Edexcel A-Level Economics (A)
THEME 3
Business Behaviour and the
Labour Market
STUDENT COMPANION
Author: Geoff Riley
Series Editor: Ruth Tarrant
EDITION DATE: SEPTEMBER 2019
WWW.TUTOR2U.NET/ECONOMICS
,COMPANION CONTENTS
3.1.1 Sizes and Types of Firms .............................................................................................................. 3
3.1.2 Business Growth ........................................................................................................................ 10
3.1.3 De-Mergers................................................................................................................................ 17
3.2.1 Business Objectives ................................................................................................................... 18
3.3.1 Revenue ..................................................................................................................................... 25
3.3.2 Costs .......................................................................................................................................... 29
3.3.3 Economies and diseconomies of scale ...................................................................................... 36
3.3.4 Normal profits, supernormal profits and losses ........................................................................ 43
3.4 1 Economic efficiency ................................................................................................................... 46
3.4.2 Perfect Competition .................................................................................................................. 50
3.4.3 Monopolistic Competition ......................................................................................................... 55
3.4.4 Oligopoly ................................................................................................................................... 59
3.4.5 Monopoly .................................................................................................................................. 70
3.4.6 Monopsony ............................................................................................................................... 79
3.4.7 Contestability ............................................................................................................................ 81
3.5 Labour Market Economics ............................................................................................................ 86
3.5.1 Demand for Labour ................................................................................................................... 87
3.5.2 Supply of Labour ........................................................................................................................ 90
3.5.3 Wage determination in competitive and non-competitive markets ......................................... 96
3.6.1 Government intervention in product markets ........................................................................ 109
3.6.2 The impact of government intervention ................................................................................. 120
Edexcel A-Level Economics Theme 3 Companion www.tutor2u.net/economics Page 2
SCHOOL LICENCE – Copyright Tutor2u
,3.1.1 Sizes and Types of Firms
Key specification content:
• Reasons why some firms tend to remain small and why others grow
• Significance of the divorce of ownership from control: the principal-agent problem
• Distinction between public and private sector organisations
• Distinction between profit and not-for-profit organisations
Public limited
Privately-owned firms Start-Ups State-owned businesses
companies
Co-operatives and
Social enterprises
Partnerships
Different types of firm – key terms and examples
• Firm: A business organisation such as a corporation that produces and sells goods and services in markets.
• Not for profit organisation: Businesses that are operated commercially but with social welfare and
environmental aims in mind. Typically, profits are reinvested for social purpose and social aims.
• Public sector organisation: Organisations that are owned and controlled by the state e.g. the NHS, social care,
state schools, the Police, HM armed forces. The NHS employs 30% of all UK public sector staff, with education
employing 28% of public sector staff.
• Private sector organisation: Private sector organisations are owned by private investors rather than the state.
84% of jobs in the UK are in the private sector.
• Private limited companies: Corporations whose share are not listed on a public exchange. Examples include
McLaren Technology Group, JCB, Specsavers, Matalan.
• Co-operative producers: Owned and run by their members. Examples include Arla Foods, Co-Op Group,
Richer Sounds, John Lewis / Waitrose.
• Social enterprise: With a social enterprise, profit is reinvested for social purposes rather than for the gain of
private investors. Examples include: Housing Associations, the National Trust and university Student Unions.
Examiner tip:
A great way to pick up strong evaluation marks is to consider your points from different perspectives. Remember
that different types of firms will have different objectives as well as facing different cost structures and different
challenges.
Edexcel A-Level Economics Theme 3 Companion www.tutor2u.net/economics Page 3
SCHOOL LICENCE – Copyright Tutor2u
, World's 50 largest companies based on number of employees in 2017
0 500000 1000000 1500000 2000000 2500000
Walmart 2,300,000
China National Petroleum 1,470,193
China Post Group 948,239
State Grid 913,546
Hon Hai Precision Industry 803,126
Sinopec Group 667,793
Volkswagen 642,292
Compass Group 588,112
U.S. Postal Service 573,614
Amazon.com 566,000
Agricultural Bank of China 491,578
Deutsche Post 472,208
Gazprom 469,600
China Mobile Communications 467,532
Industrial & Commercial Bank of China 453,048
Largest companies in the world by market value in 2018 (in billion U.S. dollars)
Ranking of the companies rank 1 to 18 Market value in billion U.S. dollars
Apple 926.9
Amazon.com 777.8
Alphabet 766.4
Microsoft 750.6
Facebook 541.5
Alibaba 499.4
Berkshire Hathaway 491.9
Tencent Holdings 491.3
JPMorgan Chase 387.7
ExxonMobil 344.1
Johnson & Johnson 341.3
Samsung Electronics 325.9
Bank of America 313.5
ICBC 311
Royal Dutch Shell 306.5
Visa 295.1
Wells Fargo 265.3
China Construction Bank 261.2
Edexcel A-Level Economics Theme 3 Companion www.tutor2u.net/economics Page 4
SCHOOL LICENCE – Copyright Tutor2u
THEME 3
Business Behaviour and the
Labour Market
STUDENT COMPANION
Author: Geoff Riley
Series Editor: Ruth Tarrant
EDITION DATE: SEPTEMBER 2019
WWW.TUTOR2U.NET/ECONOMICS
,COMPANION CONTENTS
3.1.1 Sizes and Types of Firms .............................................................................................................. 3
3.1.2 Business Growth ........................................................................................................................ 10
3.1.3 De-Mergers................................................................................................................................ 17
3.2.1 Business Objectives ................................................................................................................... 18
3.3.1 Revenue ..................................................................................................................................... 25
3.3.2 Costs .......................................................................................................................................... 29
3.3.3 Economies and diseconomies of scale ...................................................................................... 36
3.3.4 Normal profits, supernormal profits and losses ........................................................................ 43
3.4 1 Economic efficiency ................................................................................................................... 46
3.4.2 Perfect Competition .................................................................................................................. 50
3.4.3 Monopolistic Competition ......................................................................................................... 55
3.4.4 Oligopoly ................................................................................................................................... 59
3.4.5 Monopoly .................................................................................................................................. 70
3.4.6 Monopsony ............................................................................................................................... 79
3.4.7 Contestability ............................................................................................................................ 81
3.5 Labour Market Economics ............................................................................................................ 86
3.5.1 Demand for Labour ................................................................................................................... 87
3.5.2 Supply of Labour ........................................................................................................................ 90
3.5.3 Wage determination in competitive and non-competitive markets ......................................... 96
3.6.1 Government intervention in product markets ........................................................................ 109
3.6.2 The impact of government intervention ................................................................................. 120
Edexcel A-Level Economics Theme 3 Companion www.tutor2u.net/economics Page 2
SCHOOL LICENCE – Copyright Tutor2u
,3.1.1 Sizes and Types of Firms
Key specification content:
• Reasons why some firms tend to remain small and why others grow
• Significance of the divorce of ownership from control: the principal-agent problem
• Distinction between public and private sector organisations
• Distinction between profit and not-for-profit organisations
Public limited
Privately-owned firms Start-Ups State-owned businesses
companies
Co-operatives and
Social enterprises
Partnerships
Different types of firm – key terms and examples
• Firm: A business organisation such as a corporation that produces and sells goods and services in markets.
• Not for profit organisation: Businesses that are operated commercially but with social welfare and
environmental aims in mind. Typically, profits are reinvested for social purpose and social aims.
• Public sector organisation: Organisations that are owned and controlled by the state e.g. the NHS, social care,
state schools, the Police, HM armed forces. The NHS employs 30% of all UK public sector staff, with education
employing 28% of public sector staff.
• Private sector organisation: Private sector organisations are owned by private investors rather than the state.
84% of jobs in the UK are in the private sector.
• Private limited companies: Corporations whose share are not listed on a public exchange. Examples include
McLaren Technology Group, JCB, Specsavers, Matalan.
• Co-operative producers: Owned and run by their members. Examples include Arla Foods, Co-Op Group,
Richer Sounds, John Lewis / Waitrose.
• Social enterprise: With a social enterprise, profit is reinvested for social purposes rather than for the gain of
private investors. Examples include: Housing Associations, the National Trust and university Student Unions.
Examiner tip:
A great way to pick up strong evaluation marks is to consider your points from different perspectives. Remember
that different types of firms will have different objectives as well as facing different cost structures and different
challenges.
Edexcel A-Level Economics Theme 3 Companion www.tutor2u.net/economics Page 3
SCHOOL LICENCE – Copyright Tutor2u
, World's 50 largest companies based on number of employees in 2017
0 500000 1000000 1500000 2000000 2500000
Walmart 2,300,000
China National Petroleum 1,470,193
China Post Group 948,239
State Grid 913,546
Hon Hai Precision Industry 803,126
Sinopec Group 667,793
Volkswagen 642,292
Compass Group 588,112
U.S. Postal Service 573,614
Amazon.com 566,000
Agricultural Bank of China 491,578
Deutsche Post 472,208
Gazprom 469,600
China Mobile Communications 467,532
Industrial & Commercial Bank of China 453,048
Largest companies in the world by market value in 2018 (in billion U.S. dollars)
Ranking of the companies rank 1 to 18 Market value in billion U.S. dollars
Apple 926.9
Amazon.com 777.8
Alphabet 766.4
Microsoft 750.6
Facebook 541.5
Alibaba 499.4
Berkshire Hathaway 491.9
Tencent Holdings 491.3
JPMorgan Chase 387.7
ExxonMobil 344.1
Johnson & Johnson 341.3
Samsung Electronics 325.9
Bank of America 313.5
ICBC 311
Royal Dutch Shell 306.5
Visa 295.1
Wells Fargo 265.3
China Construction Bank 261.2
Edexcel A-Level Economics Theme 3 Companion www.tutor2u.net/economics Page 4
SCHOOL LICENCE – Copyright Tutor2u
