AQA A-level Economics: Market structures and the objectives of firms (7136) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

The questions are written to the AQA economics specification (AS and A-level combined, version 1.3 of 29 June 2022, first teaching September 2015), sections 3.1.5.1 Market structures and 3.1.5.2 The objectives of firms (printed as 4.1.5.1 and 4.1.5.2 in the combined PDF). Every firm and number is made up. Read the study guide and revision notes first. Related: the economics hub for AQA A-level, a checklist to print and the short diagnostics.

Questions

1. Define what is meant by a divorce of ownership from control. [2]

2. Market K has 2 firms selling 90% of all output. Their products differ in design, and a new firm would need a very costly plant and a licence. Market L has 300 sellers of the same product, and entry is easy. Identify the market structure nearest to each and justify each choice using all three factors that distinguish structures. [4]

3. Firm C faces the demand and cost schedule below (money in pounds, Q in units).

Q	0	1	2	3	4	5	6	7
Price		44	40	36	32	28	24	20
Total cost	30	50	66	80	94	110	130	156

Calculate marginal revenue and marginal cost for each unit, identify the profit-maximising output and calculate the maximum profit. [5]

4. A firm made sales of £9.6 million in a market worth £80 million. Next year its sales rise by 25% and the market grows by 10%. Calculate the firm’s market share in each year, giving the second to one decimal place. [3]

5. Explain two ways in which a divorce of ownership from control may affect the objectives of a firm. [4]

6. Firm E has the demand P = 72 − 2Q and total cost TC = 36 + 6Q + Q², with Q in thousands of units and money in thousands of pounds.

(a) Find the output, price and profit when profit is maximised. [3] (b) Find the output, price and profit if the firm maximises sales revenue. [3]

7. Explain why managers of a large company might satisfice rather than maximise profit, and state one effect on output. [4]

8. Firm H has the demand P = 70 − 2Q and total cost TC = 40 + 10Q + Q² (Q in hundreds, money in thousands of pounds).

(a) Work out the output that maximises profit, with the price and profit at that output. [3] (b) The firm improves product quality. Demand becomes P = 72 − 2Q and cost becomes TC = 40 + 18Q + Q². Calculate the new maximum profit and state what it implies about the firm’s objective if it goes ahead. [2]

9. Distinguish between the objectives of survival and growth for a firm. [4]

10. Firm G has the demand P = 100 − 2Q and total cost TC = 60 + 10Q + Q² (Q in thousands, money in thousands of pounds). Shareholders have hired managers whose pay depends on sales revenue.

(a) Find the output, price and profit when the firm maximises profit. [3] (b) The managers maximise revenue but shareholders require profit of at least 600. Using the table below, identify the output chosen and its revenue. [3] (c) State the profit given up and one effect on consumers. [2]

Q	14	15	16	17	18
Profit	612	615	612	603	588

11. “Because of the divorce of ownership from control, large firms no longer try to maximise profit.” Evaluate this statement. [9]

Answers

1. The owners of the firm (shareholders) are different people from those who run it [1]. Decisions are made by managers rather than by the owners [1]. [2] Examiner insight: Answers that only say “owners and managers are different” tend to be thin. Show who controls decisions.

2. Market K: oligopoly [1], because there are few firms with a high combined share, differentiated products and high barriers (cost and licence) [1]. Market L: close to perfect competition [1], because there are many sellers, an identical product and easy entry [1]. [4] Examiner insight: Naming the structure earns little unless each choice is backed by evidence from the stem on number, differentiation and entry.

3. Price × Q gives TR of 44, 80, 108, 128, 140, 144, 140, so MR is 44, 36, 28, 20, 12, 4, −4 [1]. MC from the total cost column is 20, 16, 14, 14, 16, 20, 26 [1]. MR is above MC up to the 4th unit (20 against 14) and below it at the 5th (12 against 16) [1]. Profit-maximising output is 4 units [1]. Profit = 128 − 94 = £34 [1]. [5] Examiner insight: Show the MR and MC lines and compare them unit by unit. A correct output without comparison is hard to justify, and the profit step is easy to miss.

4. Year 1 share = 9.6 / 80 = 12.0% [1]. Year 2 sales = 9.6 × 1.25 = 12.0 and the market = 80 × 1.10 = 88 [1]. Share = 12.0 / 88 = 13.6% [1]. [3] Examiner insight: Apply the growth to the market as well as the firm. Using 12.0 / 80 is a common slip.

5. First, managers may pursue growth or sales revenue because these raise their pay and status [1], whereas shareholders want profit, so the objective moves away from profit maximisation [1]. Second, managers may choose to protect themselves with safe, steady results or generous staff benefits [1], which raises costs and lowers profit below the maximum [1]. [4] Examiner insight: Each way needs a developed link from managers’ motives to the change in objective. Listing “growth, revenue” with no reason stays at one point.

6. (a) MR = 72 − 4Q and MC = 6 + 2Q [1]. Setting them equal gives Q = 11, then P = 72 − 22 = £50 [1]. TR = 550, TC = 36 + 66 + 121 = 223, profit = £327 thousand [1]. (b) MR = 0 gives Q = 18 [1], P = 72 − 36 = £36 [1]. TR = 648, TC = 36 + 108 + 324 = 468, profit = £180 thousand [1]. [6] Examiner insight: Use MC = MR for profit and MR = 0 for revenue. Answers that apply MC = MR to both parts lose the contrast.

7. Managers lack exact knowledge of MC and MR [1], and must balance several groups such as shareholders and staff [1], so they aim for a target level of profit and stop searching once it is met [1]. Output may therefore differ from the MC = MR level, with less pressure to cut costs or find the best output [1]. [4] Examiner insight: Give the reason before the effect. A bare definition of satisficing does not answer “why”.

8. (a) MR = 70 − 4Q and MC = 10 + 2Q give Q = 10 [1], P = £50 [1], profit = 500 − 240 = £260 thousand [1]. (b) New MR = MC: 72 − 4Q = 18 + 2Q, Q = 9, P = 54, TR = 486, TC = 283, profit = £203 thousand [1]. Profit falls by 57, so the firm gives up profit for quality, which suggests an objective other than profit maximisation (or a longer-term view) [1]. [5] Examiner insight: Finish the sentence on what the numbers imply. The question asks for the objective, not only a profit figure.

9. Survival means keeping the firm in business, often by covering its costs when conditions are hard [1]. Growth means increasing the firm’s size, sales or capital [1]. Survival is defensive and short-run [1], while growth is expansionary, may be financed from profit and may reduce current dividends [1]. [4] Examiner insight: Answers to “distinguish” gain from stating the contrast between the two, not just defining each in isolation.

10. (a) MR = 100 − 4Q and MC = 10 + 2Q give Q = 15 [1], P = £70 [1], profit = 1050 − 435 = £615 thousand [1]. (b) Output of 17 has profit 603, which is above 600, and 18 has 588, which is below [1]. The managers choose Q = 17 [1], where P = 66 and TR = 1122 [1]. (c) Profit given up = 615 − 603 = £12 thousand [1]. Consumers get more output (17 against 15) at a lower price (£66 against £70) [1]. [8] Examiner insight: Use the table to find the highest output that still meets the profit floor. Stopping at 15, the profit-maximising output, misses that revenue still rises beyond it.

11. Points for the statement: shareholders are dispersed and cannot monitor managers [1], managers may seek growth, revenue or perks [1], and the evidence of higher costs shows profit may fall short of the maximum [1]. Points against: shareholders use controls such as share options and voting [1], takeover threat disciplines poor performers [1], and managers who own shares or are paid on profit gain from maximising it [1]. Further context: the answer depends on the size of the firm, the competitiveness of the market and whether the firm has a long-term plan [1]. The statement is too strong because “no longer” overstates the case, so managers’ behaviour is more likely partly profit-seeking and partly satisficing [1]. A reasoned judgement with justification [1]. [9] Examiner insight: Evaluation gains when you weigh both sides and reach a justified judgement using context such as size, competition and controls, instead of listing points.

Where marks are usually lost

• Naming a market structure with no evidence on number of firms, differentiation and entry.
• Reading MR and MC from the wrong curves or mixing total and marginal values.
• Reading price from the MR or MC curve instead of the demand curve.
• Using MC = MR for revenue maximisation instead of MR = 0.
• Forgetting to apply growth to both the firm and the market in a market share calculation.
• Describing the divorce of ownership from control without linking it to objectives, conduct and performance.
• Treating every effect as harmful, with no controls or benefits.
• Defining satisficing as “no profit” or “loss-making”.

Next steps

• Review the revision notes and the study guide.
• Practise wider microeconomics with the microeconomics practice set.
• Tick off progress on the printable checklist and see the course hub.
• Take the free 10-minute diagnostics.
• To have a teacher mark your working, book a free trial class.

Official syllabus

Source: the AQA AS and A-level Economics specification (combined AS and A-level document), version 1.3, 29 June 2022. Content tested here: 3.1.5.1 and 3.1.5.2, printed as 4.1.5.1 and 4.1.5.2 in the PDF.