A Zambian copper mine is operated by a foreign multinational company. The company's main goal is profit maximisation. Its mine creates pollution in the area, which causes diseases and damages crops. Some economists have suggested that the economy would benefit from the mine being operated by the Zambian Government.

Mark scheme

Marking points from the official mark scheme (May/June 2014). The mark or mark type is shown in brackets.

1. [2] 2 marks for a company that produces in more than one country.
2. 1 mark for any one of the following:
3. • operates in more than one country
4. • has its headquarters in another country
5. • has branches in more than one country
6. • is usually a PLC (but may be a state run MNC).
7. [3] 1 mark for identifying a goal i.e.:
8. • growth/increased market share
9. • sales revenue maximisation
10. • profit satisficing
11. • survival
12. • improve the environment performance of the company.
13. Up to 2 marks for explaining the goal e.g.
14. • an MNC may try to increase its size because it will make it more difficult for other firms to buy it [1] and because the salaries and managers may be linked to size [1]
15. • an MNC may try to increase market share to reduce competition [1] and so gain a monopoly position [1]
16. • achieving a high sales revenue may enable a firm to take greater advantage of economies of scale [1] and so reduce average costs [1]
17. • an MNC may wish to keep shareholders happy (profit satisficing) [1] and to pursue a range of other objectives e.g. improving environmental conditions [1].
18. [5] Up to 2 marks for defining market failure – where the market forces of demand and supply fail to achieve efficiency.
19. 1 mark for recognising that pollution is an external cost/harmful impact on third parties.
20. 1 mark for mentioning that market forces do not take into account external costs.
21. 1 mark social costs will exceed private costs.
22. 1 mark for mentioning that market prices do not reflect social costs/are too low.
23. 1 mark for output will be too high.
24. [10] Up to 7 marks for why it might:
25. Up to 4 marks for: more likely to take into account social costs and benefits [1] rather than base decisions on private costs and benefits [1] as it main objective may be to benefit society [1] rather than maximise profit [1].
26. Up to 4 marks for: may have more funds to invest [1] can use tax revenue [1] this may enable it to expand production [1] and so raise employment [1].
27. Up to 3 marks for: may provide better pay [1] and working conditions for workers [1] e.g. shorter working hours [1].
28. Up to 3 marks for; may charge lower prices to domestic firms [1] lower costs of production [1] making them more price competitive [1].
29. Up to 2 marks for: unlikely to take profits out of the country [1] may use some of the profits to spend on e.g. education and health care [1].
30. Up to 7 marks for explaining why it might not:
31. Up to 5 marks for: may lack competitive pressure to be efficient [1] managers of the mine may think the government will not permit the mine to go out of business [1] as it would cause unemployment [1] so costs may not be kept low [1] may be a lack of innovation [1].
32. Up to 3 marks for: may lack funds to invest [1] government may have low tax revenue [1] will not be able to sell shares [1].
33. Up to 3 marks for: may lack expertise [1] government intervention may mean that it takes time to make decisions [1] and decisions may be distorted by political factors [1].
34. Up to 2 marks for: may be less likely to bring in new technology than an MNC [1] technology may be more advanced in other countries [1].
35. Maximum of 5 marks for a list-like response.