Economics 0455 · IGCSE · Firms’ costs, revenue and objectives
Firms’ costs, revenue and objectives — practice question
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.
(a)[2]
Define the term fixed cost.
(b)[4]
Explain why traffic congestion counts as an external cost.
(c)[6]
Analyse how a taxi firm can make use of information about price elasticity of demand for its service.
(d)[8]
Discuss whether a reduction in unemployment always leads to higher living standards.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme. One marking point: “A cost that remains unchanged as output varies” …