CIMA BA1 · Chapter 4
Goals of organisations and stakeholders MCQs with Answers
9 multiple-choice questions on Goals of organisations and stakeholders for CIMA BA1 Fundamentals of Business Economics. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
The concept of 'satisficing' suggests that managers:
- A) Always maximise profit subject to a minimum dividend
- B) Aim to maximise customer satisfaction regardless of cost
- C) Set prices so that every stakeholder receives the maximum possible return
- D) Aim for satisfactory performance across several objectives rather than maximising a single objective
Show answer & explanation
Answer: D) Aim for satisfactory performance across several objectives rather than maximising a single objective
Satisficing recognises that organisations have multiple stakeholders with conflicting goals and limited information. Managers therefore seek outcomes that are acceptable to the main groups, rather than the maximum achievable for any single goal.
Question 2
Which of the following is a key role of independent non-executive directors in a listed company?
- A) Managing the day-to-day operations of the main business divisions
- B) Preparing the company's monthly management accounts
- C) Monitoring and challenging the performance of executive management on behalf of shareholders
- D) Negotiating supply contracts with key suppliers
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Answer: C) Monitoring and challenging the performance of executive management on behalf of shareholders
Independent non-executive directors bring objective judgement to the board, scrutinise executive performance and typically sit on audit, remuneration and nomination committees. Day-to-day management is the responsibility of executive directors and managers.
Question 3
A firm that aims to maximise sales revenue (with no profit constraint) will choose the level of output at which:
- A) Marginal revenue equals marginal cost
- B) Marginal revenue equals zero
- C) Average revenue equals average cost
- D) Marginal cost equals zero
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Answer: B) Marginal revenue equals zero
Total revenue rises as long as marginal revenue is positive and falls once marginal revenue becomes negative. Revenue is therefore maximised where MR = 0. Profit maximisation occurs where MR = MC.
Question 4
A firm faces the demand curve P = 80 - 0.5Q, so its marginal revenue is MR = 80 - Q. Marginal cost is constant at $20 per unit. What output will the firm produce if its objective is to maximise sales revenue rather than profit?
- A) 80 units
- B) 60 units
- C) 120 units
- D) 160 units
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Answer: A) 80 units
Revenue is maximised where MR = 0: 80 - Q = 0, so Q = 80 units. For comparison, profit is maximised where MR = MC: 80 - Q = 20, giving Q = 60 units. 120 units is where price equals marginal cost and 160 units is where price falls to zero.
Question 5
In the assessment of value for money in a not-for-profit organisation, 'effectiveness' refers to:
- A) Obtaining inputs of the required quality at the lowest cost
- B) Maximising the output obtained from a given level of inputs
- C) Ensuring services are distributed fairly between groups
- D) The extent to which the organisation achieves its objectives
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Answer: D) The extent to which the organisation achieves its objectives
Value for money is commonly assessed using economy (minimising the cost of inputs), efficiency (the relationship between inputs and outputs) and effectiveness (whether outputs achieve the intended objectives). Fair distribution relates to equity.
Question 6
In financial and economic theory, the primary objective of a commercial company is usually assumed to be:
- A) Maximising the number of people it employs
- B) Maximising the salaries of its directors
- C) Maximising the wealth of its shareholders
- D) Minimising the tax it pays
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Answer: C) Maximising the wealth of its shareholders
Shareholders own the company, and the conventional assumption is that it should be run to maximise their wealth, closely linked to long-run profit maximisation. Other aims may be pursued as constraints or as secondary objectives.
Question 7
Which of the following is an example of the principal-agent problem?
- A) A company pays a dividend that shareholders consider too high
- B) Directors pursue rapid growth in sales to increase their own status and pay rather than maximising shareholder wealth
- C) A supplier increases its prices because of rising raw material costs
- D) A government raises corporation tax to finance public services
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Answer: B) Directors pursue rapid growth in sales to increase their own status and pay rather than maximising shareholder wealth
Shareholders (principals) appoint directors (agents) to run the company. Where ownership and control are separated, agents may pursue their own objectives, such as growth, status or perks, at the expense of the principals. Corporate governance aims to reduce these agency costs.
Question 8
Using Mendelow's power-interest matrix, a stakeholder group with high power and high interest in an organisation's strategy should be:
- A) Treated as key players and managed closely
- B) Kept satisfied but given minimal information
- C) Kept informed but given little influence
- D) Given minimal effort and monitored
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Answer: A) Treated as key players and managed closely
Mendelow's matrix classifies stakeholders by power and interest. High power and high interest stakeholders are key players whose acceptance is essential. High power, low interest groups should be kept satisfied; low power, high interest groups kept informed; and low power, low interest groups need minimal effort.
Question 9
Which of the following is a connected stakeholder of a company?
- A) Its employees
- B) A local environmental pressure group
- C) The national government
- D) Its suppliers
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Answer: D) Its suppliers
Stakeholders are commonly classified as internal (employees and managers), connected (those with a contractual or economic relationship, such as shareholders, customers, suppliers and lenders) and external (government, pressure groups and the local community).