OxfordAQA AS and A-level Economics: Cost, revenue, profit and elasticity (9640) – 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 practise quantitative skills QS6 and QS8 from section 3.5 of the OxfordAQA International AS and A-level Economics specification (9640), version 1.2. Skills in section 3.5 can be assessed in any unit. Questions marked (A2) use marginal values or the marginal revenue link to elasticity, which the specification treats as A2 content. All firms, countries and figures are invented. Revise first with the study guide and the revision notes. More practice is in the operation of markets practice set.

Questions

1. A bicycle repair shop has fixed costs of 400 a week. In one week it completes 50 repairs and its variable costs are 1,500. Calculate total cost, average variable cost and average cost. [3]

2. (A2) The same shop completes 52 repairs in the next week, and its total cost is 2,014. Total cost for 50 repairs was 1,900. Calculate the marginal cost of each extra repair, and state what this means for average cost, given that average cost at 50 repairs was 38. [3]

3. A market stall sells 150 candles at 24 each. Its total costs are 3,000. Calculate average revenue, total revenue, profit and profit per candle. [4]

4. (A2) A courier firm has fixed costs of 40 a day. Its price falls as it takes more deliveries, as the table shows.

Deliveries	1	2	3	4	5	6
Price	50	45	40	35	30	25
Total cost	60	80	98	120	148	182

(a) Calculate total revenue and marginal revenue for the fourth delivery. [2] (b) Calculate the profit at 3 deliveries and at 5 deliveries. [2] (c) Use marginal revenue and marginal cost for the third and fourth deliveries to explain which of the two outputs gives more profit. [2] (d) Calculate average cost at the profit-maximising output. [1]

5. A cafe raises the price of a dessert from 6.00 to 6.60. Weekly sales fall from 400 to 340. Calculate the price elasticity of demand and state whether demand is elastic or inelastic. [3]

6. A firm sells 2,000 units a week at 10 each. Price elasticity of demand is estimated at −0.5, and the firm raises its price by 8%. (a) Calculate the new quantity sold. [2] (b) Calculate total revenue before and after the rise. [2]

7. Consumer incomes rise by 6%. Demand for good A rises by 9% and demand for good B falls by 3%. Calculate the income elasticity of demand for each good and classify each good. [4]

8. Calculate cross elasticity of demand and state the relationship between the goods in each case. (a) The price of rail tickets rises 8% and demand for coach tickets rises 10%. [2] (b) The price of laptops rises 5% and demand for laptop bags falls 4%. [2]

9. The price of a crop rises by 6% and the quantity supplied rises by 3%. (a) Calculate price elasticity of supply and describe it. [2] (b) Explain two reasons why supply of a crop may be inelastic in the short run. [2]

10. A ferry operator in Country A (an illustrative country) raises its fare from 12 to 15. Weekly passengers fall from 4,000 to 3,300. (a) Calculate the price elasticity of demand. [3] (b) Calculate the change in total revenue, as a percentage. [2] (c) Evaluate whether the operator was right to raise the fare. [3]

11. A small manufacturer sells 800 units a month at 9 each. Its fixed costs are 2,000 and its variable cost is 5 a unit. (a) Calculate total revenue, total cost and profit. [3] (b) Fixed costs rise to 2,600. Calculate the new total cost and average cost at 800 units. [2] (c) The firm considers raising price by 10%. Its estimated price elasticity of demand is −1.5. Calculate the new quantity, total revenue and profit, and compare the profit with the profit after the fixed-cost rise. [4] (d) Suggest one reason the actual result may differ from your calculation. [1]

12. (A2) A firm faces a price of 30 and estimates that its price elasticity of demand at that price is −2.5. (a) Calculate marginal revenue using MR = P × (1 + 1/PED). [2] (b) Explain whether a price cut would raise total revenue. [2] (c) State the value of price elasticity of demand at which marginal revenue is zero, and what that means for total revenue. [2]

Answers

1. TC = 400 + 1,500 = 1,900 [1]. AVC = 1,500 ÷ 50 = 30 [1]. AC = 1,900 ÷ 50 = 38 [1]. TC 1,900; AVC 30; AC 38. [3] Examiner insight: Show each formula before substituting, so a slip in one step is visible.

2. Change in TC = 2,014 − 1,900 = 114 [1]. MC = 114 ÷ 2 = 57 per repair [1]. MC (57) is above AC (38), so average cost will rise [1]. MC = 57; AC rises. [3] Examiner insight: Divide by the change in output, not by total output. The second half needs a comparison of MC with AC, not just a statement of the number.

3. AR = price = 24 [1]. TR = 24 × 150 = 3,600 [1]. Profit = 3,600 − 3,000 = 600 [1]. Profit per candle = 600 ÷ 150 = 4 [1]. AR 24; TR 3,600; profit 600; 4 per candle. [4] Examiner insight: Profit per unit is AR − AC, so total profit divided by output must match it. Use this as a check on your own working.

4. (a) TR for 4 deliveries = 35 × 4 = 140 [1]. TR for 3 = 40 × 3 = 120, so MR = 140 − 120 = 20 [1]. (b) At 3: 120 − 98 = 22 [1]. At 5: TR = 30 × 5 = 150, so 150 − 148 = 2 [1]. (c) Third delivery: MR = 120 − 90 = 30 and MC = 98 − 80 = 18, so MR exceeds MC and it adds to profit [1]. Fourth delivery: MR = 20 and MC = 120 − 98 = 22, so MR is below MC and it reduces profit; 3 deliveries gives more profit [1]. (d) AC = 98 ÷ 3 = 32.67 [1]. Profit 22 at 3 and 2 at 5; the best output is 3; AC 32.67. [7] Examiner insight: State both marginal values for the same delivery; “MR falls and MC rises” with no numbers is weaker.

5. %ΔP = (6.60 − 6.00) ÷ 6.00 × 100 = +10% and %ΔQ = (340 − 400) ÷ 400 × 100 = −15% [1]. PED = −15 ÷ 10 = −1.5 [1]. The size is above 1, so demand is elastic [1]. PED = −1.5, elastic. [3] Examiner insight: Use the old value as the base in both percentage changes. State the classification in words, with the reason (above 1).

6. (a) %ΔQ = −0.5 × 8 = −4% [1]. New quantity = 2,000 × 0.96 = 1,920 [1]. (b) Before: 10 × 2,000 = 20,000 [1]. After: 10.80 × 1,920 = 20,736 [1]. 1,920 units; TR rises from 20,000 to 20,736 (+3.7%). [4] Examiner insight: Rearrange the formula to find the quantity change, then apply it. Inelastic demand and a price rise should give a revenue rise, which is a useful check.

7. YED for A = 9 ÷ 6 = +1.5 [1]; positive and above 1, so a normal good with income-elastic demand [1]. YED for B = −3 ÷ 6 = −0.5 [1]; negative, so an inferior good [1]. A: +1.5, normal; B: −0.5, inferior. [4] Examiner insight: The sign decides normal or inferior, and the size decides elastic or inelastic. Both points are needed for a full classification.

8. (a) XED = 10 ÷ 8 = +1.25 [1]; positive, so substitutes [1]. (b) XED = −4 ÷ 5 = −0.8 [1]; negative, so complements [1]. (a) +1.25, substitutes; (b) −0.8, complements. [4] Examiner insight: Keep the order: change in demand for one good divided by change in price of the other. Reversing it, or dropping the sign, loses the relationship.

9. (a) PES = 3 ÷ 6 = 0.5 [1]; below 1, so supply is inelastic [1]. (b) Any two reasons, each developed: crops take time to grow, so output cannot rise quickly [1]; perishable goods cannot be stored, so stock cannot be released [1]. PES = 0.5, inelastic. [4] Examiner insight: Give a reason and its consequence for each point; a bare word such as “time” explains nothing.

10. (a) %ΔP = (15 − 12) ÷ 12 × 100 = +25% [1]. %ΔQ = (3,300 − 4,000) ÷ 4,000 × 100 = −17.5% [1]. PED = −17.5 ÷ 25 = −0.7 [1]. (b) TR before = 12 × 4,000 = 48,000 and after = 15 × 3,300 = 49,500 [1]. Change = 1,500 ÷ 48,000 = +3.1% [1]. (c) Demand is inelastic and TR rises [1]. Fewer passengers also usually means lower running costs, so profit should rise by at least as much as TR [1]. But PED is an estimate from past data, and over time passengers may find other routes, so the gain may shrink; on balance the rise was probably right in the short run [1]. PED = −0.7; TR +3.1%. [8] Examiner insight: An evaluation needs a judgement as well as a list of points. Link the judgement to the data, here the inelastic value and the revenue rise.

11. (a) TR = 9 × 800 = 7,200 [1]. TC = 2,000 + 5 × 800 = 6,000 [1]. Profit = 1,200 [1]. (b) TC = 2,600 + 4,000 = 6,600 [1]. AC = 6,600 ÷ 800 = 8.25 [1]. (c) New price = 9.90 and %ΔQ = −1.5 × 10 = −15%, so Q = 680 [1]. TR = 9.90 × 680 = 6,732 [1]. TC = 2,600 + 5 × 680 = 6,000, so profit = 732 [1]. Profit without the price change was 7,200 − 6,600 = 600, so the rise gives 132 more even though TR is lower [1]. (d) For example, the elasticity estimate may be wrong, or rivals may respond [1]. Profit 1,200, then 600 after the cost rise, then 732 after the price rise. [10] Examiner insight: Recalculate cost from the new quantity, and compare profit with profit, not revenue with revenue.

12. (A2) (a) MR = 30 × (1 + 1/(−2.5)) [1] = 30 × 0.6 = 18 [1]. (b) MR is positive, so selling more adds more to revenue than is lost by cutting the price on units that would have sold anyway [1]. Demand is elastic (above 1 in size), so a price cut raises TR [1]. (c) PED = −1 (unit elastic) gives MR = 0 [1]; TR is then at its maximum, neither rising nor falling for a small change in output [1]. MR = 18; a price cut raises TR; MR is zero at PED = −1. [6] Examiner insight: Link MR, elasticity and TR in one chain; a correct MR figure alone does not explain.

Where marks are usually lost

• Starting a percentage change from the new value.
• Dropping the sign of YED or XED.
• Describing elasticity as “large” or “small” without comparing the size with 1.
• Dividing total cost by output and calling the result marginal cost.
• Stating that profit has risen from revenue alone.
• Mixing up a change in price (movement along a curve) and a shift in demand.
• Evaluating with no judgement.

Next steps

• Revise with the revision notes and the study guide.
• Go to the course hub and the printable checklist.
• Take the free 10-minute diagnostics to find weak spots.
• Book a free trial class.

Official syllabus

OxfordAQA International AS and A-level Economics (9640), version 1.2, published by OxfordAQA: section 3.5 (QS6 and QS8), with sections 3.1.2.2, 3.1.2.4, 3.1.3.3 to 3.1.3.5 and 3.3.2.4.