These questions cover fixed, variable and total costs, average and extra cost, economies and diseconomies, firm size and profit. All firms are fictional.
Questions run from easier to harder. Write your full working, then open the answer. The mistake log and retest queue helps you track what to revisit.
Questions
Q1. Mawar Bakery pays shop rent, insurance, flour and packaging. Which are fixed and which are variable?
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Fixed: rent and insurance, because they do not change with the number of loaves. Variable: flour and packaging, because they rise with output.
Q2. Mawar Bakery has fixed costs of RM3,000 and variable costs of RM1.50 per loaf. Find total cost for 2,500 loaves.
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Variable cost = 2,500 × 1.50 = RM3,750. Total cost = 3,000 + 3,750 = RM6,750.
Q3. Find the average cost per loaf at 2,500 loaves.
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6,750 ÷ 2,500 = RM2.70 per loaf.
Q4. At 2,000 loaves, total cost is RM6,000. Find the extra cost per additional loaf when output rises to 2,500.
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Change in total cost = 6,750 − 6,000 = RM750. Change in output = 500. 750 ÷ 500 = RM1.50 per extra loaf.
Q5. Why does average cost fall as Mawar Bakery bakes more loaves, although total cost rises?
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Total cost rises because variable cost rises with output. Average cost falls because the fixed RM3,000 is spread over more loaves, so each loaf carries a smaller share of it. For example, average cost falls from RM3.00 at 2,000 loaves to RM2.70 at 2,500.
Q6. Teh Valley Foods makes 8,000 jars at a total cost of RM32,000 and 16,000 jars at a total cost of RM48,000. Find average cost at each output and state whether this shows economies or diseconomies of scale. Give one possible cause.
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At 8,000: 32,000 ÷ 8,000 = RM4.00. At 16,000: 48,000 ÷ 16,000 = RM3.00. Average cost fell, so economies of scale. One possible cause: buying fruit and glass in larger lots at a lower price per unit (a purchasing economy).
Q7. Teh Valley Foods then grows from 16,000 jars (total cost RM48,000) to 30,000 jars (total cost RM99,000). Calculate average cost at 30,000 and explain the change.
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99,000 ÷ 30,000 = RM3.30. Average cost rose from RM3.00, so diseconomies of scale. A possible cause is that more departments and managers slowed decisions and raised the cost of each jar. A case would need to confirm the cause.
Q8. A fictional firm sells 1,500 units at RM6 each. Total cost is RM7,800. Find profit.
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TR = 6 × 1,500 = RM9,000. Profit = 9,000 − 7,800 = RM1,200.
Q9. A firm has fixed costs of RM2,400, variable cost of RM2 per unit and sells at RM4. Find the break-even output (if in scope for your syllabus year) and check it.
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Contribution per unit = 4 − 2 = RM2. 2,400 ÷ 2 = 1,200 units. Check: TR = 4 × 1,200 = RM4,800. TC = 2,400 + 2 × 1,200 = RM4,800. Profit = 0.
Q10. Corner Cafe has revenue RM60,000 and costs RM48,000. A fictional chain, Brew Line, has revenue RM600,000 and costs RM534,000. Find each profit and profit margin. Which is higher on each measure?
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Corner Cafe: profit RM12,000, margin 12,000 ÷ 60,000 = 20%. Brew Line: profit RM66,000, margin 66,000 ÷ 600,000 = 11%. Brew Line has the higher profit; Corner Cafe has the higher margin.
Q11. A stall sells 900 items at RM3. Fixed cost is RM1,500 and variable cost is RM1.40 per item. Find profit or loss, then write one sentence on what the stall could change.
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TR = 3 × 900 = RM2,700. TC = 1,500 + 1.40 × 900 = 1,500 + 1,260 = RM2,760. Profit = 2,700 − 2,760 = −RM60, a loss of RM60. It could raise output so fixed cost is spread wider, or lower variable cost per item.
If you got these wrong
| Type of error | Go back to |
|---|---|
| Sorted a cost into the wrong group, or total cost not fixed plus variable (Q1, Q2) | Fixed, variable and total costs |
| Divided by the wrong output, or mixed average with extra cost (Q3, Q4, Q5) | Average and marginal-style changes |
| Used total cost to judge scale, or named no cause (Q6, Q7) | Economies and diseconomies |
| Compared firms by total profit only (Q10) | Comparing firm size |
| Forgot fixed cost in profit or break-even (Q8, Q9, Q11) | Profit, revenue and cost |
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