Consider the following total costs and average revenue (price) for a small firm making boats.
- Complete all the missing figures.
- Plot ATC, MC, AR and MR.
- What is the profit maximising output (to a whole number)?
- Show the area representing super-normal profits if the firm is maximising its profits.
- What is sales revenue maximising output?
- Explain what happens to efficiency if the firm chooses to operate at profit maximisation.
Consider the above data for a firm making complex electronic navigation systems for aircraft. (Marks are in brackets)
- Complete missing figures. (10)
- Plot ATC, MC, AR and MR. (10)
- What would be profit maximising output? (4)
- Show the area representing super-normal profits on your graph, assuming the firm is maximising profits. (4)
- What is the output at which the firm maximises sales revenue? (4)
- What is the most productively efficient output? (2)
- Assume the firm chooses to operate at profit maximisation – evaluate this decision in terms of efficiency. (10)
- It has recently been under threat from new entrants into the market. What could the firm do in response? (8)
- What is the impact of a 50% rise in variable costs on the firm’s profitability? (4)
- Show the impact of these changes on your graph. (4)