CAIE IGCSE Economics 3.6.2 Calculation of costs of production
Practise calculating TC, ATC, FC, AFC, VC and AVC from tables and diagrams, then interpreting how costs change as output rises.
- Syllabus
- 2027–2029
- Course
- Economics 0455
Exam points
- calculate total or average cost from fixed cost, variable cost and output data
- read cost diagrams to find variable cost or compare AFC, AVC and ATC at output levels
- interpret tables to decide whether average total cost rises, falls or changes direction
3.6.2—Calculation of costs of production question 1
[Maximum number: 6]
New Zealand is a small country with a population of 5 million. Most New Zealand firms are relatively small and most do not experience diseconomies of scale. In 1894, New Zealand was the first country to introduce a national minimum wage. New Zealand experienced a rise in income per head every year between 2010 and 2019. During this period, 6% of New Zealand's households experienced absolute poverty.
Analyse, using a diagram, the effect of an increase in output on average fixed cost (AFC) and total fixed cost (TFC).
Up to 4 marks for the diagram:
Axes correctly labelled: costs and output (1)
TFC horizontal line (1).
AFC downward sloping (1).
Curves correctly labelled: TFC / FC and AFC (1).
Up to 2 marks for coherent written analysis which might include:
A higher output will have no effect on total fixed cost / fixed costs do not change with output in the short run / fixed costs have to be paid even when output is zero (1).
Average fixed cost will fall with output / as the same cost figure is divided by a higher output / AFC is TFC divided by output (1).
6
Do not reward a demand/supply/demand and supply or PPC diagram.
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