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Economics

Exam Technique Advice

AS Micro Multiple Choice: Business Objectives

Level:
AS
Board:
AQA, Edexcel, OCR
The main economic objective of firms in a market economy is most likely to be the maximisation of profits

Profits are maximised when the marginal revenue from selling extra output equals the marginal cost of supplying those additional units of output. (MC=MR).

A number of alternative business objectives are often chosen by businesses

  1. Increasing market share in a given industry
  2. Achieving a satisfactory rate of profit sufficient for shareholders but giving freedom to managers to pursue other objectives
  3. Growth maximisation i.e. achieving sufficient profit (normal profit where price = average cost) but with growth of sales and output given the higher importance
  4. Sales revenue maximisation i.e. choosing a price and output combination that maximises total revenue (TR = price per unit x output)

AS micro multiple choice questions often use the following distractors:

  • Achievement of economies of scale (lower unit costs in the long run do help to increase profit)
  • Maximisation of consumer satisfaction (a vague objective)
  • Achievement of an efficient allocation of resources (high profits are often at the expense of economic efficiency)

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