Edexcel A Level Economics Exam
Questions Paper 3 (Theme 1, 2, 3 + 4)
2024 with 100% Correct Answers
Principal-agent Problem - Answer>>Principal (Shareholders)
has different objectives to Agent (Manager) but the Agent is
inclined to act in order to achieve their own objectives.
Public sector organisation - Answer>>When the government
has control over the Business
Private sector organisation - Answer>>Firms are led by private
individuals and left to the free market to dictate
Profit organisation - Answer>>A profit organisation aims to
maximise the financial benefits of its shareholders and
organisations
Not-for-profit organisation - Answer>>A not-for-profit
organisation has a goal which aims to maximise social welfare.
They can make profits but they can only be reinvested back into
the business/used for a good cause or operation of the
organisation
Vertical Integration - Answer>>Occurs when a firm merges with
or takes over another firm in the same industry, but a different
stage of production.
Forward vertical integration - Answer>>When the firm joins
together with another firm closer to the consumer e.g coffee
producer buying a café where coffee is produced
Backward Vertical Integration - Answer>>When the firm joins
together with another firm closer to the producer - this involved
,gaining control over suppliers e.g coffee producer buying a coffee
farm
Horizontal integration - Answer>>Merger of two firms in the
same industry in the same stage of production e.g two car
manufacturers merging to create one company e.g Tmobile and
Orange created EE
Conglomerate Integration - Answer>>Two completely different
firms with no connection joining together e.g Associated British
Foods owns Primark - no association
Organic Growth - Answer>>When firms growth happens as a
result of increasing output, widening customer base - internal
growth. Investing into re-search and development
Demerger - Answer>>A demerger is when a large firm is
deprecated into multiple smaller firms e.g a Conglomerate breaks
up
Profit Maximisation - Answer>>Occurs where Marginal Cost =
Marginal Revenue, so each extra unit gives no extra loss or extra
revenue.
Revenue Maximisation - Answer>>Occurs where Marginal
Revenue = 0, so each extra unit sold generates no extra revenue.
Sales Maximisation - Answer>>When the firm aims to sell as
much of their goods and services as possible without making a
loss. It occurs where Average Costs = Average Revenue
Satisficing - Answer>>When the firm is earning just enough
profits to keep shareholders happy with the dividends they
, receive. It occurs when there is a divorce of ownership/control -
principal agent problem
Profit - Answer>>Earning profit is an incentive for entrepreneurs
- it rewards the risk that they take when starting a new business.
Earning profit sends a signal to other entrepreneurs and it will
signal others to enter the market
Normal profit - Answer>>Sufficient profit is made to reward the
factors of production used. It occurs when Total Revenue = Total
Cost (Breakeven)
Supernormal profit - Answer>>Any profit earned in addition to
normal profit. When firms make supernormal profit this will attract
more firms to enter the market hoping to generate it too
Total Revenue - Answer>>The Revenue received from the sale
of a given level of output. It is calculated by price x quantity sold
Average revenue - Answer>>The average receipt per unit. It is
calculated by Total Revenue ÷ Quantity sold
Marginal Revenue - Answer>>The additional revenue which a
firm gains from the sale of one additional unit of output
Internal economies of scale - Answer>>Occur when a firm
becomes larger. Average costs of production fall as output
increases. Examples of internal economies of of scale can be
remembered with "Really Fun Mums Try Making Pies"
External economies of scale - Answer>>Occur within an
industry when it gets larger
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