RI H2 Y5 2025 TP - Mark scheme Examiners' Report-1

9757/01/TP/Y5/25 1 © RI 2025 [Turn over 2025 Y5 TP Suggested Answers and Mark Scheme (a) With reference to Table 1, compare the trends in revenue for the three largest DRAM manufacturers between 2nd and 4th Quarter 2016. [2] Similarity: Revenues increased for the three largest DRAM manufacturers. (1m) Difference: Between 2 nd and 4th Quarter 2016, Micron’s revenue increased by the largest extent (40%), followed by SK Hynix (38%) and then Samsung (37%). (1m) Examiners’ Comments: Most candidates were able to identify the general increase in revenue for the 3 firms. However, an alarming number of students compared absolute changes, instead of percentage change. (b) (i) Define Production Possibility Curve (PPC). [1] A PPC shows all the maximum attainable combinations of two goods that a country can produce within a specified time period with all its resources fully and efficiently employed, at a given state of technology. (1m) Examiners’ Comments: Only a handful of candidates were able to provide the full definition, with many missing the point on resource utilitsation and/or the state of technology. Some candidates stated that the PPC shows combinations of output which are productively efficient. While this is true, such answers have not defined PPC in a self-contained manner without relying on another undefined term. (ii) With the aid of a PPC diagram, explain how an increase in productivity in the DRAM industry might affect the maximum possible output in an economy. [3] • Increase in productivity in the DRAM industry implies an improvement in quality of resources (e.g. labour or capital). This means that with the same quantity of resources, there will be a greater output of DRAM. (1m) • The increase in productivity is represented by a skewed outward shift of the PPC, from PPC1 to PPC2, in favour of the production of DRAM, while other goods will see no or a smaller increase in potential output. (1m) • Accurate and well-labelled diagram (1m) Examiners’ Comments: A number of scripts conflated an increase in the maximum output (shift of the entire PPC) with an increase in output (from a point inside the PPC to a point of the PPC. DRAM Other goods PPC1 PPC2

9757/01/TP/Y5/25 2 © RI 2025 [Turn over A few scripts mentioned an outward shift of the PPC but did not explain why the maximum output for either or both goods would increase. (c) (i) With reference to the case material, explain what is meant by: fixed cost [2] Fixed cost is cost that does not vary with output levels. It is a cost that must be paid even when production does not take place. (1m) An example of a fixed cost incurred within the DRAM industry is the: • start-up cost incurred from the purchase of equipment for DRAM production plants (Extract 2, para 2). The cost of acquiring equipment do not vary with output level and must be paid even if production does not take place. (1m) OR • costs incurred from Research and Development (Extract 2, para 2). R&D costs do not vary with output level and if the firm engaged in R&D, it must be paid even if production does not take place. (1m) Examiners’ Comments: A number of candidates provided theoretical examples of fixed costs and made little to no reference to case material. (ii) variable cost [2] • Variable cost is cost that varies directly with output level. It is not incurred if production does not take place. [1m] • One example of variable cost is the cost of acquiring raw materials like silicon (Extract 2, para 3). As the firm produces more output, more silicon is needed. Cost of raw materials will not be incurred if there is no production. [1m] Examiners’ Comments: A number of candidates mistakenly explain R&D as a form of variable cost, thinking that since some firms choose to engage in R&D and some do not, R&D costs can be varied. This shows a conceptual misunderstanding that discretionary costs are variable costs, which is incorrect. (d) (i) Using Figure 1, identify and explain the likely market structure associated with the DRAM manufacturing industry. [2]  Oligopoly [1m]  With reference to Figure 1, the market concentration ratio of the top 3 firms (Samsung, SK Hynix and Micron Group) is 93%, reflecting the dominance of a few large firms in the industry [1m] Examiners’ Comments: Majority of students recognize that the market is an oligopoly. However, there were many who did not use the 3-firm concentration ratio to support their answer. (ii) Extract 3 mentions that “companies entering the DRAM market will face entry barriers”. Explain one such artificial barriers to entry. [2] • Extract 3, para 2 mentions that the three incumbents are “unlikely to share their technologies and research”. This implies a certain degree of statutory barriers to entry in the form of patents on specific aspects of their DRAM designs, manufacturing processes, and memory management techniques. The patents prevent other firms from copying their design and eroding their market share. OR  Extract 4, para 1 suggests that Samsung may be engaging in predatory pricing when it flooded the market with cheap DRAM memory chips, causing smaller

9757/01/TP/Y5/25 3 © RI 2025 [Turn over firms like Micron to make losses. The low prices set by incumbents serve as a strategic barrier to entry by making it unprofitable for potential new entrants who typically operate on a smaller scale of production and thus have a higher unit cost of production. Examiners’ Comments: Some candidates mistakenly argue along the lines of natural barriers to entry due to the high start up cost required. This clearly missed the mark of artificial BTE. Other candidates, while correctly identifying R&D as a form of artificial BTE, the elaboration as to why it reduces ability of new firms to enter the market was poorly done. (e) Discuss the view that in the DRAM industry, large firms will always enjoy cost advantages. [10] Approach: • T-AT-Synthesis • Thesis: Large firms are able to reap iEOS • Anti-thesis: Large firms may suffer disEOS once it produces beyond its MES • Synthesis: In the context of the DRAM industry, are firms more likely to be operating below or beyond MES? What happens when ceteris paribus assumption is relaxed e.g. change in level of technology? Intro • Large firms in the DRAM industry such as Samsung, SK Hynix and Micron generally enjoy cost advantages from their larger scale of production. Body Thesis: Large firms in the DRAM industry enjoy internal economies of scale (iEOS) As large DRAM firms expand their scale of production, unit cost falls as firms reap iEOS. • Large firms are able to enjoy technical iEOS from the specialization and division of labour. As mentioned in Extract 2, para 3, large plants in the DRAM industry use “specialized assembly processes to divide tasks across thousands of chips". Workers can be tasked to do specific, simpler and more repetitive jobs. With this specialisation and divisi on of workers, workers become more efficient in their job, and less time is lost to task - switching from one operation to another. As workers get better at performing each of these tasks, productivity improves and output per unit input increases. Assuming input costs remain constant, average costs falls as scale of production increases. OR • Large firms can also reap marketing iEOS. As mentioned in Extract 2, para 3, large DRAM firms enjoy cost advantages in the procurement of raw materials such as silicon from key suppliers. Large firms have bargaining advantages and are accorded with preferential treatment by their suppliers in the purchase of raw materials such as silicon because they are able to buy these raw materials in bulk (large scale). This enables them to negot