Pearson Edexcel A-level Economics Unit 3: Business
Behaviour (WEC13) Complete Revision Notes
These notes are organised by specification topic. For past papers to practice with,
refer to the Pearson Edexcel website or revision resources .
Topic 1: Business Growth
1.1 Sizes and Types of Firms
Private Sector Organisations (owned by individuals/groups, aim for profit):
• Sole Trader: One owner, unlimited liability, keeps all profits
• Private Limited Company (Ltd): Shares sold privately, limited liability,
control retained by owners
• Public Limited Company (PLC): Shares traded on stock exchange, limited
liability, risk of takeover
Public Sector Organisations (government-owned, provide public services):
• e.g., Highways Agency, National Health Service (NHS)
• Do not aim to make profit; provide essential services
Non-Profit Organisations:
• Charities: Oxfam, British Heart Foundation
• Housing Associations: Provide affordable housing
• Building Societies: Member-owned, provide mortgages
• Co-operatives: Owned by members (workers/consumers)
,The Principal-Agent Problem:
• Occurs when ownership and control are separated (typical in PLCs)
• Principals (shareholders) want profit maximisation
• Agents (managers) may pursue their own goals (e.g., revenue maximisation,
job security)
• Can lead to decisions that don't align with shareholder interests
1.2 Business Growth
Types of Growth:
Type Description Example
Expanding through increased output, Opening new stores,
Organic (Internal)
new products, new markets launching新产品
Horizontal Merger with firm at same production Two car manufacturers
Integration stage merging
Merger with firm at different Car manufacturer buying
Vertical Integration
production stage steel company
Conglomerate Car manufacturer buying
Merger with unrelated business
Integration hotel chain
Advantages of Growth:
• Economies of scale (lower average costs)
• Increased market power
• Greater brand recognition
• Access to more finance
,Disadvantages of Growth:
• Diseconomies of scale (coordination problems)
• Potential regulatory scrutiny (competition issues)
• Loss of control (principal-agent problem)
1.3 Demergers
Reasons for Demergers:
• Increase shareholder value
• Focus on core competencies
• Escape regulatory controls
• Resolve managerial inefficiencies
Effects of Demergers:
• Increased competition in separate markets
• Potentially lower prices for consumers
• More efficient allocation of resources
Topic 2: Business Objectives
Traditional Objectives
Objective Description Diagram
Profit Maximisation MC = MR Most common assumption for firms
, Objective Description Diagram
Revenue Often pursued by managers (sales
MR = 0
Maximisation maximisation)
Sales Maximisation AR = AC Aim to capture market share
Achieving "good enough" Compromise between stakeholder
Satisficing
profits interests
Why don't all firms maximise profit?
• Separation of ownership from control (principal-agent problem)
• Information gaps (don't know MC/MR precisely)
• Desire for long-term growth over short-term profit
• Non-profit objectives (social enterprises, charities)
Alternative Objectives:
• Profit satisficing (achieving acceptable returns)
• Corporate social responsibility (CSR)
• Environmental sustainability
• Market share growth
Topic 3: Revenues, Costs and Profits
3.1 Revenue
Behaviour (WEC13) Complete Revision Notes
These notes are organised by specification topic. For past papers to practice with,
refer to the Pearson Edexcel website or revision resources .
Topic 1: Business Growth
1.1 Sizes and Types of Firms
Private Sector Organisations (owned by individuals/groups, aim for profit):
• Sole Trader: One owner, unlimited liability, keeps all profits
• Private Limited Company (Ltd): Shares sold privately, limited liability,
control retained by owners
• Public Limited Company (PLC): Shares traded on stock exchange, limited
liability, risk of takeover
Public Sector Organisations (government-owned, provide public services):
• e.g., Highways Agency, National Health Service (NHS)
• Do not aim to make profit; provide essential services
Non-Profit Organisations:
• Charities: Oxfam, British Heart Foundation
• Housing Associations: Provide affordable housing
• Building Societies: Member-owned, provide mortgages
• Co-operatives: Owned by members (workers/consumers)
,The Principal-Agent Problem:
• Occurs when ownership and control are separated (typical in PLCs)
• Principals (shareholders) want profit maximisation
• Agents (managers) may pursue their own goals (e.g., revenue maximisation,
job security)
• Can lead to decisions that don't align with shareholder interests
1.2 Business Growth
Types of Growth:
Type Description Example
Expanding through increased output, Opening new stores,
Organic (Internal)
new products, new markets launching新产品
Horizontal Merger with firm at same production Two car manufacturers
Integration stage merging
Merger with firm at different Car manufacturer buying
Vertical Integration
production stage steel company
Conglomerate Car manufacturer buying
Merger with unrelated business
Integration hotel chain
Advantages of Growth:
• Economies of scale (lower average costs)
• Increased market power
• Greater brand recognition
• Access to more finance
,Disadvantages of Growth:
• Diseconomies of scale (coordination problems)
• Potential regulatory scrutiny (competition issues)
• Loss of control (principal-agent problem)
1.3 Demergers
Reasons for Demergers:
• Increase shareholder value
• Focus on core competencies
• Escape regulatory controls
• Resolve managerial inefficiencies
Effects of Demergers:
• Increased competition in separate markets
• Potentially lower prices for consumers
• More efficient allocation of resources
Topic 2: Business Objectives
Traditional Objectives
Objective Description Diagram
Profit Maximisation MC = MR Most common assumption for firms
, Objective Description Diagram
Revenue Often pursued by managers (sales
MR = 0
Maximisation maximisation)
Sales Maximisation AR = AC Aim to capture market share
Achieving "good enough" Compromise between stakeholder
Satisficing
profits interests
Why don't all firms maximise profit?
• Separation of ownership from control (principal-agent problem)
• Information gaps (don't know MC/MR precisely)
• Desire for long-term growth over short-term profit
• Non-profit objectives (social enterprises, charities)
Alternative Objectives:
• Profit satisficing (achieving acceptable returns)
• Corporate social responsibility (CSR)
• Environmental sustainability
• Market share growth
Topic 3: Revenues, Costs and Profits
3.1 Revenue
