Economics 2281 · O Level · Firms' costs, revenue and objectives
Firms' costs, revenue and objectives — practice question
In April 2023, a cosmetics company in France merged with one based in Australia. The merger is expected to reduce average total costs because the enlarged firm is likely to gain from larger internal economies of scale. A manager said that an important objective is to make production more sustainable by using raw materials drawn from renewable sources. In most countries, the firm’s cosmetics, including perfume, are taxed at a higher rate than food.
(a)[2]
Define average total cost as used here.
(b)[4]
Explain the possible impact of using renewable raw materials on a firm’s profits.
(c)[6]
Analyse the internal economies of scale a cosmetics firm might obtain as it grows.
(d)[8]
Discuss whether it is right for perfume to be taxed at a higher rate than food.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme.