Structuring a 25-mark essay

Plan before you write. Five minutes of planning is worth more than five extra minutes of writing. A 25-mark essay rewards analysis, evaluation, application to the extracts and a judgement, so the plan must cover all four.

1. Decode the question. Command word (evaluate, assess, discuss), theory needed, and what the extracts refer to. See command words.
2. Choose your two lines of analysis. Pick two effects, ideally opposite in direction (or one micro and one macro), that answer the question.
3. Write the evaluation for each. One weak link or condition per analysis point: short run versus long run, it depends on..., maybe not because...
4. Mark the extract evidence. Note the figures and facts you will drop into each paragraph.
5. Decide your judgement now. Which side is stronger, and what does it depend on? Write one line. Every paragraph then builds towards it.

Content you can use in analysis and evaluation

Micro effects: price, quantity, quality, elasticity, demand and supply, costs of production, consumer and producer surplus, revenue and profit, government revenue and costs, stakeholders, market failure and government failure, competition and market structure, efficiency and productivity, wages and employment, equity and inequality.

Macro effects: AD/AS, growth, unemployment, inflation and deflation, the current account, income inequality, government finances, the multiplier, exchange rates, protectionism, competitiveness, living standards, macroeconomic objectives and policy, the circular flow.

Natural evaluation means it arises from the point you have just made. Do not bolt on "on the other hand" generalities. Attach each evaluation to the exact link it tests.

Ways to evaluate a chain

• Maybe not: the effect might not happen. More exports might not follow because there is no capacity or no demand; fewer imports might not follow because the goods are essential with no substitutes.
• Short run versus long run: a firm with spare funds can absorb a cost rise now, but not if it lasts.
• It depends: on elasticity, size of the change, market structure, who bears the cost.
• The business cycle: the effect differs in a boom and a recession.
• Government policy or intervention may change the outcome.

Introduction (paragraph 1)

Keep it short. Define the key terms and, if useful, say which two lines of argument you will follow. No long scene-setting.

Judgement (paragraph 6)

The specification asks for a balanced, well-reasoned, effective answer to the question. The best judgements:

• Answer the question explicitly, straight away.
• Justify why by weighing up the points you have already made, not by introducing new ones.
• Show your strongest viewpoint and lean towards it.
• Stay balanced. Nothing in economics is guaranteed, so avoid "will".
• Consider the short run and long run.
• Use the extract evidence to back the case.

Sentence starters

• As long as ________ happens, then ________ should ________.
• Because of ________, ________ should happen.
• The intended consequence of this action would be ________.
• The unintended consequences of this policy may be ________.
• In the short run ________, but in the long run ________.

Aim for about 30 minutes per 25-mark essay. Two essays and a data section fill a 2-hour paper, so the time has to be held.

If you are running late, protect the judgement. Cut a diagram, not the conclusion.

Question: Evaluate the view that profit maximisation should be a firm's main objective. (25)

This is an outline model on a Theme 3 topic. In the exam you would weave in figures and facts from the extracts throughout. Click to reveal each paragraph and its label.

1. 1. Definitions. Profit maximisation means producing where marginal cost equals marginal revenue, which gives the largest gap between total revenue and total cost. Other objectives include revenue maximisation (MR = 0), sales maximisation (AC = AR) and satisficing, where managers aim for a satisfactory rather than maximum profit.
2. 2. Analysis: for profit maximisation. Producing at MC = MR gives the highest profit because up to that output each extra unit adds more to revenue than to cost. Higher profit means the firm can pay shareholders, reinvest in capacity and research, and fund a cushion against downturns. Reinvestment can lower long-run average costs through economies of scale, so the firm can cut price and still make a margin, which raises its competitiveness and market share over time.
3. 3. Evaluation of paragraph 2. But this depends on the firm knowing its MC and MR, which is hard in practice, so few firms find the exact maximum. Profit may also not be reinvested: if managers are not the owners, the principal-agent problem means profits may go on perks or empire-building. In a competitive market with low margins there may be little supernormal profit to reinvest at all.
4. 4. Analysis: against profit maximisation. A manager whose pay depends on firm size may prefer revenue or sales maximisation. Sales maximisation, where AC = AR, gives higher output at a lower price with only normal profit, so consumers benefit from lower prices and more choice. A firm that chases long-run market share may accept low profit now to deter entry, as with limit pricing, which safeguards later profits.
5. 5. Evaluation of paragraph 4. However, this cannot last. If the firm earns only normal profit, shareholders may sell shares and the share price falls, and a takeover becomes more likely. Satisficing is only sustainable if profit stays above the level owners will tolerate. It also depends on the market: in a regulated or state-owned firm, other aims such as service quality can genuinely outweigh profit.
6. 6. Judgement. Profit maximisation should be the main objective for a private firm in a competitive market, because without profit it cannot survive or invest. As long as owners can monitor managers, profit-seeking should also serve consumers through lower long-run costs. However, in the short run, and where the firm is publicly owned or facing regulation, other objectives may rightly come first. Overall, profit should be the primary but not sole objective, and how strongly depends on ownership and the time horizon.

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