Practise Cambridge IGCSE Economics by defining cost measures, classifying firm expenses and calculating cost per unit from production data.
In April 2023, a French cosmetics firm merged with an Australian cosmetics firm. It is expected the merger will lower average total cost as the new firm is likely to benefit from greater internal economies of scale. A manager stated that a key aim is to make the firm's production more sustainable by using raw materials taken from renewable sources. In most countries, the cosmetics firm's products, including perfume, are taxed at a higher rate than food.
Define average total cost.
Define average total cost.
Total cost divided by output (2).
Cost per unit (1).
2
Explain how using renewable raw materials may affect a firm's profits.
Explain how using renewable raw materials may affect a firm's profits.
Logical explanation which might include the following.
- Using renewable resources may be more expensive (1) increase costs of production (1) reduce profits (1).
- Can advertise that renewable resources which create less pollution / improve environmental sustainability are being used (1) increase image of the firm (1) raise demand (1) increase profits (1).
- Using renewable resources may be subsidised (1). May become cheaper to use renewable resources in the long run (1).
- Resources will not be depleted / firms have a constant supply of raw materials (1) raise profits (1).
4
A simple statement that profits rise or fall with no relevant explanation is 0 marks.
Profits rising and profits falling can both be credited if each is explained.