Pearson Edexcel International A Level · Economics (YEC11)

Revenue, costs and profits: Practice Questions

3 multiple-choice questions marked as you go, and 3 written questions with worked solutions. All on Revenue, costs and profits.

6 questions17 marksFree, no account

Question 1

1 mark

If a firm faces price elastic demand for its product, what will be the effect on its Total Revenue (TR) if the firm decides to increase the price?

Question 2

1 mark

In the short run, a loss-making firm should continue to operate as long as its Total Revenue (TR) is at least equal to its:

Question 3

1 mark

A firm's production data shows that the marginal cost ($MC$) is currently lower than the average total cost ($ATC$). If the firm increases its output by one unit, what will happen to the $ATC$?

Question 4

5 marks

Explain the relationship between marginal cost ($MC$) and average variable cost ($AVC$) in the short run, with reference to the law of diminishing returns.

Write your answer out first, then check it against the worked solution.

Question 5

5 marks

A firm's marginal revenue (MR) becomes negative at a certain level of output.

Using the relationship between price elasticity of demand (PED) and total revenue (TR), explain what this indicates about the PED of the product and the direction of TR if output is increased further.

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Question 6

4 marks

A firm's production costs in the short run are structured as follows:
Output 0: Total Cost = $\$50$
Output 1: Total Cost = $\$80$
Output 2: Total Cost = $\$100$
Output 3: Total Cost = $\$130$

(a) Calculate the Marginal Cost (MC) of producing the 3rd unit. (1)
(b) Define the law of diminishing returns and explain how it influences the shape of the marginal cost curve in the short run. (3)

Write your answer out first, then check it against the worked solution.

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