Which of the following factors leads to a higher goodwill for firms?…

Which of the following factors leads to a higher goodwill for firms?

(A) Firms having long term contracts for supply of materials

(B) Firms with efficient management

(D) Firms which do not have competitive advantages

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → (A), (B) and (C) only

Goodwill is high where a firm can earn more than normal profits; each statement is judged by whether it helps the firm do so.

(A) Firms having long term contracts for supply of materials Correct. Assured supply is a special advantage that keeps the business running smoothly and raises its goodwill.

(B) Firms with efficient management Correct. Good management brings high productivity and cost efficiency, and so higher profits.

(C) Firms which are highly profitable Correct. Goodwill is the value of the ability to earn super profits, so the higher the profits, the higher the goodwill.

(D) Firms which do not have competitive advantages Incorrect. Goodwill grows from advantages such as limited competition or special rights; a firm without any advantage earns only normal profits and has little or no goodwill.

NCERT (2026-27 edition):
Factors Affecting the Value of Goodwill – “… 3. Efficiency of management: A well-managed concern usually enjoys the advantage of high productivity and cost efficiency. This leads to higher profits and so the value of goodwill will also be high. 4. Market situation: The monopoly condition or limited competition enables the concern to earn high profits which leads to higher value of goodwill. 5. Special advantages: The firm that enjoys special advantages like import licences, low rate and assured supply of electricity, long-term contracts for supply of materials, well-known collaborators, patents, trademarks, etc. enjoy higher value of goodwill.”