Cambridge International AS and A Level Economics: Firms' objectives and pricing (9708) – 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.

These questions cover syllabus section 7.8 (Differing objectives and policies of firms), outcomes 7.8.1 to 7.8.5, in the Cambridge International AS and A Level Economics 9708 syllabus for examination in 2026, 2027 and 2028. Topic 7 is A Level content only. All firms and figures are invented for illustration; money is in “mu” (money units).

Related pages: the study guide, the revision notes, the Cambridge A Level Economics hub, the checklist and the free 10-minute diagnostics.

Questions

1. Firm Z’s weekly figures are in the table.

Output	1	2	3	4	5	6
Total revenue	40	76	108	136	160	180
Total cost	30	50	72	98	130	170

(a) Calculate MR and MC for each output and state the profit-maximising output and its profit. [3] (b) Explain why producing 5 units is not profit-maximising. [1]

2. Explain (a) survival and (b) profit satisficing as objectives of a firm, giving one reason a firm might adopt each. [4]

3. Firm Y faces demand P = 104 - 4Q and has total cost TC = 200 + 24Q.

(a) Calculate the profit-maximising output, price and profit. [3] (b) Calculate the output and profit if the firm maximises revenue. [2] (c) Suggest one reason managers might prefer the output in (b). [1]

4. A consultant has four potential clients willing to pay at most 70, 58, 46 and 34 mu. MC is constant at 30 mu.

(a) Find the best single price and the profit it earns. [3] (b) Calculate profit under first degree price discrimination. [2]

5. A supplier charges 6 mu a unit for the first 50 units, 4 mu for the next 50 and 2.50 mu for each unit above 100.

(a) Calculate the total paid and the average price for a buyer of 130 units. [2] (b) Explain why this is second, not third, degree price discrimination. [2]

6. A firm sells in market A (P = 60 - 2Q) and market B (P = 28 - 2Q). MC is 4 mu and the firm can stop resale between markets.

(a) Find the profit-maximising output and price in each market. [4] (b) Calculate PED in each market at those prices. [2] (c) Calculate total profit. [1] (d) Explain why the price is higher in market A. [1]

7. “Price discrimination always harms consumers.” Evaluate this statement. [8]

8. An incumbent faces market demand P = 90 - Q and has MC = AC = 30 mu. A potential entrant’s lowest AC is 50 mu.

(a) Calculate the incumbent’s price, output and profit if it ignores entry. [3] (b) Find the profit if it sets a limit price of 49 mu. [2] (c) Explain why it might choose the limit price. [1]

9. (a) Explain what is meant by predatory pricing and why it may not be profitable. [3] (b) Explain price leadership and one effect on consumers. [3]

10. The demand for a product is Q = 120 - 4P.

(a) Calculate PED at a price of 20 mu. [2] (b) Find the price that maximises total revenue and state PED there. [2] (c) The firm cuts price from 10 mu to 5 mu. Calculate the effect on total revenue and advise the firm. [2]

11. An oligopolist charges 12 mu and sells 100 units. A rise to 13.5 mu would cut sales to 80. A fall to 10.8 mu would raise sales to 104.

(a) Calculate PED for each price change. [2] (b) Calculate total revenue after each change. [2] (c) Explain what this suggests about the price. [1] (d) State one limitation of the kinked demand model. [1]

Answers

1. (a) MR = 40, 36, 32, 28, 24, 20 and MC = 30, 20, 22, 26, 32, 40 [1]. MR exceeds MC up to 4 units, but at 5 units MR is 24 and MC is 32 [1]. Output is 4 units, with profit 136 - 98 = 38 mu [1]. (b) The fifth unit adds 24 to revenue but 32 to cost, so profit falls from 38 to 30 [1]. Examiner insight: Compare MR with MC unit by unit, and quote both numbers. Choosing the output with the highest revenue is the common wrong answer.

2. (a) Survival means staying in business, which needs price to cover AVC in the short run and all costs in the long run [1]. A firm may choose it in a price war or recession [1]. (b) Satisficing means aiming for a satisfactory profit rather than the maximum [1]. It can occur when managers differ from owners and have other aims such as an easier working life [1]. Examiner insight: Define each objective, then give a reason. A definition alone tends to leave the second mark unearned.

3. (a) MR = 104 - 8Q and MC = 24, so Q = 10 [1]. P = 104 - 40 = 64 [1]. Profit = 640 - (200 + 240) = 200 mu [1]. (b) MR = 0 gives Q = 13 [1]. TR = 52 × 13 = 676 and TC = 512, so profit = 164 mu [1]. (c) Managers’ pay or status may depend on turnover or market share [1]. Examiner insight: Show the MR expression before solving. Note the profit given up (36 mu) when comparing objectives.

4. (a) Profits at prices 70, 58, 46 and 34 are 40, 56, 48 and 16 [1]. The best price is 58 mu, selling to 2 clients [1], profit 2 × 28 = 56 mu [1]. (b) Revenue = 70 + 58 + 46 + 34 = 208 and cost = 4 × 30 = 120 [1], so profit = 88 mu [1]. Examiner insight: Test each possible price in a table. Testing only the highest and lowest prices misses the maximum.

5. (a) Total = 50 × 6 + 50 × 4 + 30 × 2.50 = 300 + 200 + 75 = 575 mu [1]. Average = 575/130 = 4.42 mu [1]. (b) The price depends on the quantity bought, and any customer can reach any block [1]. Third degree would charge different groups of buyers with different PEDs [1]. Examiner insight: Say what the price depends on. Naming the degree without the basis of the price gains little.

6. (a) A: MR = 60 - 4Q = 4, so Q = 14 [1] and P = 32 [1]. B: MR = 28 - 4Q = 4, so Q = 6 [1] and P = 16 [1]. (b) PED at A = (1/2) × 32/14 = 1.14 [1]. PED at B = (1/2) × 16/6 = 1.33 [1]. (c) Profit = 14 × 28 + 6 × 12 = 392 + 72 = 464 mu [1]. (d) Demand is less elastic in A, so a higher price loses fewer sales [1]. Examiner insight: Use MR = MC in each market, not the demand-curve intercept. State which market is less elastic by quoting your PED values.

7. Credit for balanced points, such as:

• The firm gains extra revenue and profit [1].
• The group with inelastic demand pays more and loses consumer surplus [1].
• The price-sensitive group pays less and may be served only because of discrimination [1].
• Output can rise, which improves allocative efficiency [1].
• With linear demand and constant MC output may be unchanged, so welfare can fall [1].
• Profits may fund investment or cross-subsidise a service [1].
• First degree removes all consumer surplus yet pushes output to where P = MC [1].
• Judgement: the statement is too strong; the effect depends on the degree, on whether output rises and on who pays more [1]. Examiner insight: An evaluation needs a judgement that depends on a stated condition. A list of effects with no verdict is a common weakness.

8. (a) MR = 90 - 2Q = 30, so Q = 30 [1], P = 60 [1], profit = 30 × 30 = 900 mu [1]. (b) At P = 49, Q = 41 [1] and profit = 19 × 41 = 779 mu [1]. (c) It gives up 121 mu a period to keep the entrant out, which pays if entry would cut profit by more over time [1]. Examiner insight: Compare the two profits and say what the firm is getting in exchange. Limit pricing is not pricing below cost.

9. (a) Pricing below cost [1] to force out a rival or deter entry [1]. It makes losses now, so it pays only if the firm can raise prices later because barriers stop re-entry [1]. (b) One firm changes its price and others follow [1]. Rivals follow to avoid losing share or starting a price war [1]. Consumers may face higher prices if it becomes tacit collusion [1]. Examiner insight: For predatory pricing, state the cost the price is below. A price cut alone is not enough.

10. (a) At P = 20, Q = 40 [1]. PED = (4 × 20)/40 = 2 [1]. (b) TR = P(120 - 4P) is highest at P = 15 (Q = 60, TR = 900), where PED = 1 [1][1]. (c) Q rises from 80 to 100, so TR falls from 800 to 500 [1]. Demand is inelastic (PED = 0.5), so the firm should not cut the price [1]. Examiner insight: A PED value needs its price and quantity. Show the revenue figures before and after.

11. (a) Rise: %ΔQ = -20% and %ΔP = +12.5%, so PED = 1.6 [1]. Fall: %ΔQ = +4% and %ΔP = -10%, so PED = 0.4 [1]. (b) After the rise TR = 13.5 × 80 = 1,080 [1]. After the fall TR = 10.8 × 104 = 1,123.2 [1]. Both are below 1,200. (c) Either change cuts revenue, so the firm leaves price at 12 [1]. (d) It does not explain how the price of 12 was set, or rivals may not respond as assumed [1]. Examiner insight: Compare each new revenue with the starting revenue. The conclusion about price stability needs both changes.

Where marks are usually lost

• Using the revenue-maximising output as the profit-maximising one.
• Quoting MR = MC without the numbers to show it.
• Saying satisficing means “making no profit”.
• Confusing sales maximisation with revenue maximisation.
• Defining third degree discrimination as “different prices for different customers” with no mention of PED.
• Forgetting that discrimination needs separated markets.
• Describing limit pricing as pricing below cost.
• Stating PED without a formula or sign convention.

Next steps

• Revisit the revision notes and the study guide.
• Check your coverage on the checklist and the course hub.
• Take the free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

Cambridge International AS and A Level Economics (9708) syllabus for examination in 2026, 2027 and 2028, published by Cambridge University Press & Assessment, section 7.8.