1 markFigure 3 shows a firm’s total revenue (TR) curve.
Which one of the following combinations, A, B, C or D, describes how the firm’s average revenue and marginal revenue will change as the firm expands its output?
| Average revenue | Marginal revenue |
A | Increases | Increases |
B | Constant | Constant |
C | Decreases | Decreases |
D | Increases | Constant |
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1 markIncreased output results from specialisation and the division of labour because they enable
countries to produce outside their production possibility boundary
more efficient use of the available resources
people to exchange goods and services with each other
the use of money as a medium of exchange and store of value
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1 markTable 5 contains data for a firm’s marginal cost of producing different outputs of shirts per day. The firm operates in a perfectly competitive market. Table 5
Output of shirts per day | Marginal cost (£s) |
800 | 8 |
900 | 9 |
1000 | 10 |
1100 | 11 |
If the market price is £10 per shirt, at which one of the following outputs per day, A, B, C or D, will the firm maximise its profit?
800
900
1000
1100
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1 markThe table below shows how a firm’s total cost of producing handbags changes as output increases.
Output (handbags per month) | Total cost per month (£) |
0 | 45 000 |
1 000 | 165 000 |
2 000 | 250 000 |
3 000 | 360 000 |
What is the average fixed cost of producing 3 000 handbags per month?
£15
£105
£110
£120
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1 markThe UK’s labour productivity increases by only 10% over a five year period. Over the same period its main trading partners increase their productivity by 25%. All other things being equal, the most likely consequence for the UK is
a decline in UK imports from its main trading partners
a 15% deterioration in its balance of trade on the current account
a loss of competitiveness against its main trading partners
the imposition of a 15% tariff on imports to maintain international competitiveness
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1 markThe table below shows how a firm's total and average product change, in the short run, with different inputs of labour.
Number of workers | Total product | Average product |
4 | 128 | 32 |
5 | 260 | 52 |
6 | 420 | 70 |
7 | 497 | 71 |
8 | 528 | 66 |
Diminishing marginal returns to labour set in when the firm employs
5 workers
6 workers
7 workers
8 workers
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1 markA firm benefits from significant and persistent economies of scale as it increases output. Which one of the following is the most likely consequence as it grows in size?
The firm’s
ability to set its own prices will increase.
long-run average cost curve will become ‘U’ shaped.
increasing profitability will attract many new entrants.
total cost of production will decrease.
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1 markA firm employs three factors of production: capital, land and labour. The table below shows how the firm's output is affected by changing the amount employed of these factor inputs.
Units of output | Units of capital | Units of land | Labour (Number of workers) |
500 | 20 | 40 | 60 |
1000 | 80 | 160 | 240 |
2000 | 140 | 280 | 420 |
3000 | 210 | 420 | 630 |
4000 | 300 | 580 | 860 |
The firm experiences constant returns to scale when it increases its output from
500 to 1000 units.
1000 to 2000 units.
2000 to 3000 units.
3000 to 4000 units.
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1 markThe table below shows possible differences between the meanings of the terms invention and innovation. Which combination, A, B, C or D, correctly identifies the difference between the meanings of these terms?
| Invention | Innovation |
A | Applies to changes in goods only | Applies to changes in services only |
B | Applies to changes in services only | Applies to changes in goods only |
C | Discovering something entirely new | Turns the results of invention into a product |
D | Turns the results of innovation into a product | Discovering something entirely new |
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1 markThe table below shows the output, average total cost and average revenue for a firm.
Units of output | Average total cost (£) | Average revenue (£) |
10 | 15 | 26 |
11 | 14 | 24 |
12 | 13 | 23 |
13 | 12 | 21 |
At which one of the following levels of output will the firm maximise its profits?
10 units
11 units
12 units
13 units
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1 markThe marginal revenue product of labour is the
addition to total revenue when the firm produces and sells an extra unit of output.
amount produced per worker per time period.
change in total output that is produced when one extra worker is employed.
revenue gained by selling the extra output produced by employing one more worker.
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15 marksIn 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
Explain the role of profit in a market economy
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