OxfordAQA International AS and A-level Economics: Revenue, profit and technology (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 cover the OxfordAQA International AS and A-level Economics specification (9640), version 1.2, sections 3.3.2.4 to 3.3.2.6: revenue curves, profit and technological change. Section 3.3 is extra International A2 content. Every firm, country and figure is invented, and the mark totals are for practice only. Learn the content first from the study guide and revision notes. Track progress with the course hub and checklist, and use the free 10-minute diagnostics to find gaps.

Questions

1. A firm sells 30 units a week at a price of 85. It cuts the price to 80 and sells 33 units a week. (a) Work out total revenue at 85 and at 80. [2] (b) Calculate the marginal revenue per unit of the extra 3 units. [1] (c) Explain why this marginal revenue is lower than the new price of 80. [2]

2. A firm faces this demand schedule.

Quantity	1	2	3	4	5	6
Price	60	52	44	36	28	20

(a) Find TR and MR for each quantity in the table. [2] (b) State the output at which total revenue is greatest and use marginal revenue to explain your answer. [2]

3. Use the schedule in question 2. (a) Calculate price elasticity of demand between 2 and 3 units. [2] (b) Explain how your answer relates to the change in total revenue and to marginal revenue. [2]

4. A firm can sell as much as it wants at a market price of 12. Calculate total revenue, average revenue and marginal revenue at 500 units. [3]

5. A firm faces the demand curve P = 150 − 10Q. (a) Write expressions for total revenue and marginal revenue in terms of Q. [2] (b) Find the output that maximises total revenue and the maximum total revenue. [2] (c) State the value of price elasticity of demand at this output, with a reason. [2]

6. A small printer has revenue of 192,000 and pays 161,000 for materials, rent and wages. The owner could earn 24,000 in another job. (a) Find the firm’s accounting profit. [1] (b) Calculate abnormal profit. [2] (c) Revenue falls to 183,000. Explain what is likely to happen to the firm in the long run. [2]

7. Explain two reasons why normal profit differs from one industry to another. [4]

8. Explain how abnormal profit in a market can lead to a reallocation of resources, and state one limitation of this process. [6]

9. A firm can make a product by hand (fixed cost 18,000, variable cost 5 a unit) or with a machine (fixed cost 54,000, variable cost 2 a unit). (a) Calculate average cost for each method at 15,000 units. [3] (b) Calculate the output at which the two methods have the same average cost. [2] (c) Which method suits a firm expecting 8,000 units? Give a reason. [1]

10. A public university in Country B develops a cheap fibre. Two years later a clothing firm sells the first shirts made from it. After buying new cutting machines, the firm’s 8 workers make 7,280 shirts a week instead of 5,200. (a) Identify the invention and the innovation. [2] (b) By what percentage did output per worker rise? [2] (c) Explain one link between this and creative destruction. [2]

11. Analyse two arguments for, and two against, protecting inventions with patents. [8]

12. Evaluate whether governments should do more to promote technological change. [12]

Answers

1. (a) 85 × 30 = 2,550 [1]; 80 × 33 = 2,640 [1]. (b) (2,640 − 2,550) ÷ 3 = 30 [1]. (c) The 3 extra units sell for 80 each, adding 240 [1], but the price of the original 30 units falls by 5 each, a loss of 150, so net gain 90 and MR 30 [1]. [5] Examiner insight: Show the lost revenue on the earlier units; stating “MR is less than price” without the 150 usually explains nothing.

2. (a) TR: 60, 104, 132, 144, 140, 120 [1]. MR: 60, 44, 28, 12, −4, −20 [1]. (b) TR is greatest at 4 units (144) [1]. MR is still positive (12) for the 4th unit and negative (−4) for the 5th, so extra output lowers revenue after 4 [1]. [4] Examiner insight: Keep the minus signs on negative marginal revenue; they are the evidence for your explanation.

3. (a) %ΔQ = 1 ÷ 2 = +50% [1]; %ΔP = −8 ÷ 52 = −15.4%; PED = 50 ÷ −15.4 = −3.25 [1]. (b) Demand is elastic, so the price cut raises TR from 104 to 132 [1], which matches positive MR of 28 for the third unit [1]. [4] Examiner insight: Use the starting price and quantity as the base for each percentage, and say “elastic” when you interpret a figure beyond 1 in size.

4. TR = 12 × 500 = 6,000 [1]; AR = 6,000 ÷ 500 = 12 [1]; MR = 12, since each extra unit sells at the same price [1]. [3] Examiner insight: Giving a reason why MR equals price shows you can tell a price taker from a firm with market power.

5. (a) TR = P × Q = 150Q − 10Q² [1]; MR = 150 − 20Q [1]. (b) MR = 0, so Q = 7.5 [1]; TR = 150 × 7.5 − 10 × 7.5² = 562.5 [1]. (c) PED is −1 (unit elastic) in size [1], because TR is at its maximum where MR = 0 [1]. [6] Examiner insight: Show the MR expression before solving; a bare value for Q gives the marker nothing to follow if it is wrong.

6. (a) 192,000 − 161,000 = 31,000 [1]. (b) Abnormal profit is accounting profit less the owner’s opportunity cost [1]: 31,000 − 24,000 = 7,000 [1]. (c) Accounting profit is 22,000, which is 2,000 below normal profit [1]. The owner earns less than in the next best use, so is likely to leave in the long run [1]. [5] Examiner insight: Compare profit with the 24,000 alternative explicitly; “the firm makes a loss” would be wrong because accounting profit is positive.

7. Risk: industries with a high chance of failure need a bigger expected reward to keep owners [1], so normal profit is higher, as in remote drilling compared with a stationery shop [1]. Opportunity cost: if the skills or capital needed could earn a lot elsewhere [1], the reward needed to stay is higher [1]. [4] Examiner insight: Say why the required reward changes for each reason; naming risk alone is a label, not an explanation.

8. Abnormal profit signals that consumers value the good highly relative to cost [1]. Firms outside the market are attracted to enter [1], so supply rises and price falls [1]. Resources move to this market until abnormal profit falls to normal [1]. Limitation: barriers to entry may block new firms [1], so abnormal profit stays and resources are not reallocated [1]. [6] Examiner insight: Write the chain in order, link by link; jumping from profit to lower price omits the entry step that does the work.

9. (a) Hand: (18,000 + 5 × 15,000) ÷ 15,000 = 93,000 ÷ 15,000 = 6.20 [1]. Machine: (54,000 + 2 × 15,000) ÷ 15,000 = 84,000 ÷ 15,000 = 5.60 [1]. Machine is lower at this output [1]. (b) 18,000 + 5Q = 54,000 + 2Q [1], so 3Q = 36,000 and Q = 12,000 [1]. (c) Hand: 8,000 is below 12,000, where hand-made average cost is 7.25 and the machine’s is 8.75 [1]. [6] Examiner insight: Total cost divided by output gives average cost; dividing only variable cost leaves out the fixed cost that drives the answer.

10. (a) The cheap fibre is the invention [1]; the first sale of shirts made from it is the innovation [1]. (b) Before: 5,200 ÷ 8 = 650. After: 7,280 ÷ 8 = 910 [1]. Rise: (910 − 650) ÷ 650 = 40% [1]. (c) Creative destruction is the replacement of old products and methods by new ones [1]. The new fibre could cut demand for older fabrics, destroying firms and jobs in that market while creating new ones [1]. [6] Examiner insight: Apply the term to the fibre; a definition on its own does not use the context.

11. For 1: A patent gives sole rights for a period, so the inventor can charge prices above cost [1] and recover research costs, which encourages invention [1]. For 2: The patent requires the idea to be disclosed, so other firms can learn from it [1], and later innovation can build on it [1]. Against 1: The holder can charge monopoly prices [1], so consumers pay more and fewer buy [1]. Against 2: Rivals are blocked from improving the idea during the patent [1], so follow-on innovation may be delayed and legal costs rise [1]. [8] Examiner insight: Pair each argument with its consequence for firms or consumers; a list of labels with no chain stays at description.

12. For: Private firms under-invest in research because knowledge spreads to rivals, a positive externality [1]. Government funding of research or tax relief can close this gap [1]. Innovation can raise productivity and lower costs, helping long-run growth [1]. Basic research may be too risky or long-term for private firms [1]. Better education, training and infrastructure support firms that adopt new methods [1]. Patent law helps the innovator recover costs [1]. Against: Governments may back the wrong projects [1]. Funds have an opportunity cost, for example less health spending [1]. Subsidies may replace private spending that would have happened anyway [1]. Patents and protection can create monopoly power [1]. Evaluation: The case is stronger where spillovers are large and the market lacks private funding, and weaker for projects firms already fund [1]. Overall, targeted support for basic research and skills is more defensible than picking winning firms [1]. [12] Examiner insight: Finish with the circumstances in which support works and where it does not, rather than repeating one side.

Where marks are usually lost

• Calculating MR from one price change without dividing by the change in quantity.
• Writing MR = price for a firm with a downward-sloping demand curve.
• Basing percentage changes on the new value instead of the starting value.
• Leaving out minus signs on marginal revenue or elasticity.
• Calling accounting profit abnormal profit without deducting normal profit.
• Describing profit as a signal without the entry step.
• Saying technology cuts costs with no mention of output.
• Listing patent points with no consequence or judgement.

Next steps

• Go through the revision notes and then the study guide.
• Visit the course hub and the printable checklist.
• Try the free 10-minute diagnostics.
• Ready for more help? Book a free trial class.

Official syllabus

OxfordAQA International AS and A-level Economics (9640), version 1.2: sections 3.3.2.4, 3.3.2.5 and 3.3.2.6, with quantitative skills in section 3.5.