Revenues, Costs and Profits | Edexcel A-Level Economics A (9EC0)

Revenues, Costs and Profits

119 questions
9 subtopics
Theme 3: business behaviour and the labour market
Paper 1 and Paper 3

Covers the arithmetic behind every firm's decisions: total, average and marginal revenue and cost, why the short-run cost curve is U-shaped, economies of scale, and when a firm should shut down..

It covers total, average and marginal revenue, revenue, elasticity and the revenue-maximising output, total, fixed, variable, average and marginal cost, why short-run cost curves take their shape, the long-run average cost curve and returns to scale, types of economies and diseconomies of scale, internal and external economies of scale, normal profit, supernormal profit and losses and the short-run and long-run shut-down points.

Sample questions from Revenues, Costs and Profits

Answer each one closed book first, then open the answer.

Total, average and marginal revenue

Calculate the average revenue when total revenue = £2,200, quantity = 420 units.

Show the answer
Average revenue = 2200 ÷ 420 = £5.24.
Revenue, elasticity and the revenue-maximising output

What is the effect on total revenue of a price change when demand is unit elastic?

Show the answer
Total revenue remains unchanged.
Total, fixed, variable, average and marginal cost

What does each term in the formula ATC = TC ÷ Q represent?

Show the answer
ATC is average total cost, TC is total cost, and Q is the quantity of output produced.
Why short-run cost curves take their shape

What happens to marginal cost when marginal productivity is rising?

Show the answer
Marginal cost is falling.
The long-run average cost curve and returns to scale

What does the long-run average cost curve show?

Show the answer
It shows the lowest possible average cost of producing each level of output when all factors are variable.
Types of economies and diseconomies of scale

How do purchasing economies of scale arise?

Show the answer
Larger firms can negotiate bulk-buying discounts from suppliers, reducing the average cost of inputs.
Internal and external economies of scale

If a manufacturing company doubles its factory size and finds its average costs fall as a result, what type of economy of scale is this an example of?

Show the answer
An internal economy of scale, because the cost reduction arises from the growth of the firm itself.
Normal profit, supernormal profit and losses

How is normal profit treated in a firm's accounts from an economist's perspective?

Show the answer
Normal profit is included as part of a firm's costs of production.

The 9 subtopics

One subtopic is one session. Work down the list.

Subtopic	What it covers	Questions
Total, average and marginal revenue	Recall questions on the formulae for TR, AR and MR, why AR is the demand curve, and why MR falls faster than price.	13
Revenue, elasticity and the revenue-maximising output	Recall questions on how elasticity decides the effect of a price change on revenue, and on why MR is zero at the revenue-maximising output.	19
Total, fixed, variable, average and marginal cost	Recall questions on the formulae for TC, TFC, TVC, ATC, AFC, AVC and MC, and on working each one out.	16
Why short-run cost curves take their shape	Recall questions on falling average fixed cost, diminishing returns, and the relationship between marginal and average cost.	9
The long-run average cost curve and returns to scale	Recall questions on how the LRAC is derived from short-run curves, its shape, and what minimum efficient scale means.	13
Types of economies and diseconomies of scale	Recall questions on technical, managerial, purchasing, financial, marketing and risk-bearing economies, and on the diseconomies that follow.	14
Internal and external economies of scale	Recall questions on what separates the two, and on how specialist suppliers, a skilled labour pool and infrastructure create external economies.	10
Normal profit, supernormal profit and losses	Recall questions on the profit-maximising condition, why normal profit is treated as a cost, and how each outcome is identified on a diagram.	13
The short-run and long-run shut-down points	Recall questions on where each point lies, why a loss-making firm may continue in the short run, and when it will leave the industry.	12

Revenues, Costs and Profits is 119 of the 2,508 questions in the guide.Get the guide, £8

How the guide is worked

Answering a question from memory stores it far better than reading the answer again. The guide runs that as a fixed procedure on one subtopic at a time, about twenty minutes a session.

Step 1 · Closed book
Cover the answers. Work through one subtopic and write down what you can. Leave blanks where you have nothing.
Step 2 · Open book
Go back to the top. Read each printed answer and write it out in full, including the ones you had right.
Step 3 · Closed book again
Same questions, same order, from memory. The gap between pass one and pass three is the session result.

Read the full method, the return schedule and the research behind it.