Cambridge O Level Economics: Costs, revenue and objectives of firms (2281) – 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 O Level Economics 2281 syllabus for examination in 2026, version 2. Marginal cost and marginal revenue are not required. All firms and figures are invented. Read the study guide and revision notes first if you need to. See also the course hub, the checklist and the diagnostics.

Questions

1. A small laundry is open all week. (a) Define fixed cost. [1] (b) State whether each cost is fixed or variable: rent of the shop; detergent; the manager’s monthly salary; electricity used by the machines for each load. [4]

2. A firm has fixed cost of 2,000 and variable cost of 3,500 when it makes 250 units. Find TC, ATC, AFC and AVC. [4]

3. At 150 units a firm has average total cost of 14 and average variable cost of 9. Calculate its average fixed cost, fixed cost, variable cost and total cost. [4]

4. A lantern workshop has fixed cost of 900. Its variable cost is shown.

Lanterns	20	40	60	80	100
Variable cost	500	860	1,080	1,480	2,100

(a) Calculate total cost, AFC, AVC and ATC at 80 lanterns. [4] (b) State the output in the table with the lowest AVC and the output with the lowest ATC. [2] (c) Explain why the lowest ATC is at a higher output than the lowest AVC. [2]

5. A firm has fixed cost of 300 and a variable cost of 5 for each unit made.

(a) Calculate total cost at outputs of 0 and 40. [2] (b) Describe how the TC curve compares with the VC curve. [2] (c) Explain what happens to average total cost as output rises from 20 to 60. [3]

6. (a) Define total revenue. [1] (b) A firm sells 240 units at 15 each. Calculate its total revenue. [1] (c) Another firm receives 4,500 from selling 360 units. Calculate its average revenue. [2]

7. In a sale, a shop sells 200 mugs: 120 at 8.50 and 80 at 6.00.

(a) Calculate total revenue. [2] (b) Calculate average revenue. [1] (c) Compare average revenue with 8.50 and explain the difference. [1]

8. A parcel service records its deliveries at four prices.

Price per delivery	20	18	16	14
Deliveries	100	115	140	150

(a) Work out TR at each of the four prices. [2] (b) Which price brings in the most? [1] (c) Use percentage changes to explain the drop in TR when the price goes from 16 to 14. [3]

9. A furniture maker has fixed cost of 1,000 and sells each chair for 60. Variable costs are in the table.

Chairs	10	20	30	40	50	60
Variable cost	350	600	900	1,380	1,950	2,700

(a) Calculate total revenue and profit at 40 and at 50 chairs. [4] (b) State the output in the table with the highest profit and explain why 60 chairs is worse. [2] (c) Show that the firm breaks even at an output between 30 and 40 chairs. [2]

10. A village runs a bus service. Option A: fare 2.00, 3,000 passengers a month, total cost 8,400. Option B: fare 3.00, 2,200 passengers, total cost 7,900 because fewer buses run.

(a) Calculate total revenue and profit or loss for each option. [4] (b) State which option is closer to profit maximisation and which is closer to social welfare. [2] (c) Evaluate which option the village should choose. [4]

Answers

1. (a) A cost that stays the same whatever the output [1]. (b) Rent: fixed [1]. Detergent: variable [1]. Manager’s monthly salary: fixed [1]. Electricity per load: variable [1]. [5] Examiner insight: give the word fixed or variable for each item, not a repeat of the item; a one-word label with a short reason is safest.

2. TC = 2,000 + 3,500 = 5,500 [1]. ATC = 5,500 ÷ 250 = 22 [1]. AFC = 2,000 ÷ 250 = 8 [1]. AVC = 3,500 ÷ 250 = 14 [1]. Check: 8 + 14 = 22. [4] Examiner insight: show each division on the page so the reader can see how you reached every figure.

3. AFC = 14 − 9 = 5 [1]. FC = 5 × 150 = 750 [1]. VC = 9 × 150 = 1,350 [1]. TC = 14 × 150 = 2,100 [1]. Check: 750 + 1,350 = 2,100. [4] Examiner insight: a one-line check such as FC + VC = TC shows you are testing your answer.

4. (a) TC = 900 + 1,480 = 2,380 [1]. AFC = 900 ÷ 80 = 11.25 [1]. AVC = 1,480 ÷ 80 = 18.50 [1]. ATC = 2,380 ÷ 80 = 29.75 [1]. (b) AVC is 25, 21.5, 18, 18.5, 21, so lowest at 60 lanterns [1]. ATC is 70, 44, 33, 29.75, 30, so lowest at 80 lanterns [1]. (c) Above 60 lanterns AVC rises, but only by 0.50 from 60 to 80 [1]. AFC still falls by 3.75 over the same range, so ATC keeps falling until 80 [1]. [8] Examiner insight: for part (c), quote the figures for both changes; a bare statement that AFC is falling gives only part of the reasoning.

5. (a) TC at 0 = 300 [1]. TC at 40 = 300 + 5 × 40 = 500 [1]. (b) TC is parallel to VC [1] and lies above it by 300, the fixed cost, at every output [1]. (c) ATC falls from 20 (400 ÷ 20) to 10 (600 ÷ 60) [1]. AVC stays at 5, so the whole fall comes from AFC [1], because the fixed cost of 300 is shared among more units, 15 each at 20 and 5 each at 60 [1]. [7] Examiner insight: in a curve question, state where the curve starts as well as its direction.

6. (a) Receipts from all units sold, equal to price × quantity [1]. (b) 240 × 15 = 3,600 [1]. (c) AR = TR ÷ quantity = 4,500 ÷ 360 [1] = 12.50 [1]. [4] Examiner insight: write the formula before substituting; units such as money per unit make the answer complete.

7. (a) 120 × 8.50 = 1,020 and 80 × 6.00 = 480 [1]. TR = 1,500 [1]. (b) AR = 1,500 ÷ 200 = 7.50 [1]. (c) AR is 1.00 below 8.50 because 80 mugs were sold at the lower sale price [1]. [4] Examiner insight: a comment that names the cause (the discount) earns the point; “it is lower” alone does not explain anything.

8. (a) 2,000 and 2,070 [1]; 2,240 and 2,100 [1]. (b) 16 [1]. (c) The price falls 12.5% (2 ÷ 16) [1]. Deliveries rise from 140 to 150, about 7.1% (10 ÷ 140) [1]. Sales rose by a smaller percentage than the price fell, so TR fell from 2,240 to 2,100 [1]. [6] Examiner insight: compare the two percentages directly; the conclusion follows from which is larger.

9. (a) At 40: TR = 60 × 40 = 2,400 [1]; TC = 1,000 + 1,380 = 2,380, so profit = 20 [1]. At 50: TR = 3,000 and TC = 1,000 + 1,950 = 2,950 [1], so profit = 50 [1]. (b) 50 chairs [1]. At 60, TR = 3,600 but TC = 3,700, so there is a loss of 100 [1]. (c) At 30, TR = 1,800 and TC = 1,900, a loss of 100 [1]. At 40 there is a profit of 20, so profit moves from negative to positive between 30 and 40 [1]. [8] Examiner insight: in “show that”, put the numbers for both sides of the break-even point on the page.

10. (a) A: TR = 2.00 × 3,000 = 6,000, and profit = 6,000 − 8,400 = −2,400 [1][1]. B: TR = 3.00 × 2,200 = 6,600, and profit = 6,600 − 7,900 = −1,300 [1][1]. (b) B is closer to profit maximisation because it has the smaller loss [1]. A is closer to social welfare because it has lower fares and 800 more passengers [1]. (c) A costs 1,100 more in losses than B [1]. Its benefit is that more villagers can travel, at lower fares [1]. But a loss of 2,400 each month needs a subsidy or donations, and if none exist the service may not survive [1]. A fair judgement: choose A if funding is secure, otherwise B or a fare between the two, because a service that closes helps nobody [1]. [10] Examiner insight: an evaluation needs a conclusion that depends on something stated, here whether funding exists.

Where marks are usually lost

• Reporting TC when ATC was asked.
• Forgetting to add FC to VC to reach TC.
• Using the wrong output when a table has several columns.
• Calling AFC constant.
• Starting the TC curve at the origin.
• Skipping the formula and showing only a bare number.
• Naming an objective without pointing to evidence about the firm.
• Ending an evaluation with no conclusion or no condition.

Next steps

• Re-read the revision notes and study guide.
• Visit the course hub and the checklist.
• Try all free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

Cambridge International, Cambridge O Level Economics 2281 syllabus for examination in 2026, version 2, section 3.7. Cambridge University Press & Assessment.