Senior Secondary (HKDSE) · Economics

The objectives of firms: Practice Questions

3 multiple-choice questions marked as you go, and 3 written questions with worked solutions. All on The objectives of firms.

6 questions16 marksFree, no account

Question 1

1 mark

Which of the following describes the behavior of a profit-maximizing firm that is a price-taker?

Question 2

1 mark

A price-taking firm faces a market price of $\$50$. The following table shows its marginal cost (MC) schedule:

Output (units): 1, 2, 3, 4, 5
MC (\$): 30, 40, 50, 65, 85

Assuming the firm aims to maximize profit and its profit is positive, what is its optimal output level?

Question 3

1 mark

A price-taking firm in a competitive market currently produces a level of output where its marginal cost is $\$50$. The market price of its product is also $\$50$. If the market price increases to $\$65$ while all its costs remain unchanged, which of the following is the most likely response of the firm, assuming it aims to maximize its total profit?

Question 4

2 marks

Apart from profit maximization, list TWO other possible objectives that a firm might pursue in a modern economy.

Write your answer out first, then check it against the worked solution.

Question 5

5 marks

Explain how the objective of providing non-profit making services, such as a private hospital offering free community clinics, affects a firm's marginal cost and its output level compared to a pure profit-maximizer.

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Question 6

6 marks

Suppose a firm changes its objective from profit maximization to sales revenue maximization (without any profit constraint). If the market price is constant, how will the firm's output level change? Explain.

Write your answer out first, then check it against the worked solution.

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