Cambridge IGCSE Economics: Costs, revenue and objectives of firms (0455) – 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 section 3.7, Firms’ costs, revenue and objectives, of the Cambridge IGCSE Economics 0455 syllabus for examination in 2026. Marginal cost and marginal revenue are not required. All firms and figures are invented, and money is in dollars. Read the study guide and revision notes first if you need to. See also the course hub, the checklist and the diagnostics.

Questions

1. Define (a) fixed cost and (b) variable cost, using an example of each for a bicycle repair shop. [2]

2. A courier firm has fixed costs of 600 a week. Its variable costs are 400 for 100 deliveries, 700 for 200, 900 for 300 and 1,300 for 400.

(a) Calculate total cost at 300 deliveries. [1] (b) Calculate average fixed cost at 400 deliveries. [1] (c) Calculate average variable cost at 200 deliveries. [1] (d) Calculate average total cost at 100 deliveries. [1] (e) State the output with the lowest average total cost and explain one reason why average total cost falls as output rises. [2]

3. A print shop makes 400 posters. Its total cost is 7,200 and its fixed cost is 2,000. Calculate its variable cost, average variable cost, average fixed cost and average total cost. [4]

4. Describe how you would draw a diagram showing the average fixed cost, average variable cost and average total cost curves of a firm. [4]

5. A stall sells 240 scarves at 15 each. A second stall earns 9,600 from selling 320 hats.

(a) Calculate the first stall’s total revenue. [1] (b) Calculate the second stall’s average revenue. [1] (c) State why average revenue equals price when all units sell at one price. [1]

6. A cafe sells muffins at four prices. At 3.00 it sells 200 a day, at 2.50 it sells 260, at 2.00 it sells 300 and at 1.50 it sells 320.

(a) Calculate total revenue at each price. [2] (b) State the price that gives the highest total revenue. [1] (c) Explain why total revenue falls when the price is cut from 2.50 to 2.00, although sales rise. [2]

7. A greengrocer has fixed costs of 1,500 a month. It sells 2,000 kg of fruit at 2.10 a kilo. Variable cost is 1.20 a kilo. Calculate total revenue, total cost, profit and average total cost, and use average revenue to check the profit. [5]

8. Name the main objective shown in each case. [4]

(i) A new restaurant cuts its prices during a slump so it can stay open. (ii) A charity-run hostel keeps its rents low for people on low incomes. (iii) A shop chain opens five new branches although its profit falls. (iv) Owners set prices and costs to get the biggest gap between revenue and cost.

9. Explain two reasons why a social enterprise may not aim to maximise profit. [4]

10. A toy maker has fixed costs of 12,000 a month. Plan A is to make 2,000 toys at a price of 20, with variable costs of 14,000. Plan B is to make 3,000 toys at a price of 16, with variable costs of 24,000.

(a) Calculate total revenue, total cost and profit for each plan. [5] (b) Evaluate which plan the owner should choose if her objective is (i) profit maximisation and (ii) growth. [3]

11. In its first month a new shop sells 650 units at 8 each. Fixed cost is 3,900 and variable cost is 2,600.

(a) Calculate total revenue, total cost and profit or loss. [3] (b) Calculate the profit if sales rise to 1,000 units at the same price and the same average variable cost. [3] (c) Evaluate whether the owner should give priority to survival or to growth. [4]

12. A workshop pays a monthly rent of 800, which is its only fixed cost, and has variable cost of 3,000 at an output of 250. The rent rises to 1,000. Calculate the new average total cost, compare it with the old one and state what happens to average variable cost, giving a reason. [4]

Answers

1. (a) Fixed cost is a cost that stays the same as output changes, with a fitting example such as the shop’s rent [1]. (b) Variable cost is a cost that rises and falls with output, with a fitting example such as spare parts used in repairs [1]. [2] Examiner insight: A definition such as “cost that never changes” is weak; saying that it does not change with output is the safer wording, and an example drawn from the named business shows you have applied it.

2. (a) TC = 600 + 900 = 1,500 [1]. (b) AFC = 600 ÷ 400 = 1.50 [1]. (c) AVC = 700 ÷ 200 = 3.50 [1]. (d) ATC = (600 + 400) ÷ 100 = 10 [1]. (e) Lowest ATC at 400 deliveries (1,900 ÷ 400 = 4.75) [1]; the fixed cost is shared over more deliveries, so AFC and therefore ATC falls [1]. [6] Examiner insight: Show the substitution for each part. In (e), a figure for ATC at 400 deliveries supports your choice, and the reason must link fixed cost to output.

3. VC = 7,200 − 2,000 = 5,200 [1]. AVC = 5,200 ÷ 400 = 13 [1]. AFC = 2,000 ÷ 400 = 5 [1]. ATC = 7,200 ÷ 400 = 18, which equals 13 + 5 [1]. [4] Examiner insight: Each answer is a different average; check that ATC equals AFC plus AVC, and label each as a cost per poster.

4. Output is on the horizontal axis and cost per unit on the vertical axis, both labelled [1]. AFC slopes downwards across the diagram and never touches the output axis [1]. AVC is U-shaped, falling to a lowest point then rising [1]. ATC is also U-shaped and lies above AVC, with the gap between them equal to AFC and narrowing as output rises [1]. [4] Examiner insight: Do not let ATC cross AVC; the gap is AFC, so each curve should be labelled and ATC kept above AVC at every output.

5. (a) TR = 15 × 240 = 3,600 [1]. (b) AR = 9,600 ÷ 320 = 30 [1]. (c) Because TR is price times quantity, dividing TR by quantity gives back the price [1]. [3] Examiner insight: A bare number earns less than a number with the formula; show price times quantity and total revenue divided by quantity.

6. (a) TR is 600, 650, 600 and 480 [2]. (b) The highest TR is at 2.50 [1]. (c) Between 2.50 and 2.00, price falls 20% [1] but sales rise only about 15% (from 260 to 300), so the loss from the lower price outweighs the extra sales and TR falls from 650 to 600 [1]. [5] Examiner insight: Compare the size of the price fall and the sales rise using numbers; saying only that “customers buy less” contradicts the data.

7. TR = 2.10 × 2,000 = 4,200 [1]. VC = 1.20 × 2,000 = 2,400, so TC = 1,500 + 2,400 = 3,900 [1]. Profit = 4,200 − 3,900 = 300 [1]. ATC = 3,900 ÷ 2,000 = 1.95 [1]. Check: AR − ATC = 2.10 − 1.95 = 0.15 a kilo, and 0.15 × 2,000 = 300 [1]. [5] Examiner insight: Find TC by adding FC and VC before dividing; using VC alone gives the wrong total.

8. (i) Survival [1]. (ii) Social welfare [1]. (iii) Growth [1]. (iv) Profit maximisation [1]. [4] Examiner insight: One name for each case is enough; quote the clue in the case, such as “stay open”, so the choice is clearly based on the evidence.

9. First reason: its main purpose is to help people or the community, for example by selling at low prices to poorer households [1], so a high price that would raise profit would defeat its aim [1]. Second reason: it may employ people who find work hard to get, which raises costs [1], so profit is lower, but the social aim is met as long as it covers its costs [1]. [4] Examiner insight: Each reason needs a development step. Naming “social welfare” alone is a statement, not an explanation.

10. (a) Plan A: TR = 20 × 2,000 = 40,000 [1]; TC = 12,000 + 14,000 = 26,000 [1]; profit 14,000 [1]. Plan B: TR = 16 × 3,000 = 48,000 and TC = 12,000 + 24,000 = 36,000 [1]; profit 12,000 [1]. (b) (i) Plan A gives 2,000 more profit, so choose Plan A [1]. (ii) Plan B raises sales by 1,000 toys and TR by 8,000, so choose Plan B for growth [1]. Judgement: Plan A also has the higher profit per toy (7 against 4), so Plan B needs a growth reason that outweighs 2,000 less profit now [1]. [8] Examiner insight: A conclusion for each objective, backed by figures from both plans, gains credit; a single recommendation that ignores one objective does not answer the question.

11. (a) TR = 8 × 650 = 5,200 [1]; TC = 3,900 + 2,600 = 6,500 [1]; loss = 1,300 [1]. (b) AVC = 2,600 ÷ 650 = 4, so VC = 4,000 [1]; TC = 3,900 + 4,000 = 7,900 and TR = 8,000 [1]; profit = 100 [1]. (c) Growth in sales turns a loss into a small profit, because fixed cost is spread over more units [1]. Survival is the immediate need, since a loss of 1,300 cannot continue [1]. The firm cannot assume sales will reach 1,000 without lower prices or more advertising [1]. Judgement: it should treat growth in sales as the route to survival, while watching cash [1]. [10] Examiner insight: Strong answers join the two objectives with a reason from the figures instead of listing them separately.

12. Old TC = 800 + 3,000 = 3,800, so old ATC = 3,800 ÷ 250 = 15.20 [1]. New TC = 1,000 + 3,000 = 4,000 [1]; new ATC = 4,000 ÷ 250 = 16.00, a rise of 0.80 [1]. AVC stays at 3,000 ÷ 250 = 12 because rent is a fixed cost and does not affect variable cost [1]. [4] Examiner insight: State clearly which averages change and which do not; the reason for AVC is the point, because it tests whether fixed and variable cost are distinguished.

Where marks are usually lost

• Adding AFC and AVC and calling the result total cost.
• Dividing the wrong total, for example using TC for AVC.
• Quoting figures without units or without saying that they are per unit.
• Missing the working on calculations that ask you to show or check a result.
• Drawing ATC and AVC curves that meet or cross.
• Describing a price cut as always raising or always lowering revenue.
• Naming an objective without tying it to the firm.
• Evaluating with no judgement, or with a judgement that ignores the figures.

Next steps

• Review the revision notes and the study guide.
• Visit the course hub and the printable checklist.
• Try all free 10-minute diagnostics.
• Book a free trial class at /trial/.

Official syllabus

Cambridge IGCSE Economics 0455 syllabus for examination in 2026, version 2, Cambridge University Press & Assessment (Cambridge International), section 3.7.