OCR A Level Economics
OCR A Level Economics Business Objectives Exam Questions
Free OCR A Level Economics exam questions for Business Objectives, with a mark scheme for every pack. Covers costs, revenue and profit, economies of scale, business objectives such as profit maximisation, revenue and sales maximisation and satisficing.
Business Objectives exam questions
1 question pack of real past exam questions, each with its mark scheme. Do not stop after a few: answer as many as you can without notes, then mark every answer with the mark scheme. The more questions you do, the more quickly you will spot how examiners ask about each idea.
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A-Level Economics Flashcards for 2027 Onwards
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About OCR A Level Economics Business Objectives
Business Objectives is part of the Microeconomics content in OCR A Level Economics. It explains how firms' costs and revenues behave in the short and long run, why profit is maximised where marginal cost equals marginal revenue, and why some firms pursue other objectives. You study the law of diminishing returns, economies and diseconomies of scale, normal and supernormal profit, and shutdown points. The topic is essential for analysing market structures, because each structure combines these cost and revenue curves with a particular demand curve. Examiners test calculations from tables, accurate cost curve diagrams and evaluation of why firms might not maximise profit.
What you need to know
- Revenue Total revenue = price x quantity, average revenue = TR / Q and marginal revenue = change in TR / change in Q. When AR slopes downwards, MR lies below AR.
- Short-run costs Fixed and variable costs, average and marginal costs. Diminishing marginal returns explain the shape of the short-run MC and AC curves; MC cuts AC and AVC at their minimum points.
- Long-run costs Internal and external economies of scale, diseconomies of scale, minimum efficient scale and the U-shaped or L-shaped LRAC curve.
- Profit Normal profit is the minimum required to keep resources in their current use; supernormal profit is above that. Short-run shutdown when price is below AVC; long-run exit when price is below AC.
- Business objectives Profit maximisation (MC = MR), revenue maximisation (MR = 0), sales or volume maximisation subject to a profit constraint, and satisficing. The divorce of ownership and control and the principal-agent problem explain alternative objectives.
Common mistakes in Business Objectives
- Using diminishing returns to explain the LRAC curve. Diminishing returns are short-run; the LRAC shape comes from economies and diseconomies of scale.
- Putting profit maximisation where TR is highest. Profit is highest where MC = MR; revenue is highest where MR = 0.
- Ignoring the role of stakeholders. Workers, consumers and the local community may influence a firm's objectives.
- Calculating MC from total costs at a single output. MC is the change in total cost from producing one more unit.
- Thinking a firm making a loss must shut down immediately. In the short run it continues if price covers AVC.
Try three Business Objectives exam-style questions
1. A firm sells 100 units at 12 pounds each. To sell 101 units it must cut the price to 11.95 pounds. Calculate marginal revenue of the 101st unit. (2 marks)
Show the mark scheme answer
TR at 100 = 1,200 pounds; TR at 101 = 101 x 11.95 = 1,206.95 pounds; MR = 6.95 pounds.
2. Explain why a firm might satisfice rather than maximise profit. (4 marks)
Show the mark scheme answer
Divorce of ownership and control means managers seek a satisfactory profit while pursuing their own goals; owners need only a minimum level of profit to stay satisfied; firms may balance the interests of several stakeholders; lack of information makes it hard to identify the profit maximising point.
3. Explain two diseconomies of scale a large firm may experience. (4 marks)
Show the mark scheme answer
Communication problems as layers of management increase; coordination and control problems; low motivation and alienation of workers; each raises average costs as output increases.
Business Objectives FAQs
What does OCR A Level Economics Business Objectives cover?
It covers revenue, costs and profit in the short and long run, economies and diseconomies of scale, and the different objectives firms may pursue.
Which paper is Business Objectives examined in?
It is examined in Paper 1, Microeconomics (H460/01) and may also be drawn on in Paper 3, Themes in Economics.
What are the key rules for business objectives?
Profit maximisation is where MC = MR, revenue maximisation is where MR = 0, and a firm should shut down in the short run if price falls below average variable cost.
