Pearson Edexcel International GCSE Economics: Costs, revenue, profit and scale (4EC1) – 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 1.2.3, Business costs, revenues and profit, of the Pearson Edexcel International GCSE Economics (4EC1) specification, Issue 3, February 2026. There is one tier of entry. All firms and figures are made up, and amounts carry no currency sign. Learn the material first from the study guide or the revision notes. Course links: hub and checklist. Working should be shown on every calculation.

Questions

1. Greenfield Print Shop sells 1,800 posters at a price of 5.00. Its total fixed costs are 2,700 and its variable cost is 1.40 per poster.

(a) Calculate total revenue. [1] (b) Calculate total costs. [2] (c) Calculate profit. [1] (d) Calculate average (total) cost per poster. [1]

2. What is meant by economies of scale? [2]

3. A firm produces 2,500 units. Its average cost is 6.40 and its total fixed costs are 4,000. It sells each unit at 7.20.

Calculate total costs, total variable costs, and profit. [4]

4. Identify which internal economy of scale each case illustrates.

(i) A growing chain hires a specialist finance director and a head of logistics. [1] (ii) A large firm is offered a lower interest rate by its bank. [1] (iii) A firm sells in many regions, so a poor year in one does not threaten it. [1] (iv) A firm buys materials in very large orders and receives a discount. [1]

5. Riverbank Dairy pays 2.50 per carton when it orders fewer than 500 cartons and 2.20 per carton when it orders 500 or more. It orders 800 cartons.

(a) Calculate how much the firm saves on the order compared with paying 2.50 per carton. [2] (b) Calculate the saving as a percentage of the original price per carton. [1] (c) Explain why this lowers the firm’s average cost. [2]

6.

(a) What is meant by external economies of scale? [2] (b) Explain how a cluster of similar businesses in the same area could lower a firm’s costs. [4]

7.

(a) State two types of diseconomies of scale. [2] (b) Explain how communication problems could raise a growing firm’s average cost. [3]

8. Orion Ltd’s long run average cost (LRAC) at different outputs is shown below.

Output	5,000	10,000	15,000	20,000	25,000	30,000
LRAC	12.00	9.00	7.50	7.00	7.60	8.50

(a) Calculate total cost at 10,000 units. [1] (b) State the output at which the firm is most efficient. [1] (c) Calculate the percentage fall in LRAC between 5,000 and 20,000 units. [2] (d) Calculate the percentage rise in LRAC between 20,000 and 30,000 units. [2] (e) Draw, or describe in words, an annotated LRAC diagram for this firm. [4]

9. A pottery has total fixed costs of 1,800 a month and a variable cost of 4 per pot.

(a) Calculate average (total) cost at outputs of 150, 300 and 450 pots. [3] (b) Explain why average cost falls as output rises. [3]

10. “A growing firm will always enjoy lower average costs.”

Evaluate this statement. [9]

11. Harbour Textiles sells all its output at 9.00 per metre. At 50,000 metres its average cost is 7.20. It expands to 80,000 metres, where its LRAC is 8.10.

(a) Calculate profit at 50,000 metres. [3] (b) Calculate profit at 80,000 metres and the percentage change in profit. [3] (c) Explain why profit fell although output and revenue rose. [3]

Answers

1. (a) TR = 1,800 x 5.00 = 9,000 [1] (b) TVC = 1,800 x 1.40 = 2,520 [1]; TC = 2,700 + 2,520 = 5,220 [1] (c) Profit = 9,000 - 5,220 = 3,780 [1] (d) ATC = 5,220 / 1,800 = 2.90 [1] Examiner insight: Write the formula, then the substitution. When a per-unit variable cost is given, work out total variable costs before adding fixed costs, because adding 1.40 straight to 2,700 is a common slip.

2. A fall in average cost [1] as a firm increases its scale of production (output) in the long run [1]. Examiner insight: A definition needs two separate ideas. “Costs fall” alone is incomplete; say average (per unit) cost and say what causes the fall.

3. TC = 2,500 x 6.40 = 16,000 [1]; TVC = 16,000 - 4,000 = 12,000 [1]; TR = 2,500 x 7.20 = 18,000 [1]; profit = 18,000 - 16,000 = 2,000 [1] Examiner insight: Here the average cost is given, so the route to total cost is multiplication, not division. State TR as a step, since profit cannot be reached without it.

4. (i) Managerial [1]; (ii) financial [1]; (iii) risk bearing [1]; (iv) purchasing (bulk buying) [1] Examiner insight: Match the economy to the clue in the wording, such as “specialist” or “interest rate”. Naming two types in one answer risks losing credit.

5. (a) Old price cost = 800 x 2.50 = 2,000 [1]; new cost = 800 x 2.20 = 1,760, so saving = 240 [1] (b) 0.30 / 2.50 = 12% [1] (c) Buying in bulk gives a lower price per carton [1], so the cost of inputs per unit falls and average cost falls [1] Examiner insight: In part (c) link the discount to cost per unit sold, not only to the total saving. A full chain runs from large order to lower unit price to lower average cost.

6. (a) A fall in average cost [1] that arises because the industry or area has grown, not because of the individual firm’s own size [1] (b) Any developed chain, for example: businesses in the same industry locate close together [1]; a pool of workers trained in the relevant skills develops, or specialist suppliers set up nearby [1]; the firm spends less on training or pays less for supply and delivery [1]; so its average cost falls [1] Examiner insight: Pick one type, such as skilled labour or access to suppliers, and develop it. Saying only “the firm gets lots of benefits” is a list without an explanation.

7. (a) Any two from bureaucracy; communication problems; lack of control; distance between top management and workers [1] [1] (b) The firm has many layers or sites, so messages pass through several people [1]; instructions are delayed or misunderstood, so errors and repeated work occur [1]; these wasted resources raise total cost per unit, so average cost rises [1] Examiner insight: A diseconomy answer is complete only when it ends with average cost rising. Stopping at “communication is poor” describes the problem but not its economic effect.

8. (a) 10,000 x 9.00 = 90,000 [1] (b) 20,000 units (lowest LRAC, 7.00) [1] (c) (12.00 - 7.00) / 12.00 [1] = 41.7% [1] (d) (8.50 - 7.00) / 7.00 [1] = 21.4% [1] (e) Labelled axes, output along the bottom and cost per unit up the side [1]; curve slopes downward to 20,000 units, labelled internal economies of scale [1]; lowest point at 20,000 units labelled most efficient output, LRAC 7.00 [1]; curve slopes upward beyond it, labelled diseconomies of scale [1]

Cost per unit
 |\
 |  \  economies of scale
 |    \_                    /  diseconomies of scale
 |       \__            __/
 |          \__      _/
 |             \____/   <- 20,000 units, LRAC 7.00
 +---------------------------> Output

Examiner insight: A diagram earns credit for what is labelled, so a bare curve gains little. For percentage change, divide by the starting value, not the end value.

9. (a) At 150: TC = 1,800 + 600 = 2,400, ATC = 16.00 [1]; at 300: TC = 3,000, ATC = 10.00 [1]; at 450: TC = 3,600, ATC = 8.00 [1] (b) Fixed costs of 1,800 stay the same [1]; they are shared across more pots, so fixed cost per pot falls (12.00, 6.00, 4.00) [1]; variable cost stays 4 per pot, so total average cost falls [1] Examiner insight: This is a short-run spreading of fixed costs, because the premises are unchanged. Do not label it an economy of scale, which needs all inputs to be changeable in the long run.

10. Sample points, one mark each where developed (nine needed):

• Definition: economies of scale are a fall in average cost as scale rises. [1]
• A named internal economy with a chain, for example bulk buying gives a lower price per unit. [1]
• A second internal economy with a chain, for example technical, financial or managerial. [1]
• External economies may also lower costs if the industry grows in the area. [1]
• A named diseconomy, for example bureaucracy or communication problems. [1]
• Chain showing why it raises average cost, such as slower decisions and extra admin staff. [1]
• The lowest point of the LRAC curve: beyond the most efficient output, growth raises average cost. [1]
• Evaluation: it depends on how far the firm is from its lowest point, its industry and its management. [1]
• A supported judgement, for example “not always: lower costs are likely while the firm is small, but past its most efficient output they rise”. [1] Examiner insight: The statement contains “always”, which invites a counter-argument. Name the conditions under which it holds and fails, then finish with a conclusion that picks a side.

11. (a) TR = 50,000 x 9.00 = 450,000 [1]; TC = 50,000 x 7.20 = 360,000 [1]; profit = 90,000 [1] (b) TR = 80,000 x 9.00 = 720,000; TC = 80,000 x 8.10 = 648,000; profit = 72,000 [1]; change = 72,000 - 90,000 = -18,000 [1]; -18,000 / 90,000 = -20% [1] (c) Output beyond the most efficient point causes diseconomies of scale [1], such as lack of control or bureaucracy, so average cost rose from 7.20 to 8.10 [1]; costs rose faster than revenue (TC up by 288,000, TR up by 270,000), so profit fell [1] Examiner insight: Use the numbers in the explanation. Show that total cost grew more than total revenue, and name a cause of the higher cost.

Where marks are usually lost

• Using average cost where total cost is needed, or the reverse.
• Forgetting to add fixed costs to variable costs.
• Dividing a change by the new value instead of the original value.
• Defining economies of scale without the word average or without the long run.
• Treating the spreading of fixed costs in the short run as an economy of scale.
• Calling an external benefit internal, such as an area’s new port.
• Naming a diseconomy but not explaining why average cost rises.
• Drawing an LRAC curve with no labelled axes or lowest point.
• Ending an evaluation without a judgement.

Next steps

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

Official syllabus

Pearson Edexcel International GCSE in Economics (4EC1) specification, Issue 3, February 2026, Pearson Education Limited: section 1.2.3, Business costs, revenues and profit.