Main stories
Energy market review Energy market - to be investigated by new competition watchdog..more
Budget logo Budget analysis - latest news
Mark Carney Bank of England - downgrades unemployment threshold

UK growth - GDP up 0.8% in the third quarter of 2013

UK unemployment - down to 7.1% as jobs market improves. More..

The global economy - IMF revises growth forecasts..More
Royal Mail - privatisation comes a step closer with announcement of IPO. More...
   
UK to launch Islamic Bond ..more
Mortgage approvals - highest since Jan 2009...More
Bank of England launches 'forward guidance' policy. Read the full story.
The UK's top 40 Universities for Economics.
Public spending - £11.5bn cuts announced
UK growth - UK avoids triple-dip recession
Benefit cap  - kicks in at £500 per week
UK Budget 2013 - analysis and comment
Student Guide to university Clearing
Quantitative easing - put on hold
Poverty - recession and relative poverty
Welfare reform - the end of universal benefits
Underemployment - over 3 million
CPI inflation - at 2.7%
   
Energy prices - set to rise
Competition policy - new regulator planned
Greek bailout - Euro problems
Top international universities for Economics
Top UK universities for Economics
OECD - latest forecasts for the OECD countries..More
Updates Get the latest updates on the UK economy, including GDP, inflation...More...
  Study guides Latest resources for students from Economics Online.  More...
How to answer data response questions. More...
Multiple choice tests Improve knowledge and understanding of Economics. More...
Market structures revision presentations
Economics tuition - from specialist tutors. Find out more..or REGISTER
City of London The financial crisis reveals a fundamental weakness .. More...
Recommended texts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profits

Question 1

Consider the following total costs and average revenue (price) for a small firm making boats.

Profits
All figures are in 000's

OUTPUT PRICE FIXED COST  VARIABLE COST TOTAL COST ATC MC TR MR Profit
0 100     100          
1 90     140          
2 80     160          
3 70     170          
4 60     190          
5 50     220          
6 40     290          
7 30     360          
8 20     560          

  1. Complete all the missing figures.

  2. Plot ATC, MC, AR and MR.

  3. What is the profit maximising output (to a whole number)?

  4. Show the area representing super-normal profits if the firm is maximising its profits.

  5. What is sales revenue maximising output?

  6. Explain what happens to efficiency if the firm chooses to operate at profit maximisation.

See: answer

Question 2

Profits
All figures are in 000's

OUTPUT PRICE FC  VC TC ATC MC TR MR Profit
0 20     10          
1 18     16          
2 16     22          
3 14     30          
4 12     40          
5 10     52          
6 8     66          
7 6     84          
8 4     106          

Consider the above data for a firm (UK Airparts Plc.) making complex electronic navigation systems for aircraft.  (Marks are in brackets)

  1. Complete missing figures. (10)

  2. Plot ATC, MC, AR and MR. (10)

  3. What would be profit maximising output?  (4)

  4. Show the area representing super-normal profits on your graph, assuming the firm is maximising profits. (4)

  5. What is the output at which the firm maximises sales revenue? (4)

  6. What is the most productively efficient output? (2)

  7. Assume the firm chooses to operate at profit maximisation – evaluate this decision in terms of efficiency. (10)

  8. It has recently been under threat from new entrants into the market. What could the firm do in response? (8)

  9. What is the impact of a 50% rise in variable costs on the firm's profitability? (4)

  10. Show the impact of these changes on your graph. (4)

Answer