeover brings a ready-made customer base and larger scale [1].
• Judgement with criterion, for example: choose organic growth unless speed is vital, because a 15-year recovery is long and the extra revenue may not arrive [1]. [8] Examiner insight: An “evaluate” answer tends to score higher when it weighs both methods using the stimulus numbers and ends with a justified choice.

11. Indicative content, up to 9.

• Wages: 900 x 8,000 = 7.2m [1] gives local income and spending [1].
• Tax: 24m x 25% = 6.0m [1]; after-tax profit 18.0m [1].
• Repatriated: 18.0m x 60% = 10.8m leaves; 7.2m is reinvested [1].
• Clean-up cost of 3.0m falls on the host government, which uses up half of the tax paid [1].
• Long-term effects: skills and supplier links versus job loss when the mine closes [1].
• Both sides weighed, with 20.4m staying in Casterland against 10.8m leaving [1].
• Judgement with criterion, for example: the impact is net positive financially, but depends on whether the damage can be repaired [1]. [9] Examiner insight: Calculations are most useful in an “evaluate” answer when each figure is tied to a party affected, such as workers or the government.

Where marks are usually lost

• Naming an economy of scale without saying why unit cost falls.
• Stating a number without showing how it was found.
• Mixing up a joint venture with a strategic alliance.
• Discussing franchising from the franchisor’s side only.
• Writing a list for “evaluate” with no judgement or criterion.
• Using only positive or only negative effects for an MNC.
• Ignoring figures in the stem, or quoting them without saying what they show.
• Treating repatriated profit as a loss to the host country in full, when wages and tax remain.

Next steps

• Review the revision notes and study guide.
• Visit the course page and the checklist.
• Take the free diagnostics to find gaps.
• Book a free trial class.

Frequently asked questions

What is the difference between internal and external growth? Internal (organic) growth uses the business’s own resources, such as selling more or launching new products, and is usually gradual. External (inorganic) growth involves another business, through methods such as mergers, takeovers, joint ventures, strategic alliances or franchising, and can be sudden.

What are common mistakes on growth and MNC questions in IB Business Management? Students often name an economy of scale without saying why unit cost falls, mix up a joint venture with a strategic alliance, discuss franchising only from the franchisor’s side, and give only positives or only negatives for an MNC. Answering “evaluate” with a list and no judgement also loses marks.

Is repatriated profit a total loss to the host country? No. Even when an MNC sends profit back to its home country, the wages it pays and the tax it pays to the host government stay in the host country, so treating repatriated profit as the whole effect overstates the loss.

Which sections of the IB Business Management guide cover growth and MNCs? Growth and evolution is section 1.5 and Multinational companies (MNCs) is section 1.6, both in Unit 1 of the IB Business management guide, first assessment 2024.

Official syllabus

IB Diploma Programme Business management guide (first assessment 2024), International Baccalaureate Organization, Unit 1, sections 1.5 and 1.6.