OCR A Level Business: Risk and uncertainty and Opportunity cost (H431) – 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 – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

These questions cover the Risk and uncertainty and Opportunity cost content (numbered 1.7 and 1.8 on this site; the specification itself does not number them) of the OCR A Level Business specification (H431, Version 2.1, January 2026). All businesses and figures are invented. Teaching is in the study guide and the revision notes. Course pages: the OCR A Level Business hub and the checklist. The wider area has its own practice questions. Want a quick baseline first? Try a free 10-minute diagnostic.

Questions

1. Define the terms risk and reward. [2]

2. Distinguish between a quantifiable risk and an unquantifiable risk. Give one example of each. [4]

3. Brindlow Bakery is deciding whether to start a home-delivery service. It estimates the net gain over two years as £90,000 with probability 0.25, £30,000 with probability 0.5 and a loss of £40,000 with probability 0.25.

(a) Calculate the expected value of the delivery service. [3] (b) State one reason why the expected value may not be a reliable guide to the decision. [1]

4. Holmsley Tools has £50,000 to spend. A marketing campaign would add £7,000 a year, a new machine attachment £6,000 a year, staff training £5,500 a year and a bank deposit £1,500 a year. Holmsley chooses the marketing campaign. Identify the opportunity cost of this decision and explain your answer. [3]

5. Wolds Dairy cannot tell whether a new organic yoghurt range will sell, nor how a hot summer will affect the supply of milk. Explain what is meant by uncertainty and distinguish between an internal and an external cause of uncertainty, using the case. [4]

6. Pyecombe Brewing earns a contribution of £1.40 per litre and has fixed costs of £150,000 a year. Its forecast sales are between 90,000 and 150,000 litres, with 120,000 as the central figure, because a supermarket has not yet decided whether to stock its beer. Analyse how this uncertainty affects the brewery’s forecasting and planning. [6]

7. Brindlow Bakery is considering a second bakery in a nearby town, at a cost it could not easily recover. Evaluate two ways in which it could reduce the risk of this decision. [7]

8. Wolds Dairy has £120,000 to invest. Robotic milking would save £30,000 a year. A cheese-making line would add £27,000 a year in profit. A bank deposit would pay 2.5% a year. The owners choose robotic milking. Analyse the impact of opportunity cost on this decision. [6]

9. Hamid Ordish is leaving a job paying £42,000 a year to open a cafe, using £35,000 of savings and a £20,000 bank loan. Evaluate the specific risks Hamid faces as an entrepreneur. [9]

10. Holmsley Tools buys all its steel from one supplier and has no back-up plan. The supplier fails and production stops for three weeks. Weekly sales lost are £15,000. Last year’s profit was £60,000. Evaluate the consequences of Holmsley’s poor risk management for the business and its stakeholders. [9]

Answers

1. Risk is the possibility that a decision ends worse than hoped, such as a loss [1]. Reward is the benefit if the decision works, such as profit or a return on money invested [1]. [2] Examiner insight: Definitions earn credit when they refer to decisions and outcomes; a bare example with no definition usually does not.

2. A quantifiable risk is one where the likelihood or size of loss can be given a number from data or research [1], such as the share of deliveries damaged in transit, from past records [1]. An unquantifiable risk has no reliable basis for a number [1], such as a sudden change in customer attitudes to sugar [1]. [4] Examiner insight: To distinguish, compare the two directly; two stand-alone definitions may miss a mark, so say what differs (whether a number can be defended).

3. (a) Weighted outcomes: 0.25 × 90,000 = 22,500 [1]; 0.5 × 30,000 = 15,000 and 0.25 × -40,000 = -10,000 [1]. Sum: 22,500 + 15,000 - 10,000 = £27,500 [1]. (b) The probabilities are estimates, or the average hides the possible £40,000 loss [1]. [4] Examiner insight: Show each weighted outcome; a bare total leaves nothing to credit if one figure slips, and a negative outcome must keep its minus sign.

4. Identify the options ranked by value: campaign £7,000, attachment £6,000, training £5,500, deposit £1,500 [1]. The opportunity cost is the second-best use forgone, the machine attachment [1], worth £6,000 a year [1]. It is not the total of all rejected options, because the money can be spent only once. [3] Examiner insight: Answers that add up every rejected option, or name the chosen option, are the typical way marks are lost here; name the single next best use and its value.

5. Uncertainty means the business cannot know in advance what will happen, or cannot give reliable probabilities [1]. Internal cause: whether the new organic range sells, which depends on the business’s own product and decisions [1]. External cause: the hot summer, which is outside its control [1] and affects milk supply [1]. [4] Examiner insight: Use the case for each example and say why it is internal or external; labels alone are thin.

6. Break-even = 150,000 ÷ 1.4 = about 107,143 litres [1]. Profit at 90,000 = 126,000 - 150,000 = -£24,000; at 120,000 = £18,000; at 150,000 = £60,000 [1]. Forecasting: one figure hides a swing from loss to a £60,000 profit, so the brewery should use a range and scenarios [1]. The central forecast is only 12,857 litres (10.7%) above break-even, so a small shortfall causes a loss [1]. Planning: it should keep a cash reserve for the low case and delay costly commitments until the supermarket decides [1], and plan production flexibly, for example by using short-term contracts [1]. [6] Examiner insight: Calculations earn most when they are linked to a point about forecasting or planning; numbers left unexplained rarely complete the analysis.

7. Method 1, pilot: open a market stall in the town first [1]. It limits the loss if demand is weak [1], but it delays entry and may give a rival time to move [1]. Method 2, market research on shopping habits and rents [1]. It reduces the chance of a poor location [1], but costs money and customers’ answers may not match what they later do [1]. Judgement: a pilot suits a decision that cannot easily be reversed, because it tests demand directly and limits the loss [1]. [7] Examiner insight: Evaluation marks need a limitation tied to this decision, and a final judgement that chooses; describing methods without weighing them stays in the lower marks.

8. The opportunity cost is the next best alternative, the cheese line, worth £27,000 a year [1]. The deposit earns 120,000 × 0.025 = £3,000, so it ranks third [1]. Robotic milking beats the cheese line by £3,000 a year, or £15,000 over five years [1]. Opportunity cost forces the owners to compare options, not judge milking alone [1]. However, the difference is small, and the figures are estimates, so a cheese line might spread the dairy’s income away from milk [1]. Judgement: robotic milking is justified on the numbers, but only narrowly, so the owners should check the forecasts and the risk of each option [1]. [6] Examiner insight: Strong answers state the forgone option and its value before commenting; adding the deposit to the cheese line is a common slip.

9. Financial: £35,000 of savings plus a £20,000 loan are at risk, and a failed cafe could leave debts [1], and if liability is unlimited personal assets are also exposed [1]. Income: profit is not guaranteed, so Hamid may earn well below the £42,000 salary given up [1], which is also the opportunity cost of the venture [1]. Failure: strong competition, weak demand or poor cash flow could close the cafe, with effects on family and reputation [1], [1]. Against these: if Hamid has experience, a good location and savings to cover slow months, the chance of failure is lower [1], and the reward of independence and a business that can be sold may justify the risk [1]. Judgement: the risks are large because most of the capital is personal, so the venture suits Hamid only if the household can survive without the salary for several months [1]. [9] Examiner insight: Risks should be specific to this entrepreneur and weighed against the reward; a general list of risks of starting a business gains little.

10. Lost sales are 3 × 15,000 = £45,000 [1], which is 75% of last year’s profit [1]. Business: a severe fall in profit, a possible cash-flow problem and damaged customer relationships [1], [1]. Stakeholders: employees may lose hours or jobs [1]; customers may switch to rivals [1]; lenders may worry about repayments [1]. Limits: the loss might be temporary if the supplier is replaced quickly, and insurance might cover part of it [1]. Judgement: the consequences are serious because a single point of failure turned a supplier problem into a loss of three-quarters of a year’s profit, so contingency planning and a second supplier were proportionate [1]. [9] Examiner insight: Use the figures given and judge their scale against profit; naming stakeholders without saying how each is affected is a common way to stay below the top band.

Where marks are usually lost

• Equating opportunity cost with the sum spent, or with every option rejected.
• Leaving a minus sign out of a loss when calculating expected value.
• Giving an expected value with no comment on probabilities or the worst case.
• Using general points on uncertainty with no link to the case.
• Mixing up internal and external causes.
• Listing ways to reduce risk without judging which suits the decision.
• Describing stakeholder effects without saying which group and how.
• Closing an evaluation with a recap that never commits to a conclusion.

Frequently asked questions

What is the most common mistake with opportunity cost questions? The most common mistake is treating opportunity cost as the amount of money spent, or as the total of every option rejected. Opportunity cost is only the value of the next best alternative given up.

How do you show working in an expected value question? Multiply each net outcome by its probability, add the results, and keep any minus signs for loss outcomes. Leaving out a minus sign on a loss is a common way to lose accuracy marks.

How should you evaluate methods of reducing risk in OCR A Level Business? Judge each method on its cost, how effective it is and whether it suits the business in the case, such as a pilot or trial before a large commitment. In OCR A Level Business (H431) the evaluation marks come from weighing these against each other and reaching a justified judgement.

What risks does an entrepreneur face? An entrepreneur risks losing the savings put into the business, has no guaranteed income, and gives up the income from other work as an opportunity cost. Their personal assets may also be at risk if their liability is unlimited.

Next steps

• Review the revision notes.
• Re-read the study guide.
• Tick off the topic on the checklist and visit the course hub.
• Take the free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

Source: OCR, Advanced GCE in Business (H431), Version 2.1, January 2026, for first assessment in 2017 with final assessment in summer 2027, area of study Business objectives and strategy, the Risk and uncertainty and Opportunity cost content (numbered 1.7 and 1.8 on this site, not in the specification).