Lesson 4.1.5.2
4.1.5.2 The objectives of firms Quiz: AQA Economics, Unit 1
20 questions
In partnership with Revision Ninja
Lesson 4.1.5.2, The objectives of firms: 20 multiple choice questions for the AQA Economics (7136), Unit 1: Individuals, firms, markets and market failure, written with Revision Ninja.
Host it live on the board and students join with a game code on their own devices, or revise alone with Free Play. The answers are revealed in the game.
The 20 questions
-
The traditional theory of the firm assumes that firms aim to:
- Maximise market share
- Maximise profits
- Maximise sales revenue
- Maximise employment
-
The profit-maximising rule is:
- AC = AR
- MC = MR
- MC = AC
- MR = AR
-
The divorce of ownership from control means that:
- Owners sell the firm to the government at a fixed price
- Firms no longer have to report their profits to anyone
- Shareholders own the firm, but managers make day-to-day decisions that may differ from owners' profit goals
- Managers own the firm, while shareholders decide prices and output in every market
-
The satisficing principle suggests that managers:
- Maximise profit only in the short run and ignore the long run, cutting investment in every period so that profit is high now
- Aim for an acceptable level of profit or other goals rather than the maximum possible
- Set output at the level where average cost is minimised in every period
- Ignore all objectives other than sales growth, and set price and output only to increase the number of units sold each year
-
Which is an alternative objective a firm may pursue?
- Charging a price below marginal cost permanently
- Minimising the number of employees to cut all costs
- Avoiding any contact with customers and suppliers
- Growth through increasing its market share
-
A firm's marginal revenue is £9 and its marginal cost is £11 at its current output. To maximise profit it should:
- Raise its price, since marginal cost exceeds marginal revenue at all outputs
- Reduce output, since the last unit costs more to make than it brings in
- Increase output, since marginal revenue is below marginal cost
- Keep output unchanged, since marginal revenue equals average revenue
-
A firm's marginal revenue and marginal cost are both £15 at its current output. This means:
- Profit cannot be determined without knowing fixed costs
- The firm should cut output until marginal cost is zero
- The firm should increase output until marginal revenue is zero
- The firm is at the profit-maximising output
-
Why might a sales-maximising firm produce more output than a profit-maximising firm?
- It minimises average fixed costs at its sales-maximising output, so that it spreads its overheads across as many units as possible
- It aims to produce where marginal cost is zero
- It aims to sell where marginal revenue is zero, which is at a higher output than the profit-maximising level
- It always charges a lower price than its profit-maximising rival, so its prices are below those of the profit maximiser in every period
-
Which is a consequence of the divorce of ownership from control?
- Firms automatically become price takers in every market
- The firm is certain to leave the market within a year
- Shareholders always receive the maximum possible dividend from the firm
- Managers may pursue growth or security rather than profit, so performance may fall short of profit maximisation
-
Quality as a firm objective is best described as:
- Reducing product quality in every period to cut costs
- Guaranteeing an identical specification in all markets
- Avoiding any investment in product improvements, since the firm prefers to keep its existing product unchanged for as long as possible
- Improving the product or service, which can build loyalty and support higher prices
-
A firm sets a price that gives it 'enough' profit and then stops searching for more. This is best explained by:
- Divorce of ownership from control
- Profit maximisation
- Price discrimination between consumer groups
- Satisficing
-
Which evaluative point suggests that profit maximisation may not describe real firm behaviour well?
- Profit maximisation may not describe real firm behaviour well because it ignores the costs of collecting data and so is never measured
- Firms never know their costs
- Managers always have perfect information about demand and so never make mistakes, which means profit is always at its maximum level
- Managers have limited information and other goals, so firms may satisfice rather than optimise
-
A firm wants to increase its market share. Which action is most consistent with this aim?
- Cutting prices or increasing advertising to attract customers from rivals
- Raising prices sharply to reduce customer numbers
- Reducing output to limit total sales, which lowers the number of units the firm must produce and so reduces the risk of unsold stock
- Ignoring rival firms' prices altogether
-
Total revenue is £120,000 at output 1,000 and £130,000 at output 1,100. The marginal revenue of the extra 100 units is:
- £1,200 per unit
- £100 per unit
- £10 per unit
- £130 per unit
-
A manager's bonus is linked to sales revenue rather than profit. This may cause the firm to:
- Maximise average profit per unit sold
- Fix its price at the level of marginal cost, so that every unit sold just covers its direct cost and no margin is kept by the firm
- Minimise total costs at all times, which means that the firm cuts output and staff as far as it can in every period of the year
- Produce more output and charge a lower price than a profit maximiser would
-
Why might a firm pursue survival as its main objective?
- In uncertain or competitive conditions, staying in business may matter more than maximising short-run profit
- Firms prefer to close when they are profitable
- Survival is only relevant to public-sector organisations
- Survival always means maximising profit in the next year
-
Which statement about satisficing and profit maximisation is true?
- Both imply the same level of output by definition
- Profit maximising requires no information about demand
- Satisficing always implies lower costs than profit maximising
- Satisficing aims for a satisfactory target, whereas profit maximising aims for the highest possible profit
-
Why might managers prefer growth to profit maximisation?
- Growth can raise managers' salaries, status and job security, but it always reduces the risk of takeover by shareholders in every case
- Growth can raise managers' salaries, status and job security
- Growth always reduces the risk of takeover to zero, so managers who pursue growth never have to worry about losing control of the firm
- Growth is only possible with a government licence
-
Which combination is most consistent with a firm aiming for market share growth?
- Reduced output and higher average costs
- Exit from the market in order to maximise profit
- A higher price and lower advertising spending
- A lower price and higher advertising spending
-
Why might a firm's objectives conflict with the interests of consumers?
- A profit-focused firm may restrict output and charge higher prices, whereas consumers want low prices and high quality
- Consumers prefer firms that maximise sales revenue rather than profit
- Firm objectives never affect the prices consumers pay
- Consumers always benefit when firms maximise profit
Related quizzes
- Economic methodology Quiz · 4.1.1.1 · 20 questions
- The nature and purpose of economic activity Quiz · 4.1.1.2 · 20 questions
- Economic resources Quiz · 4.1.1.3 · 20 questions
- Scarcity, choice and the allocation of resources Quiz · 4.1.1.4 · 20 questions
- Production possibility diagrams Quiz · 4.1.1.5 · 20 questions
- Consumer behaviour Quiz · 4.1.2.1 · 20 questions
- Imperfect information Quiz · 4.1.2.2 · 20 questions
- Aspects of behavioural economic theory Quiz · 4.1.2.3 · 20 questions
- Behavioural economics and economic policy Quiz · 4.1.2.4 · 20 questions
- The determinants of the demand for goods and services Quiz · 4.1.3.1 · 20 questions