Lesson 3.1.1

3.1.1 Sizes and types of firms Quiz: Pearson Edexcel Economics, Unit 3

20 questions

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Lesson 3.1.1, Sizes and types of firms: 20 multiple choice questions for the Pearson Edexcel Economics (9EC0), Unit 3: Theme 3: Business behaviour and the labour market, written with Revision Ninja.

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The 20 questions

  1. The principal-agent problem arises from the separation of ownership and what?

    • Profit
    • Control
    • Capital
    • Liability

  2. Which entity owns and operates public sector organisations?

    • Venture capitalists
    • Sole traders
    • Private shareholders
    • The state

  3. What does a not-for-profit organisation do with its financial surplus?

    • Pays tax bonus
    • Pays dividends
    • Reinvests it
    • Distributes to owners

  4. Which factor is a primary reason why some firms remain small?

    • High capital access
    • Economies of scale
    • Mass production
    • Niche market

  5. Which key benefit strongly motivates a business to expand its scale?

    • Diminishing returns
    • Diseconomies of scale
    • Economies of scale
    • Principal-agent problem

  6. How is an organisation classified if it reinvests all surpluses back into its cause?

    • Public sector organisation
    • Not-for-profit organisation
    • Private limited company
    • Public limited company

  7. A firm avoids expansion to retain family control. Which constraint on growth is this?

    • Government regulation
    • Owner objectives
    • Access to finance
    • Size of market

  8. What problem occurs when managers pursue goals that differ from those of shareholders?

    • Principal-agent problem
    • Profit maximisation
    • Diseconomies of scale
    • Asymmetric information

  9. What objective typically becomes primary when a public sector firm is privatised?

    • Cost minimisation
    • Revenue neutrality
    • Profit maximisation
    • Social welfare

  10. What is a major advantage of a small firm operating in a niche market?

    • High market share
    • Economies of scale
    • High customer flexibility
    • Low average costs

  11. Why does the principal-agent problem increase as a firm grows larger?

    • Lack of finance
    • Falling demand
    • Regulatory barriers
    • Divorce of ownership

  12. Which organisation primarily focuses on providing a service rather than generating profit?

    • Public limited company
    • Housing association
    • Private equity firm
    • Sole trader

  13. What is the main objective of a state-owned railway providing low-cost transport?

    • Dividend growth
    • Profit maximisation
    • Social welfare
    • Sales maximisation

  14. An owner refuses equity finance to maintain business control. What constrains firm growth?

    • Market size
    • Production capacity
    • Legal regulation
    • Owner objectives

  15. What cost increase can cause large firms to become less efficient than small firms?

    • Diseconomies of scale
    • Diminishing marginal returns
    • Economies of scale
    • Sunk costs

  16. Which incentive scheme best aligns managerial decisions with shareholder objectives?

    • Executive share options
    • Straight hourly wages
    • Redundancy pay
    • Fixed annual salaries

  17. How do not-for-profit firms typically use any financial surpluses they generate?

    • Reinvest in services
    • Pay shareholder dividends
    • Distribute owner bonuses
    • Buy corporate shares

  18. Which method helps reduce conflict between managers seeking growth and shareholders seeking profit?

    • Performance-related pay
    • Horizontal integration
    • Price discrimination
    • Predatory pricing

  19. What market condition is most likely to reduce efficiency in public sector organisations?

    • Lack of competition
    • Foreign ownership
    • High interest rates
    • Excessive regulation

  20. Why might a family business choose not to expand into a larger market?

    • To raise capital
    • To lower costs
    • To retain control
    • To gain monopoly

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