Edexcel A · Theme 3: Business behaviour and the labour market · 3.1 Business growth
Edexcel A Economics past paper questions: Business growth
Every Edexcel A question on Business growth from 2017 to 2025: 1 essay, 9 data response questions, 4 short answer questions and 4 multiple choice questions. It covers Revenues, costs and profits, Market structures, Labour market and Government intervention in markets. Each question links to its paper, mark scheme and examiner report.
SubtopicsRevenues, costs and profits 4Market structures 3Labour market 2Government intervention in markets 1
Essay questions on business growth
‘Revenue maximisation is a more realistic business objective than profit maximisation for many businesses.’ To what extent do you agree with this statement? Refer to an industry of your choice in your answer.
Examiner insight
- What to cover
- Contrast profit maximisation where MC equals MR with revenue maximisation where MR is zero. Explain the divorce of ownership from control, manager incentives and market share aims, applied to a named industry.
- Watch out
- Revenue maximisation is where marginal revenue is zero, not where profit is greatest, and a named industry is required.
Data response questions on business growth
Case study: Digital markets
Discuss the likely benefits of mergers for firms such as Microsoft.
Examiner insight
- What to cover
- Identify the merger type. Explain economies of scale lowering long run average cost, greater market power allowing higher prices, access to exclusive content or technology, and reduced risk through diversification.
- Watch out
- Writing about benefits to consumers when the question asks about benefits for the firms.
Case study: The electronics industry
With reference to Extract A, explain the likely reasons for the change in price of electronic devices. Include a supply and demand diagram in your answer.
Examiner insight
- What to cover
- Take the reasons from Extract A. Better technology, economies of scale or cheaper components shift supply right and lower price, while component shortages shift supply left and raise it. State the direction the extract supports.
- Watch out
- Giving textbook reasons for price changes instead of taking them from Extract A.
Case study: The electronics industry
Discuss the likely concerns of the competition authorities regarding the proposed merger of the two companies referred to in Extract C.
Examiner insight
- What to cover
- Identify the merger type from Extract C. Explain the competition authority worry that a higher concentration ratio gives market power, so price rises above marginal cost, choice narrows and entry barriers rise for rivals.
- Watch out
- Not stating whether the merger is horizontal, vertical or conglomerate, which drives the competition concern.
Case study: UK branded coffee shop chains market
Using a cost and revenue diagram, discuss the likely impact of ‘rising costs’ for coffee shops on their profitability (Extract A, line 2).
Examiner insight
- What to cover
- Rising wages, rent and bean prices raise average and marginal cost. Explain that unless firms pass costs on, the profit maximising output falls and supernormal profit shrinks, so coffee shop profitability falls.
- Watch out
- Drawing only a supply and demand diagram when the question asks for a cost and revenue diagram of the firm.
Case study: UK branded coffee shop chains market
With reference to the information provided, discuss whether the coffee shop market is contestable.
Examiner insight
- What to cover
- Define contestability as low barriers to entry and exit with low sunk costs. Apply to coffee shops: premises can be leased, equipment resold and independents enter easily, so hit and run entry is possible.
- Watch out
- Judging contestability by the number of firms already trading rather than by freedom of entry and exit.
Case study: The travel and tourism industry
Explain the likely impact of diminishing marginal productivity of labour on cabin crew staffing levels. Refer to Extract A in your answer.
Examiner insight
- What to cover
- Define diminishing marginal returns with the aircraft fixed in the short run. Each extra cabin crew member adds less extra output, so marginal cost rises and the airline stops adding crew, as Extract A suggests.
- Watch out
- Confusing diminishing marginal returns, a short run idea, with diseconomies of scale, which is long run.
Case study: The travel and tourism industry
With reference to Extract C, assess whether Thomas Cook’s failure was caused by the principal-agent problem.
Examiner insight
- What to cover
- Define the principal agent problem and asymmetric information. Explain how Thomas Cook managers chasing bonuses, revenue growth and acquisitions rather than shareholder value could build up debt and costs that led to collapse.
- Watch out
- Defining the principal agent problem without linking it to specific evidence in Extract C.
Case study: The travel and tourism industry
With reference to the information provided, discuss the decision by Jet2 to increase its package holiday prices.
Examiner insight
- What to cover
- Link the price rise to price elasticity of demand and market structure. Thomas Cook's exit cut competition and raised Jet2's market power, and if demand is inelastic higher prices raise revenue and cover rising costs.
- Watch out
- Assuming a price rise always raises revenue without judging the price elasticity of demand for package holidays.
Case study: Supermarket price war, food waste and possible mergers
Discuss the likely problems for Sainsbury’s and Morrisons if the suggested merger between them goes ahead. Refer to Figure 1, Extract C and your own knowledge in your answer.
Examiner insight
- What to cover
- Set out problems for the two firms: diseconomies of scale, clashing cultures and IT systems, integration cost, a CMA investigation with forced store disposals, and reputational damage. Use Figure 1 and Extract C.
- Watch out
- The problems asked for are those facing Sainsbury's and Morrisons, not those facing consumers or suppliers.
Short answer questions on business growth
Draw a cost and revenue diagram to illustrate the different business objectives: profit maximisation and revenue maximisation.
Over 90% of nurses work in the public sector. Nurses in the public sector have experienced wage rises lower than those in the private sector over the past 10 years. (Source adapted from: https://www.nuffieldtrust.org.uk/resource/chart-of- the-week-real-terms-nhs-staff-pay-from-2010-to-2020) Using the information provided and the concept of monopsony, explain why nurses in the public sector have had lower wage rises than those in the private sector.
Explain one likely concern the EU competition authorities may have had about the merger.
Explain why the previous expansion of this business could be described as ‘organic growth’.
Multiple choice questions
- A-level Paper 1, June 2023, Q5(a)
Which one of the following is the ratio of public sector pay relative to private sector pay in 2022?
- A-level Paper 1, June 2022, Q5(a)
Which one of the following best describes the merger of the makers of Fiat cars and Vauxhall cars?
- A-level Paper 1, November 2020, Q5(c)
Assume ‘Bettys’ merges with a major tea leaf supplier. Which one of the following is most likely to be an advantage as a result of this merger?
- A-level Paper 1, June 2018, Q4(b)
Emily now decides to change her objective from revenue maximisation to sales maximisation. This change will lead to:
Question text is quoted from the question papers, © Pearson Edexcel, for students’ private study. Open the official papers and mark schemes from the links on each question. Examiner insights are written with AI assistance and moderated by Finn.