OCR A Level Economics: Short-run costs: diminishing returns and cost curves (H460) – 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 the short-run cost statements in Component 1, Microeconomics, of the OCR A Level Economics (H460) specification, Version 3.0 (June 2026), for first assessment in 2021. Teaching is in the study guide and the revision notes. Course pages: the hub and the checklist. All firms and figures are invented. Find your weak areas with the free diagnostics.

Questions

1. A garden centre (illustrative) rents its shop on a five-year lease, pays its staff by the hour and buys plants as orders arrive.

(a) Distinguish between the short run and the long run. [2] (b) Identify one fixed cost and one variable cost of the garden centre and justify each. [2]

2. A small firm (illustrative) produces 40 units. Its average cost (AC) is £7.50 and its average fixed cost (AFC) is £2.00.

(a) Calculate the average variable cost (AVC). [1] (b) Calculate total fixed cost and total variable cost. [2] (c) Producing the 41st unit raises total cost to £306.50. Calculate the marginal cost of that unit. [1] (d) Calculate AC at 41 units and explain the change. [2]

3. A small laundry (illustrative) has fixed costs of £90 a day. Each worker is paid £50 a day. Detergent and packaging cost £1 per load.

Workers	0	1	2	3	4	5	6
Loads per day	0	8	20	34	44	50	53

(a) Calculate total cost with 3 workers. [2] (b) Calculate the marginal cost per load when the workforce rises from 3 to 4 workers. [2] (c) Calculate AVC and AC with 5 workers. [2] (d) State the worker at which diminishing returns begin and justify your answer. [2]

4. (a) Explain the law of diminishing returns. [4] (b) Explain why output might rise at an increasing rate when the first few workers are added. [2]

5. A firm (illustrative) has these costs per unit.

Output	AFC (£)	AVC (£)
30	8	14
60	4	11

(a) Calculate total fixed cost at 30 units. [1] (b) Calculate AC at 30 units and at 60 units. [2] (c) Show that total fixed cost is the same at 60 units. [1] (d) Explain why AC falls between 30 and 60 units. [2] (e) Explain why AC may rise at a much higher output even though AFC is still falling. [2]

6. A firm’s AC at 10 units is £20. Total cost at 11 units is £226.

(a) Calculate the marginal cost of the 11th unit and AC at 11 units. [2] (b) State what happens to AC and why. [1] (c) Explain why the MC curve passes through the lowest point of the AC curve. [2]

7. A honey-packing firm’s output is 15 jars a day (illustrative).

(a) Its fixed costs rise by £30 a day. Calculate the change in AC. [2] (b) State two cost curves that do not move because of this rise. [2] (c) Wages rise by £10 per worker per day. The next worker’s marginal product is 14 jars. Calculate the rise in marginal cost and state the effect on the MC curve. [3]

8. Describe a diagram of a firm’s short-run MC, AVC and AC curves and explain the link between the MC curve and diminishing returns. [5]

9. A coffee roaster (illustrative) has one roasting machine. To meet rising orders it hires more staff to share the machine. Evaluate the significance of the law of diminishing returns for the roaster. [10]

10. Explain two ways in which diminishing returns matter to groups other than the firm itself. [6]

11. A pasta-making firm (illustrative) has fixed costs of £100 a day.

Output (kilos)	0	10	20	30	40	50
Total cost (£)	100	160	200	230	290	380

(a) Calculate total variable cost at 30 kilos. [1] (b) Calculate AC at 30 and at 40 kilos. [2] (c) Calculate the marginal cost per kilo between 30 and 40 kilos. [2] (d) Explain why AC at 50 kilos is higher than at 40 kilos. [2] (e) Output doubles from 20 to 40 kilos. Explain why total cost does not double. [2]

Answers

1. (a) In the short run some input cannot be changed [1]. In the long run every input can be changed [1]. [2] (b) The rent is fixed because it is paid whatever the output [1]. Hourly wages or plant purchases are variable because they rise as more is sold [1]. [2] Examiner insight: Define the short run by the fixed factor, not by a length of time. Justify each cost by its link to output.

2. (a) 7.50 − 2.00 = £5.50 [1]. [1] (b) TFC = 2.00 × 40 = £80 [1]. TVC = 5.50 × 40 = £220 [1]. [2] (c) 306.50 − (7.50 × 40 = 300) = £6.50 [1]. [1] (d) AC = 306.50 ÷ 41 = £7.48, so AC falls [1]. MC of £6.50 is below the old AC of £7.50 and pulls the average down [1]. [2] Examiner insight: In (c) work out the old total cost first. A bare answer is harder to credit if it is wrong.

3. (a) TVC = 3 × 50 + 34 × 1 = £184 [1]. TC = 90 + 184 = £274 [1]. [2] (b) TC with 4 workers = 90 + 200 + 44 = £334 [1]. MC = (334 − 274) ÷ (44 − 34) = £6.00 [1]. [2] (c) TVC = 250 + 50 = £300, so AVC = 300 ÷ 50 = £6.00. [1] TC = 390, so AC = 390 ÷ 50 = £7.80 [1]. [2] (d) The fourth worker [1]. Marginal product rises to 14 with the third worker and falls to 10 with the fourth [1]. [2] Examiner insight: For (d), quote the two marginal products from the table. Naming a worker without evidence is weak.

4. (a) The law applies when a variable input is added while others stay fixed [1]. Beyond a point [1], the marginal product of each extra unit falls [1]. Example: more workers using one machine give less extra output each [1]. [4] (b) The first workers can specialise and share tasks [1], and the fixed capital is under-used, so each extra worker adds more than the last [1]. [2] Examiner insight: Say that the fall is in the extra output, not in total output. State the fixed factor.

5. (a) 8 × 30 = £240 [1]. [1] (b) At 30: 8 + 14 = £22 [1]. At 60: 4 + 11 = £15 [1]. [2] (c) 4 × 60 = £240, the same [1]. [1] (d) Fixed costs are spread over more units, so AFC falls from £8 to £4 [1]. AVC also falls, from £14 to £11, so both parts of AC fall [1]. [2] (e) Under diminishing returns marginal product falls and AVC rises [1]. When the rise in AVC is bigger than the fall in AFC, AC rises [1]. [2] Examiner insight: In (e) compare the size of the two changes. Saying only that costs rise does not explain why AC turns up.

6. (a) TC at 10 units = 20 × 10 = £200, so MC = 226 − 200 = £26 [1]. AC = 226 ÷ 11 = £20.55 [1]. [2] (b) AC rises because MC (£26) is above AC (£20) [1]. [1] (c) If MC is below AC, AC falls [1]. If MC is above AC, AC rises, so AC is lowest where MC equals AC [1]. [2] Examiner insight: Say which curve is above which. The statement that MC cuts AC at its lowest point needs the reason.

7. (a) Change in AC = 30 ÷ 15 [1] = £2.00 [1]. [2] (b) Any two of MC, AVC, TVC [1] [1]. [2] (c) Rise in MC = 10 ÷ 14 [1] = £0.71 per jar [1]. The MC curve shifts upwards [1]. [3] Examiner insight: Link the cost to the right type: fixed costs move TFC, TC, AFC and AC only. Wages also move MC.

8. The vertical axis shows cost per unit and the horizontal axis shows output [1]. The MC curve falls then rises [1]. AVC and AC are U-shaped, with AC above AVC [1]. MC cuts AVC and AC at their lowest points [1]. MC is lowest where marginal product is highest; once diminishing returns cut marginal product, MC rises [1]. [5] Examiner insight: Name the axes and the curves. Describe where the curves meet rather than only saying they are U-shaped.

9. Adding workers to one machine gives falling marginal product [1]. So MC and AVC rise [1]. The roaster’s unit cost rises when it expands output in the short run [1]. This squeezes the margin unless the price rises [1]. It limits how much more it should produce with one machine [1]. It may prompt investment in a second machine, which is a long-run decision [1]. However, the effect depends on time: if a second machine can be leased within weeks, the constraint is brief [1]. It also depends on demand: if orders are below capacity, the roaster may still have increasing returns [1]. Shift work or longer machine hours can ease the constraint [1]. Overall the law matters most to a firm with one machine and slow expansion, and little if capacity is flexible [1]. [10] Examiner insight: Apply every point to the roaster. A list of effects without a view on how far they matter limits the answer.

10. Government and public services: a hospital with fixed ward space gets less extra treatment from each extra member of staff [1]. So the cost per extra patient rises [1], and the service may need investment or rationing [1]. Consumers: as output expands in the short run, marginal cost rises [1], so suppliers need a higher price to raise output [1]. Consumers therefore pay more when demand rises [1]. [6] Examiner insight: Develop each way into a chain. Naming a group without the cost link gains little.

11. (a) 230 − 100 = £130 [1]. [1] (b) At 30: 230 ÷ 30 = £7.67 [1]. At 40: 290 ÷ 40 = £7.25 [1]. [2] (c) (290 − 230) ÷ (40 − 30) [1] = £6.00 [1]. [2] (d) MC between 40 and 50 kilos is (380 − 290) ÷ 10 = £9.00, above the AC of £7.25 [1]. Diminishing returns have raised MC, so AC rises [1]. [2] (e) Fixed costs of £100 do not rise with output [1], so only the variable part doubles. TC rises from £200 to £290, not to £400 [1]. [2] Examiner insight: In (d) use the table to calculate MC and compare it with AC. In (e) separate fixed from variable cost.

Where marks are usually lost

• Writing a bare answer to a calculation with no working.
• Dividing the rise in TC by the output level instead of the rise in output.
• Saying diminishing returns means total output falls.
• Treating the short run as a calendar length instead of a fixed input.
• Not saying which cost curves move when one input price changes.
• Stating that MC cuts AC at its lowest point with no reason.
• Giving a list of effects of diminishing returns with no judgement.
• Mixing up AC and MC, or AFC and TFC.

Next steps

• Re-read the study guide on weak areas.
• Use the revision notes for a final check.
• Visit the OCR Economics hub and the checklist.
• Try the free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

OCR, A Level in Economics (H460) specification, Version 3.0 (June 2026), for first assessment in 2021. Component 1 content, Competition and market power area of study: the short-run cost statements under the market structures topic.