CAIE IGCSE Economics 3.6 Firms Costs Revenue and Objectives Topic Practice

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Covered syllabus points

3.6.1—Definitions of costs of production3.6.2—Calculation of costs of production3.6.3—Definition of revenue3.6.4—Calculation of revenue3.6.5—Objectives of firms

Question 1

[Maximum number: 6]

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.

Question (a)

(a)

Define average total cost.

[ 2 ]

Question (b)

(b)

Explain how using renewable raw materials may affect a firm's profits.

[ 4 ]

Question 2

[Maximum number: 1]

When it produces 100 units, a firm's total variable cost is $ 300 and its total fixed cost is $ 2700. What is the average total cost?

A

$ 3

B

$ 24

C

$ 27

D

$ 30

Question 3

[Maximum number: 1]

What is a definition of a firm's revenue?

A

money received from sales

B

sales volume

C

surplus over costs

D

tax payments

Question 4

[Maximum number: 1]

The table shows a firm's average revenue and average cost at different levels of output.
When all output is sold, which level of output generates the most profit?

output
(units)

average
revenue (US$)

average
cost (US$)

5

10

30

10

20

20

15

25

15

20

30

18

Question 5

[Maximum number: 1]

What is the definition of profit maximisation?

A

The firm is allocating a proportion of profit to other business objectives.

B

The firm is making as much profit as possible.

C

The firm is making higher levels of profit this year than last year.

D

The firm is making the same amount of profit this year as last year.

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