Economics 0455 · IGCSE
Firms’ costs, revenue and objectives
100 practice questions on Firms’ costs, revenue and objectives, with worked solutions and instant marking.
Which factor is most likely to raise a firm’s profits?
Feb/March 2016
A company’s average revenue comes to $20$. It sells $1000$ units. What are the firm’s total revenue and the price of the product?
Feb/March 2016
The table presents the daily output and costs for four firms that produce chairs. Which firm has the greatest average cost of production?
Feb/March 2016
In 2014, the share price of a major UK supermarket company dropped on the London Stock Exchange after it announced that profits were expected to decline. Stronger competition from German supermarket firms led the UK supermarket to look at several ways of lowering costs, such as cutting some workers’ wage rates and lengthening some workers’ working hours.
Feb/March 2016
The large quantity of goods sold by big supermarkets allows them to lower prices, but the main advantage these businesses possess is that they are able to sell non-food items alongside food. Which economic results does the statement indicate are available to large supermarkets?
Feb/March 2017
A company makes five units of output with an average cost of $20 per unit. The cost of producing the sixth unit is $26. What is the average cost of six units?
Feb/March 2017
The diagram illustrates a rice market that is in equilibrium. Which shaded area shows the total revenue earned by rice farmers?
Feb/March 2017
Actions taken by the Government of Georgia to cut inflation and unemployment affected business organisations operating in the country during 2015. The country has a growing tertiary sector, including its banking sector, and now shows several features of a market economy.
Feb/March 2017
The table below lists several costs involved in operating a retail shop over one week. rent of shop: $200$ insurance premium: $40$ purchase of stock: $700$ delivery of goods: $50$ What is the total of the fixed costs for this week?
Feb/March 2018
The company’s annual report indicated that it had gained from several changes. Which change is an internal economy of scale for this company?
Feb/March 2018
Taxi drivers normally need to purchase a licence before they can carry passengers. Because the licence has a fairly high fixed cost, some potential drivers are put off entering the market. If more people became taxi drivers, taxi fares and unemployment would probably fall. However, traffic congestion could rise.
Feb/March 2018
At what point will a firm maximise its profits?
Feb/March 2019
The table presents a firm's costs. What amount are the firm's fixed costs?
Feb/March 2019
The average revenue of a firm is $10. It sells 2000 units. Calculate the firm's total revenue and the product price.
Feb/March 2019
The table gives a firm's costs. Variable cost for each good = $\$2$ Fixed cost = $\$40$ What is the average total cost when the firm makes $20$ goods?
Feb/March 2020
At what point is profit maximisation achieved?
Feb/March 2020
The diagram illustrates a firm’s total cost (TC) curve. What is the average variable cost when the firm produces an output of $OQ$?
Feb/March 2021
What does total revenue mean?
Feb/March 2021
What is likely to happen to a firm that grows in order to benefit from economies of scale?
Feb/March 2023
The table presents a firm’s total fixed costs and total variable costs at different output levels. What occurs as output increases?
Feb/March 2023
If a business makes 100 units, its total variable cost comes to $1000 and its total fixed cost is $4000. What is the business’s average total cost?
Feb/March 2024
When the product is sold at $5, weekly demand for a firm’s product is 1000 units. If the price increases to $10, weekly demand for its product drops to 600 units. How do the firm’s average revenue (AR) and total revenue (TR) per week change when the product price increases?
Feb/March 2024
What is the most likely factor that would encourage a business to expand internally?
Feb/March 2025
The diagram illustrates a firm’s fixed costs, variable costs and total costs. What is the firm’s total variable cost when output reaches 100 units?
Feb/March 2025
The table gives the firm’s average revenue at different output levels. As output increases, what happens to total revenue?
Feb/March 2025
In 2009, Gulf Airlines, which was making a loss, said that it would cut the number of new aircraft it had ordered. If it did so, which of its costs would be directly influenced?
May/June 2015
The diagram illustrates the costs of a firm. At an output of 100 units, what is the firm's total variable cost?
May/June 2015
In 2013, Barclays Bank operated two branches in one city. It chose to shut both of them, relocate to another building and hire fewer staff paid by the hour. What is likely to have happened to the bank’s fixed and variable costs?
May/June 2015
The diagram illustrates a firm’s costs. At an output of $100$ units, what is the firm’s total variable cost?
May/June 2015
In large-scale organisations, coordination difficulties between departments may arise and this can create diseconomies of scale over the long-run. What shows that diseconomies of scale have begun?
May/June 2015
The diagram illustrates the costs of a firm. What is the firm's total variable cost when output is 100 units?
May/June 2015
China is the world’s biggest producer of gold, while India is the world’s biggest buyer of gold. Gold mining in China is becoming more capital-intensive, which is lowering how price inelastic the supply of gold is. Workers’ wages in the industry are rising, although other production costs are falling.
May/June 2015
In what way can a business ensure that it achieves the highest possible profit?
May/June 2016
How can a firm ensure that it earns the highest possible profit?
May/June 2016
How can a business ensure that it achieves the highest possible profit?
May/June 2016
A manufacturing company expands the scale of its production. The diagram below shows its long-run average total cost curve (LRAC). At which point on the LRAC curve is the firm experiencing diseconomies of scale?
May/June 2016
China is now even more influential in the world shipbuilding industry. In 2013, it made up 45% of ships produced by tonnage. Its main focus is especially on container ships. In 2012 China constructed six of the biggest container ships at a total expense of US$870 million. In 2013 it made eight container ships of the same capacity, while total cost increased by a smaller proportion to US$1040 million. South Korea is the second-largest ship producer. One of its companies has built the biggest container ship in the world. That company is encountering growing rivalry from another major firm in the same country. In 2014 the two firms said they intended to merge, provided their shareholders approved. Both companies are quoted on the country’s stock exchange. A shipbuilding firm’s share of the world market is affected by several influences. These include the quality and size of the labour force employed. In 2013 China’s total labour force was 800 million, compared with South Korea’s 26 million. China’s unemployment rate of 3% was slightly below South Korea’s rate of 4%. Exchange rates also affect how many ships are produced and sold. In 2012 the South Korean currency, the won, was worth 1126 won per dollar. By 2013 this had changed to 1107 won per dollar. It was predicted that this movement in the value of the won would carry on into 2014, along with changes in the relative price of South Korean ships and a possible alteration in South Korea’s economic growth rate. Although shipbuilding is expanding in some countries, including China and South Korea, it is shrinking in others such as the UK. Some economists approve of the fall, arguing that making fewer ships has cut noise pollution in several cities and reduced traffic congestion in the places where the shipyards once worked. Other economists lament the decline in the shipbuilding industry, claiming that it is caused not only by UK shipbuilders failing to adapt to change but also by subsidies paid by foreign governments to their shipbuilders.
May/June 2016
Which cost would count as a variable cost for a bus company?
May/June 2017
Which costs are bound to decrease continuously as output rises?
May/June 2017
The table lists a firm’s costs. What is the value of the firm’s fixed costs?
May/June 2017
The table gives a firm’s total costs. Each unit can be sold for $10. Output quantity (units): 7, 8, 9, 10 Overall cost ($): 10, 15, 20, 25 How many units will the firm produce to maximise profits?
May/June 2017
An industry is facing diseconomies of scale. What is happening to long run average cost and total cost?
May/June 2018
A firm sells its product at $6$ per unit and has the following total costs. Which statement is correct?
May/June 2018
Which statement regarding fixed costs is correct?
May/June 2018
What is one possible reason for diseconomies of scale?
May/June 2018
A firm that charges $6 a unit for its product has the following total costs. Which statement is correct?
May/June 2018
Which of the following statements about fixed costs is correct?
May/June 2018
A company charges $6$ per unit for its product and has these total costs. Output, in units: $0, 10, 20, 30$. Total costs ($\$$): $40, 100, 120, 150$. Which of the following statements is correct?
May/June 2018
Which of the following statements about fixed costs is correct?
May/June 2018
Vanilla is used to make soft drinks, cakes and perfumes. Its chief use, though, is in ice cream production. Fig. 1 illustrates the different costs of making ice cream for one firm. Fig. 1 shows the costs of producing ice cream for one firm. The diagram labels are: raw materials including vanilla; wages; insurance; security; rent; lighting; other. Madagascar is the world’s biggest supplier of vanilla, with Mexico and Tahiti next. At the beginning of 2016, economists forecast that the price of ice cream would rise because the price of vanilla had increased by 130% in 2015. This was mainly due to poor harvests in Madagascar, which cut vanilla output in 2015. In most countries, ice cream is regarded as a luxury good. It has many substitutes, and this is one reason why producers do not always pass higher costs on to consumers. In 2015, several other changes affected ice cream production, including an increase in worker productivity. Alongside vanilla, Madagascar makes a number of other primary products such as coffee and sugar. Almost 80% of the country’s labour force works in the primary sector. The country has a fairly low Gross Domestic Product (GDP) per head and a fairly low Human Development Index (HDI) value, as shown in Table 1. This restricts how much people in Madagascar save. Table 1 shows GDP per head and HDI for selected countries in 2015.
May/June 2018
In the diagram, the firm’s fixed costs, variable costs and total costs are shown. Which distance indicates the firm’s fixed costs?
May/June 2019
A entrepreneur purchases a workshop costing $200\,000 in order to produce plastic boxes. During the first year of trading, he pays $70\,000 for materials, hires ten production workers who are paid according to the quantity made (piece rate) at an overall cost of $80\,000, and acquires two delivery vehicles costing $10\,000 each. What is the total amount of his variable costs?
May/June 2019
What does the term diseconomies of scale mean?
May/June 2019
The diagram illustrates the fixed costs, variable costs and total costs of a firm. Which distance indicates the firm’s fixed costs?
May/June 2019
An entrepreneur purchases a workshop for $200000 in order to make plastic boxes. In the first year of trading, he pays $70000 for materials, hires ten production workers who are paid according to the number produced (piece rate) at a total cost of $80000, and buys two delivery vehicles at $10000 each. What is the total of his variable costs?
May/June 2019
What is one illustration of a technical economy of scale?
May/June 2019
The diagram illustrates a firm’s fixed costs, variable costs and total costs. Which distance shows the firm’s fixed costs?
May/June 2019
An entrepreneur purchases a workshop for $200\,000 in order to manufacture plastic boxes. During the first year of trading, he spends $70\,000 on materials, hires ten production workers who are paid according to output (piece rate) at a total cost of $80\,000, and purchases two delivery vehicles costing $10\,000 each. What are his total variable costs?
May/June 2019
A change in the supply of enterprise can lead to the creation of new firms. In 2016, a theme park in Hong Kong recorded a loss as visitor numbers fell by 9%. In 2017, the same public limited company opened another, larger theme park in Shanghai. The new theme park is expected to gain from both internal and external economies of scale.
May/June 2019
A cobalt-mining company spends money on machinery so that some employees can be replaced. In time, diseconomies of scale arise. What might lead to this situation?
May/June 2021
Dimitry is the owner of a business that manufactures and sells lemonade in bottles. He sells just one bottle size. How could Dimitry calculate the business's total revenue?
May/June 2021
Which production cost keeps falling as output rises?
May/June 2021
What quantity is found by multiplying price by the quantity demanded of a product?
May/June 2021
A company has $10$ workers. Every worker earns a weekly wage of $\$200$ and turns out $50$ goods per week. What is the mean labour cost per good made?
May/June 2021
Which term refers to the total revenue of a firm?
May/June 2021
The diagram illustrates a firm’s total revenue (TR) and total cost (TC) in a market. At what output level will the firm maximise profits?
May/June 2021
A manufacturer of medical supplies gains from better road connections to its main markets. Which benefit will certainly happen as a result?
May/June 2022
The diagram illustrates a firm’s fixed costs, variable costs and total costs at output $S$. Which distance shows the firm’s variable costs?
May/June 2022
The diagram illustrates the fixed costs, variable costs and total costs of a firm when output is S. Which distance indicates the firm’s variable costs?
May/June 2022
The diagram illustrates the fixed costs, variable costs and total costs of a firm when output is $S$. Which distance represents the firm's variable costs?
May/June 2022
In Nicaragua, GDP fell by 4% in 2019 even though household spending increased. Bananas, which are a merit good, were one Nicaraguan product whose supply rose. The Nicaraguan government encouraged banana farmers and other producers to raise output. Changes in output can influence a firm’s average production costs.
May/June 2022
The diagram illustrates a firm’s total cost (TC) curve. Calculate the average variable cost when the firm produces $10$ units of output.
May/June 2023
Which item is not a variable cost of production?
May/June 2023
What does the term firm's revenue mean?
May/June 2023
What factors might lead to internal diseconomies of scale for a firm?
May/June 2023
What is one likely reason that firms do not increase in size?
May/June 2023
Canada’s private sector firms have several different objectives. The amount and the quality of land used by these firms, including farms, has risen. There has also been greater investment, with firms purchasing more capital goods. In 2021, the Canadian government promoted higher investment and wanted to stop unemployment from rising.
May/June 2023
In 2020, Australia had a comparatively high national minimum wage (NMW). Some workers on Australian dairy farms received the NMW. Australia produces milk and soft drinks. Some consumers buy milk as a substitute for soft drinks. In 2020, a number of dairy farms and small firms closed down. That year also brought a rise in the value of the country’s floating foreign exchange rate.
May/June 2023
A firm faces fixed costs of $20 and the total variable costs shown below. What happens to average total cost across this range of output?
May/June 2024
The table gives the firm’s costs and output. What is the firm’s average fixed cost?
May/June 2024
What do we mean by a variable cost for a firm?
May/June 2024
The table presents the daily average revenue and number of units sold for a firm producing bicycles across a five-day period. What conclusion can be drawn from the table?
May/June 2024
A firm raised output from $Q_1$ to $Q_2$ and gained economies of scale. How is this represented on the firm's average total cost curve (ATC)?
May/June 2024
How do you calculate the average cost of a product?
May/June 2024
The diagram illustrates the average total costs (ATC) and average fixed costs (AFC) for a firm. Which statement is correct?
May/June 2025
The diagram illustrates the average total cost curve (ATC) for a firm following a merger. Why is the shift from X to Y likely to be caused by this merger?
May/June 2025
What are fixed expenses?
May/June 2025
The table presents the daily output and costs for four firms that produce chairs. Which firm has the greatest average cost of production?
May/June 2025
The only details known about a firm are the price it sets for its product and the quantity it sells. What further conclusion can be drawn from this?
May/June 2025
A manufacturing company expands the size of its output. Its long-run average total cost (ATC) curve is shown below. At which point on the ATC curve is the company facing diseconomies of scale?
May/June 2025
A firm incurs fixed costs of $\$100$ in producing its daily output. The table sets out its daily total variable costs. What can be concluded about the firm’s average total cost?
May/June 2025
The table presents the information available to a company’s managers from one week of trading. If there are no additional costs, what is the amount of the fixed costs?
Oct/Nov 2015
What must be declining if a firm is experiencing economies of scale?
Oct/Nov 2015
The table presents the information available to a company’s managers from one week of business activity: number of employees $=100$, average wage $=\$900$, value of output $=\$100\,000$, rent $=\$10\,000$, raw materials $=\$20\,000$. If there are no other costs, what is the amount of the fixed costs?
Oct/Nov 2015
The table presents the data available to a company’s managers from one week of trading activity. employees: $100$ average pay: $\$900$ output value: $\$100\,000$ rental cost: $\$10\,000$ materials used in production: $\$20\,000$ If there are no other costs, what is the amount of the fixed costs?
Oct/Nov 2015
A survey of managers in the USA showed that most businessmen believe a company’s responsibility is ‘to serve the interests of owners, employees, customers and the public’. By contrast, the idea of profit maximisation suggests that a company’s chief responsibility should be to the
Oct/Nov 2016
For a firm, the fixed costs for its daily output are $200$. The table gives its daily total variable costs. Output (units): $1, 2, 3, 4$ Total variable costs ($): $300, 400, 700, 800$ What conclusion can be drawn about the firm’s average total cost?
Oct/Nov 2016
A survey of managers in the USA showed that most businessmen believe a company’s responsibility is to look after the interests of owners, employees, customers and the public. By contrast, the idea of profit maximisation suggests that a company’s chief responsibility ought to be to the
Oct/Nov 2016
A firm incurs fixed costs of $100 for its daily output. The table gives its daily total variable costs. What conclusion can be drawn about the firm’s average total cost?
Oct/Nov 2016
In 2014, worldwide steel demand weakened after China, the largest market for steel in the world, saw its consumption growth cut by half. The world’s largest steel-producing company predicted stronger profits for 2014, although it believed production might need to be reduced. The firm was deepening its specialisation in the steel market. Employment in this industry has fallen because firms have tried to lower capacity.
Oct/Nov 2016