Cost/Revenue and Profit

(a) The table below shows costs for a taxi firm. Fill in the missing values. (2%) Jun 2018
Output (number Total variable Average total cost
Total fixed costs £ Total cost £
of journeys) costs £ £
1,000 (i) 5,000 6,000 (ii)
2,000 1,000 9,000 10,000 5
The taxi firm charges an average of £11 per taxi journey.
(b) Calculate the total profit if the taxi firm makes 2,000 journeys in a year. Show your workings. (3%)
Economies of Scale
Green-house, a grocery chain that owns over 4,000 stores in US, plans to open more grocery stores in
taxes and Iowa. The company benefits from economies of scale which include marketing, financial,
managerial and technical economies of scale. Economies of scale occur when an increase in output
leads to a fall in long run average costs.
(a) Average costs can be calculated by which of the following equations? (2%)
A B C D

(b) Using the following diagram, identify A, B and C (6%)

(c) State the type of internal and external economies of scale for each of the following cases. (4%)
i. Green-house works with other grocery stores in the area and share the costs for doing
market research.
ii. A lot of local food and beverage suppliers are attracted to set up their operations in Taxes to
provide services to Green-house.
iii. Green-house uses bulk purchase to obtain more trade discounts from suppliers.
iv. Green-house has its own fleet of vehicle to deliver the stocks to their stores.
v. Banks are willing to lend money to Green-house at lower rates as they believe Green-house
is trustworthy business.
(d) Explain two types of internal diseconomies of scale that Green-house may face. (6%)
(e) *Economies of scale mean that a large firm will always have an advantage over a small firm.
Do you agree with this statement? Explain your answer. (12%)
Cost/Revenue and Profit
(c) The table below shows costs for a taxi firm. Fill in the missing values. (2%) Jun 2018
Output (number Total variable Average total cost
Total fixed costs £ Total cost £
of journeys) costs £ £
1,000 (i) 5,000 6,000 (ii)
2,000 1,000 9,000 10,000 5
The taxi firm charges an average of £11 per taxi journey.
(d) Calculate the total profit if the taxi firm makes 2,000 journeys in a year. Show your workings. (3%)
Economies of Scale
Green-house, a grocery chain that owns over 4,000 stores in US, plans to open more grocery stores in
taxes and Iowa. The company benefits from economies of scale which include marketing, financial,
managerial and technical economies of scale. Economies of scale occur when an increase in output
leads to a fall in long run average costs.
(f) Average costs can be calculated by which of the following equations? (2%)
A B C D

(g) Using the following diagram, identify A, B and C (6%)

(h) State the type of internal and external economies of scale for each of the following cases. (4%)
i. Green-house works with other grocery stores in the area and share the costs for doing
market research.
ii. A lot of local food and beverage suppliers are attracted to set up their operations in Taxes to
provide services to Green-house.
iii. Green-house uses bulk purchase to obtain more trade discounts from suppliers.
iv. Green-house has its own fleet of vehicle to deliver the stocks to their stores.
v. Banks are willing to lend money to Green-house at lower rates as they believe Green-house
is trustworthy business.
(i) Explain two types of internal diseconomies of scale that Green-house may face. (6%)
(j) *Economies of scale mean that a large firm will always have an advantage over a small firm.
Do you agree with this statement? Explain your answer. (12%)
Question 3 (6 marks)
Table below shows costs for a taxi firm.
(a) Fill in the missing values. (2%) Jun 2016
Output (number Total variable Average total cost
Total fixed costs £ Total cost £
of journeys) costs £ £
(i) 1,000 (ii)
1,000 5,000 6,000 6 (1)
(1)
2,000 1,000 9,000 10,000 5
(b) Suggest one possible example of a fixed cost for a taxi firm. (1%)
Incomplete -0.5 Any one
 Rent on taxi / Leasing a car
 Insurance
**accept other possible answer
The taxi firm charges an average of £11 per taxi journey.
(c) Calculate the total profit if the taxi firm makes 2,000 journeys in a year. Show your workings. (3%)
Total profit = total revenue – total cost (1)
= £11 * £2,000 - £10,000
= £12,000 (2)
**no thousand separator, no £ overall -0.5
ECONOMIES
Question 3: Economies of Scale (32%)
Green-house, a grocery chain that owns over 4,000 stores in US, plans to open more grocery stores in
taxes and Iowa. The company benefits from economies of scale which include marketing, financial,
managerial and technical economies of scale. Economies of scale occur when an increase in output
leads to a fall in long run average costs.

Economies of scale occur when an increase in output leads to a fall in long run average costs.
(a) Average costs can be calculated by which of the following equations? (2%)
A B C D

(b) Using the following diagram, identify A, B and C (6%)

A: Economies of scale
B: Minimum efficient scale
C: Diseconomies of scale
Spelling mistake -0.5

(c) State the type of internal and external economies of scale for each of the following cases. (4%)
i. Green-house works with other grocery stores in the area and share the costs for doing
market research. Similar business in the area (USA)
ii. A lot of local food and beverage suppliers are attracted to set up their operations in Taxes to
provide services to Green-house. Access to suppliers
iii. Green-house uses bulk purchase to obtain more trade discounts from suppliers. Purchasing
economies of scale
iv. Green-house has its own fleet of vehicle to deliver the stocks to their stores. Marketing
economies of scale
v. Banks are willing to lend money to Green-house at lower rates as they believe Green-house
is trustworthy business. Financial economies of scale
(d) Explain two types of diseconomies of scale that green-house my face. (4%)
Bureaucracy  Green-house has too many stores in US  needs to file reports for decision-
making  time-consuming
Distance between senior staff and shop floor workers  Green-house has too many stores
in US  the managers seldomly get in touch with the floor workers  lack of empathy
toward workers  workers get demotivated
Lack of control  Green-house has too many stores with a lot of workers  very difficult to
coordinate and control large number of workers  require more supervision and layers of
management  higher costs for Green-house

(e) *Economies of scale mean that a large firm will always have an advantage over a small firm.
 Do you agree with this statement? Explain your answer. (12%) 201706R
Poor organisation/No intro -1,
identify (1) + explanation (2)
Supporting the statement:
Economies of scale give an advantage because
• average costs are reduced
• this increases profitability leading to greater investment
• prices may be reduced
• can lead to a competitive advantage

Not supporting the statement:

Small firms can gain an advantage because
• they are more flexible
• they can cater for niche markets
• in niche markets price not so important
• one-off jobs make economies of scale obsolete
also accept DEOS at max 2%

Reasoned judgement or conclusion. E.g.

• depends on product, mass market goods need economies of scale to be competitive
• small firms can survive happily alongside large ones – corner shops and supermarkets