Revenue and costs

A firm produces 1000 units and has a total cost of $50 000. The variable cost per unit produced is $40.

What is the total fixed cost of the firm?

• $1000

• $4000

• $10 000

• $40 000

Firms can grow by increasing the internal scale of their operations.

What might be a disadvantage of this to the firm?

• A average cost begins to fall

• it is difficult to motivate workers

• labour is replaced by robots

• markets become global

When is profit maximisation achieved?

• A when average fixed cost is at a minimum

• when average revenue is at a maximum

• when the firm produces the largest output it can with the resources it has available

• when there is the greatest possible difference between total revenue and total cost

What must result from an increase in output?

• a decrease in the average cost

• a decrease in the total costs

• an increase in the fixed costs

• an increase in the variable costs

An entrepreneur buys a workshop for $200 000 to make plastic boxes. In the first year of operation he spends $70 000 on materials, employs ten production workers paid by the amount produced (piece rate) at a total cost of $80 000 and buys two delivery vehicles for $10 000 each.

What are his total variable costs?

• A $100 000

• $150 000

• $220 000

• $370 000

What is the definition of diseconomies of scale?

• the decrease in average revenue as output increases

• the decrease in fixed cost as output increases

• the increase in average total costs as output increases

• the increase in total costs as output increases

What is an example of a technical economy of scale?

• A Banks provide loans at a lower interest rate to bigger firms.

• Bigger firms hire more workers.

• Firms obtain discounts when buying in bulk.

• Machines are used closer to their full capacity.

Which form of production would be least likely to have the advantages of economies of scale?

• car manufacturing

• commercial cereal farming

• handmade jewellery

• refining of oil products

Which statement about total fixed cost is correct?

• It falls as output increases.

• It is calculated by adding total cost and total variable cost

• It is calculated by dividing total cost by output.

• It must be paid even if output is zero.

Which statement about fixed costs is correct?

• They exist only in the long run.

• They include raw material and direct labour costs

• They increase at the same rate as output

• They must be paid even if there is no output.