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A-Level Cost and Revenue for Firms
What the A-Level syllabus expects for Cost and Revenue for Firms, and how to practise it.
What the syllabus expects
- Cost and revenue concepts as they apply to firms in both the short run and the long run.
Scope: Deriving the cost and revenue curves is not required. - How internal and external economies and diseconomies of scale connect to a firm's long run average cost of production.
Scope: A detailed account of each kind of internal economy of scale (for example technical, marketing) and external economy of scale (for example concentration, information), and of diseconomies of scale, is not required.
How it's examined
Questions on this topic most often ask you to explain.
Worked examples
Example 1 (2 marks)
Referring to Extract 5, explain the way in which supply-chain disruptions could be eating into the profits businesses make.
Show the worked answer
Profit = total revenue minus total cost. Supply-chain disruptions eat into profit by pushing up costs of production and squeezing revenue. Costs side: disruptions raise the price and reduce the availability of raw materials, components and transport/freight, and firms may have to hold more inventory or pay premiums to secure supplies. Total cost of production therefore rises. Revenue side: if firms cannot obtain inputs, output and sales fall, so total revenue also falls (and some sales may be lost to competitors or to shortages). With total cost rising and/or total revenue falling, the gap between them narrows, so profit margins are eroded.
More A-Level H2 Economics topics
Scarcity, Choice and How Resources Get Allocated · How Economic Agents Reach Decisions · The Price Mechanism and What It Does · Applying Demand and Supply Analysis · Government Intervention in Markets · What Firms Aim For · all of A-Level H2 Economics