Economics 0455 · IGCSE · Firms’ costs, revenue and objectives
Firms’ costs, revenue and objectives — practice question
In April 2023, a cosmetics company from France merged with a cosmetics company from Australia. The merger is predicted to cut average total costs because the enlarged business is likely to gain more internal economies of scale. A manager said that one major objective is to make production more sustainable by using raw materials sourced from renewable resources. In most countries, the firm’s products, including perfume, are taxed more heavily than food.
(a)[2]
Define what average total cost means.
(b)[4]
Explain how the use of renewable raw materials may influence a firm’s profits.
(c)[6]
Analyse the internal economies of scale that a cosmetics firm could benefit from.
(d)[8]
Discuss whether perfume should face a higher tax rate than food.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme. One marking point: “Total cost over output” …