A public limited company (PLC) experiences a separation of ownership and control, creating a principal-agent conflict. The shareholders' primary objective is profit maximisation. However, the salaried directors seek to maximise sales revenue, provided they satisfy a minimum profit constraint of £50,000 to appease shareholders.
The table below shows the projected revenue and cost figures for the company at different levels of output QQQ (where Q Q\,Q is in thousands of units):
| Output (QQQ, '000 units) | Total Revenue (TRTRTR, £'000) | Total Cost (TCTCTC, £'000) |
|---|---|---|
| 8 | 104 | 44 |
| 10 | 124 | 54 |
| 12 | 140 | 66 |
| 14 | 152 | 80 |
| 16 | 160 | 96 |
| 18 | 164 | 114 |
| 20 | 168 | 124 |
| 22 | 170 | 140 |
What is the difference in output (in units) between the level preferred by the shareholders and the level preferred by the directors?
4,000 units4,000\text{ units}4,000 units
6,000 units6,000\text{ units}6,000 units
8,000 units8,000\text{ units}8,000 units
10,000 units10,000\text{ units}10,000 units
16 exam-style questions on OCR A Level Economics Business objectives. Each one has a worked solution and a mark scheme showing where the marks go.