RI 2026 TP - H2 Econs P1&2 Examiners report Final

ECONOMICS Y6 H2 Timed Practice 2026 Case Study Question a) i) Identify and explain a fixed cost and a variable cost for a pharmaceutical company. [2] Variable cost – cost of variable factors like biobags or filters or sterilisation gear which increases as the output of pharmaceutical products increases. [1] Fixed cost – An example of a fixed cost is the rental of manufacturing facilities which does not increase with the output level. [1] Examiners’ comments Students are advised to use very explicit and clear examples which are related to a pharmaceutical company and explain how they are variable or fixed costs. ii) Explain how fixed costs may have an impact on the size of firms in the pharmaceutical industry. [2] If there are high fixed costs involved, e.g. purpose -built factories with specialised equipment to manufacture drugs, then the size of the firm is likely large. [1] This is because high fixed costs would imply a high startup cost for the firm (for instance the cost to purchase expensive machinery). This will require a firm to have a large output level before its average cost of production start to fall significantly - the firm reaps i nternal Economies of Scale (Technical – indivisibility of factors of production) over a large output level. OR High fixed costs is a large start -up cost which is a high barrier to entry preventing the entry of small firms and this allows incumbent firms to have large output and therefore size of firm is likely large. [1] Examiners’ comments This question was poorly done. Most candidates had the correct idea about iEOS but failed to explicitly bring in the concept of spreading startup cost over large output such that the firm faces lower average cost of production. b i) With reference to Figure 1, describe the changes in the level and composition of national healthcare expenditure in USA. [2] The level of National Health Expenditure (NHE) has increased. [1] In terms of composition, out-of-pocket expenses has significantly fallen whereas health insurance’s share of National Health Expenditure (NHE) has increased significantly. [1] ii) Discuss whether demand or supply factors are more significant to account for the change in the level of national healthcare expenditure in USA. [8] Identify that Total Expenditure = PxQ and that national healthcare expenditure in USA has risen.

Y6/9757/TP/2026 2 © RI 2026 [Turn Over Note: Students need not explain every factor. A total of 2 distinct demand and supply factors with PED discussed is suffice and the link must be made to total expenditure (TE). Supply Factors (1) Ext 1 P7: “continued staff shortages with more healthcare workers choosing to leave the profession”  with increasing net number of healthcare workers leaving the profession, possibly due to the long hours and tedious nature of work  results in fall in labour supply in the market and that is lik