CAIE IGCSE Economics 3.6. Firms’ costs, revenue & objectives Question Bank
Practise defining and calculating costs, revenue and profit, then linking firm objectives to output, prices and business decisions.
- Syllabus
- 2027–2029
- Course
- Economics 0455
Exam points
- calculate total, average, fixed and variable costs from firm output tables
- calculate total revenue from average revenue and quantity, then interpret changes
Covered syllabus points
3.6. Firms’ costs, revenue and objectives question 1
[Maximum number: 2]
In 2020, some firms in Suriname, a South American country, stopped production. This was because the firms could not cover their variable costs, as well as some of their fixed costs. The reduction in the country's output resulted in a rise in its unemployment rate. The government used supply-side policy measures to reduce unemployment. In 2021, the number of firms in some markets fell again, but this time it was when output was rising.
Define, with an example, a fixed cost.
Define, with an example, a fixed cost.
A cost that does not change with output / a cost that has to be paid even when output is zero (1) e.g. rent (1).
2
Not sufficient to state a cost that does not change.
Accepting electricity / electricity bills and wages.
3.6. Firms’ costs, revenue and objectives question 2
[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.
3.6. Firms’ costs, revenue and objectives 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
A
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