Exam code: 7136
15 marksExplain the role of profit in a market economy
In the United States, corporate profits since 2010 have averaged 9% of GDP, compared to 5% in the 1990s. This is causing concern that the US economy is increasingly dominated by companies with monopoly power
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Explain, using examples, how the existence of economies and diseconomies of scale affect firms’ average costs of production.
Britain’s energy market was plunged into chaos in 2021 as surges in wholesale electricity and gas prices exposed the weaknesses of many companies. Since deregulation in 2016, 49 energy supply companies have collapsed, with customers taken on by larger firms. This market chaos has led to renewed calls for the government to nationalise the energy industry.
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2 marksUsing the data in Extract A (Figure 1), calculate the mean amount of profit that pharmaceutical companies would have made on a new drug in 2019, given that the average development cost was $2.6bn. Give your answer to the nearest million dollars.
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Explain how a firm may benefit from both internal and external economies of scale
Aston Martin, the luxury car manufacturer, became a publicly listed company on the London Stock Exchange in October 2018, being valued at £3.89bn. The company had hoped to expand into new markets, enabling it to exploit economies of scale. However, following poor sales and weak profits, the company had lost 75% of its value by February 2020.
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