Cambridge International AS and A Level Economics: Short-run production and costs (9708) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

These questions cover sections 7.5.1 and 7.5.2 of the Cambridge International AS & A Level Economics 9708 syllabus for examination in 2026, 2027 and 2028. This is A Level content (topics 7 to 11), not examined at AS. All firms and figures are invented, and money is in currency units (cu). Read the study guide and the revision notes first. The course hub and checklist show the rest of the syllabus.

Questions

1. Distinguish between a fixed factor and a variable factor of production in the short run. [2]

2. A vegetable farm in Country E has one field (fixed). Monthly output depends on the number of workers.

Workers	1	2	3	4	5	6
Total product (tonnes)	8	20	34	44	50	52

(a) Calculate the marginal product of the third worker and the average product with five workers. [2] (b) State the worker at which diminishing returns begins and justify your answer. [2] (c) Explain why total product can rise while diminishing returns operates. [2]

3. A pottery studio in Country A has total fixed costs of 120 cu. Output is in batches.

Output (batches)	1	2	3	4	5	6
Total variable cost (cu)	80	140	190	260	350	470

(a) Calculate total cost and average total cost at 4 batches. [2] (b) Calculate the marginal cost of the fifth batch. [2] (c) Identify the output at which average variable cost is lowest and use marginal cost to explain why. [3]

4. A firm in Country G has an average total cost of 12.50 cu and an average fixed cost of 3.00 cu at an output of 40 units. Its total cost at 41 units is 513 cu. (a) Calculate average variable cost at 40 units. [1] (b) Calculate total fixed cost and total variable cost at 40 units. [2] (c) Calculate the marginal cost of the 41st unit. [2] (d) State and explain whether average total cost is rising or falling at 41 units. [2]

5. Explain why average fixed cost falls continuously as output rises. [3]

6. Explain why the marginal cost curve of a firm falls at first and then rises. [4]

7. Explain why the minimum of the average total cost curve lies at a higher output than the minimum of the average variable cost curve. [4]

8. The pottery studio in question 3 faces a rise in total fixed costs from 120 cu to 180 cu. (a) Calculate the new average total cost at 4 batches. [2] (b) State the effect on marginal cost and on average variable cost, with a reason. [2] (c) Calculate the change in average fixed cost at 4 batches. [1]

9. On the farm in question 2, each worker is paid 300 cu a month. The wage rises to 360 cu. (a) Calculate the marginal cost of the output from the third worker before and after the wage rise, in cu per tonne to 2 decimal places. [2] (b) Calculate the percentage change in this marginal cost. [1] (c) Explain why marginal cost changes by this percentage. [2]

10. A textile firm in Country D has one weaving hall (fixed) with total fixed costs of 500 cu a week. It pays each worker 100 cu a week.

Workers	1	2	3	4	5	6	7
Total product (metres)	30	76	126	164	196	214	222

(a) Calculate the marginal product of the third and fourth workers. [2] (b) Calculate average variable cost and average total cost with five workers, to 2 decimal places. [3] (c) State the number of workers that gives the lowest average variable cost and explain your choice. [2] (d) Explain why average total cost is lowest with five workers rather than three. [3]

11. A manager says: “Once diminishing returns set in, costs per unit must be rising, so we should stop hiring.” Using the textile firm in question 10 where helpful, assess this view. [8]

Answers

1. A fixed factor cannot be changed when output changes in the short run (such as a factory building) [1]. A variable factor can be changed to alter output (such as labour hours or materials) [1]. [2] Examiner insight: Give a contrast, not two separate definitions. Saying that one cannot change and the other can is the comparison being asked for.

2. (a) MP of third worker = 34 - 20 = 14 tonnes [1]. AP with five workers = 50 / 5 = 10 tonnes per worker [1]. (b) The fourth worker [1], because MP falls from 14 to 10 tonnes there, having risen before [1]. (c) Total product rises as long as MP is positive [1]. Diminishing returns means the additions get smaller, not negative, so TP rises more slowly (44 to 50 to 52) [1]. [6] Examiner insight: Write the subtraction and the division. A common slip is dividing TP by the wrong number of workers when finding AP.

3. (a) TC = 120 + 260 = 380 cu [1]. ATC = 380 / 4 = 95 cu [1]. (b) TC at 5 batches = 120 + 350 = 470 [1]. MC = (470 - 380) / (5 - 4) = 90 cu [1]. (c) AVC = 80, 70, 63.33, 65, 70, 78.33, so lowest at 3 batches [1]. MC of the third batch (50) is below AVC at 2 batches (70), pulling AVC down [1]. MC of the fourth batch (70) is above AVC at 3 batches (63.33), pulling it up [1]. [7] Examiner insight: Show AVC at each output, not just at the answer. Without comparing MC with AVC, an explanation of the minimum is incomplete.

4. (a) AVC = ATC - AFC = 12.50 - 3.00 = 9.50 cu [1]. (b) TFC = 3.00 x 40 = 120 cu [1]. TVC = 9.50 x 40 = 380 cu [1]. (c) TC at 40 units = 12.50 x 40 = 500 [1]. MC = 513 - 500 = 13 cu [1]. (d) ATC at 41 = 513 / 41 = 12.51, above 12.50, so it is rising [1]. MC (13) is above ATC (12.50), which pulls the average up [1]. [7] Examiner insight: Part (d) asks for a state and an explain. A direction without the MC-above-average reason leaves half the question unanswered.

5. TFC does not change with output in the short run [1]. AFC = TFC / Q [1]. A larger Q divides the same TFC into smaller shares, so AFC falls, and it never reaches zero because TFC is positive [1]. [3] Examiner insight: Include the formula. The words “spreading overheads” alone describe the idea but do not explain the fall.

6. At low output, extra workers specialise, so MP rises [1]. Each extra unit then needs less extra input, so MC falls [1]. Later, diminishing returns sets in and MP falls [1]. The price of the variable factor is unchanged, so more input is needed per extra unit and MC rises [1]. [4] Examiner insight: Link MC to MP in both directions. An answer that states the shape only, or only mentions diminishing returns, covers half the chain.

7. ATC = AFC + AVC [1]. AVC is lowest where MC cuts it [1]. Beyond that output AVC begins to rise, but AFC is still falling [1]. ATC carries on falling until the increase in AVC is bigger than the decrease in AFC; this is where MC cuts ATC, at a higher output [1]. [4] Examiner insight: State what happens to each of the two components. The idea that AFC is still falling is the step that explains the gap.

8. (a) New TC = 180 + 260 = 440 [1]. New ATC = 440 / 4 = 110 cu [1]. (b) MC and AVC are unchanged [1], because they depend only on variable costs and the extra cost of output, not on fixed costs [1]. (c) AFC rises from 120 / 4 = 30 to 180 / 4 = 45, a rise of 15 cu [1]. [5] Examiner insight: A common slip is moving every curve. Say which curves move and which do not.

9. (a) MP of the third worker = 14 tonnes. MC before = 300 / 14 = 21.43 cu per tonne [1]. MC after = 360 / 14 = 25.71 cu per tonne [1]. (b) (25.71 - 21.43) / 21.43 x 100 = 20% [1]. (c) MC = wage / MP [1]. MP has not changed, so MC rises in proportion to the wage, which rose by 60 / 300 = 20% [1]. [5] Examiner insight: Use the unrounded values for the percentage, or the exact fraction. Rounding the two marginal costs first can leave the answer slightly away from exactly 20%.

10. (a) Third worker: 126 - 76 = 50 metres [1]. Fourth worker: 164 - 126 = 38 metres [1]. (b) TVC = 5 x 100 = 500, AVC = 500 / 196 = 2.55 cu [1]. TC = 500 + 500 = 1000 [1], ATC = 1000 / 196 = 5.10 cu [1]. (c) Three workers [1]. AVC is 2.38 (300 / 126) at three workers, against 2.63 at two and 2.44 at four; AP is also highest at three workers (42) [1]. (d) With three workers ATC = 800 / 126 = 6.35, against 5.10 with five [1]. From three to five workers AFC falls from 3.97 to 2.55 [1]. AVC rises only from 2.38 to 2.55, so the fall in AFC is larger and ATC falls [1]. [10] Examiner insight: Part (d) gains credit by comparing the movement in AFC with the movement in AVC. Quoting the two ATC figures alone is not an explanation.

11. Diminishing returns means MP falls, which makes MC rise [1]. The manager confuses this with average costs, which can still fall [1]. In the textile data MP falls from 50 to 38 at the fourth worker, but AVC rises only slightly (2.38 to 2.44), because AVC averages every unit so far, so one dearer unit (MC 2.63 against AVC 2.38) moves it only a little [1]. ATC falls from 6.35 at three workers to 5.49 at four and 5.10 at five, because AFC is falling faster than AVC rises [1]. Average costs turn up only once MC is above the average: ATC rises at six workers (5.14) [1]. So hiring beyond the start of diminishing returns can lower cost per unit up to five workers [1]. However, the right number depends on whether the extra output can be sold at a price that covers MC, which these cost data do not show [1]. The conclusion is that the view is wrong as stated, though it is right that MC is rising and cannot keep rising indefinitely without cost [1]. [8] Examiner insight: An evaluation needs a judgement supported by the data. A paragraph that only restates the law of diminishing returns stays at description.

Where marks are usually lost

• Dividing by the wrong number. AP and MP use workers; AFC, AVC and ATC use output.
• Finding MC as TC divided by Q instead of the change in TC over the change in Q.
• Treating a fall in MP as a fall in total product.
• Moving the MC curve when only fixed costs change.
• Explaining the AVC minimum without comparing MC with AVC.
• Saying ATC and AVC have the same minimum.
• Rounding too early and getting a percentage change wrong.
• Giving a conclusion in an assess question with no data to support it.

Next steps

• Review the revision notes and the study guide.
• Check your coverage on the course hub and the checklist.
• Take one of the free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

Cambridge International AS & A Level Economics 9708 syllabus for examination in 2026, 2027 and 2028, published by Cambridge University Press & Assessment, sections 7.5.1 and 7.5.2.