The document discusses how a firm can maximize its profits by producing at the output level where marginal revenue equals marginal cost. It explains that a firm is making normal profits when average revenue equals average cost. The document also outlines how economies of scale can lower average costs and allow a firm to increase profits by reducing prices and selling at a higher output level.
3. MC1: When does a firm maximise profits?
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Option
A When average revenue = average cost
B When marginal revenue is zero
C When marginal profit is zero
D When average cost is minimised
4. MC1: When does a firm maximise profits?
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Option
A When average revenue = average cost
B When marginal revenue is zero
C When marginal profit is zero
D When average cost is minimised
5. MC1: When does a firm maximise profits?
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Option
A When average revenue = average cost
B When marginal revenue is zero
C When marginal profit is zero
D When average cost is minimised
Normal
profit
Max
revenue
Productive
Efficiency
6. Marginal profit is the increase in profit when one more unit is sold
MCPrice,
Cost
Output
MR
Marginal
profit is
positive
Positive Marginal Profit
9. MC2: What effect will a fall in a firm’s fixed costs have on
their profit maximising price and profit?
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Profit maximising
price
Total profit
A Fall Fall
B Fall Rise
C No change Rise
D Rise Rise
10. MC2: What effect will a fall in a firm’s fixed costs have on
their profit maximising price and profit?
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Profit maximising
price
Total profit
A Fall Fall
B Fall Rise
C No change Rise
D Rise Rise
11. Profits: A Fall in Total Fixed Costs
MC
Price
and
Cost
Output
AC1
MR1
AR1
Profit Max: MC=MR
P1
Q1
C1
12. Profits: A Fall in Total Fixed Costs
MC
Price
and
Cost
Output
AC1
MR1
AR1
Profit Max: MC=MR
Q1
C1
Original level of
supernormal
profit at price P1
P1
13. Profits: A Fall in Total Fixed Costs
MC
Price
and
Cost
Output
AC1
MR1
AR1
Profit Max: MC=MR
Q1
C1
AC2
P1
14. Profits: A Fall in Total Fixed Costs
MC
Price
and
Cost
Output
AC1
MR1
AR1
Profit Max: MC=MR
Q1
C1
AC2
C2
P1
15. Profits: A Fall in Total Fixed Costs
MC
Price
and
Cost
Output
AC1
MR1
AR1
Profit Max: MC=MR
Q1
AC2
C2
P1
16. MC3: Which one of the following is most likely to increase
the total profits of a business in a contestable market?
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A The entry of new firms in the long run
B
The introduction of a price cap by an
industry regulator
C
A decision by rival firms to increase
their output capacity & lower prices
D A strategy of price discrimination
17. MC3: Which one of the following is most likely to increase
the total profits of a business in a contestable market?
Type your answer in the chat window!
A The entry of new firms in the long run
B
The introduction of a price cap by an
industry regulator
C
A decision by rival firms to increase
their output capacity & lower prices
D A strategy of price discrimination
18. Market haggling Mobile phone
contracts / tariffs
Taxi fares at peak
times of the day
Cinema ticket
prices
Hairdresser
discounts
Educational
bursaries
Price Discrimination in Action
19. MC4:
If a business is making normal profit, it must be true that
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A Average cost = average revenue
B Average cost = marginal revenue
C Marginal cost = average cost
D Marginal cost = marginal revenue
20. MC4:
If a business is making normal profit, it must be true that
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A Average cost = average revenue
B Average cost = marginal revenue
C Marginal cost = average cost
D Marginal cost = marginal revenue
21. MC5:
The table below shows cost and revenue information for a
business. Within which of the following output ranges will
profits be maximised?
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Output
(tonnes)
Total
revenue
Marginal
cost
2 100 10
3 120 15
4 140 20
5 160 25
6 180 30
7 200 40
A 2-3 tonnes
B 3-4 tonnes
C 4-5 tonnes
D 5-6 tonnes
E 6-7 tonnes
22. MC5:
The table below shows cost and revenue information for a
business. Within which of the following output ranges will
profits be maximised?
When ready, please type your answer in the chat window!
Output
(tonnes)
Total
revenue
Marginal
cost
2 100 10
3 120 15
4 140 20
5 160 25
6 180 30
7 200 40
A 2-3 tonnes
B 3-4 tonnes
C 4-5 tonnes
D 5-6 tonnes
E 6-7 tonnes
23. MC5:
The table below shows cost and revenue information for a
business. Within which of the following output ranges will
profits be maximised?
When ready, please type your answer in the chat window!
Output
(tonnes)
Total
revenue
Marginal
cost
2 100 10
3 120 15
4 140 20
5 160 25
6 180 30
7 200 40
A 2-3 tonnes
B 3-4 tonnes
C 4-5 tonnes
D 5-6 tonnes
E 6-7 tonnes
MR
20
20
20
20
20
24. MC5:
The table below shows cost and revenue information for a
business. Within which of the following output ranges will
profits be maximised?
MC= MR between the 3rd & 4th tonne
Output
(tonnes)
Total
revenue
Marginal
cost
2 100 10
3 120 15
4 140 20
5 160 25
6 180 30
7 200 40
A 2-3 tonnes
B 3-4 tonnes
C 4-5 tonnes
D 5-6 tonnes
E 6-7 tonnes
MR
20
20
20
20
20
25. PepsiCo's global operating profit margin
Source: PepsiCo
18.2%
16.1%
18.6%
14.4% 14.5%
13.9%
14.6% 14.4%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
2007 2008 2009 2010 2011 2012 2013 2014
Operatingprofitmargin
PepsiCo is a global drinks and snack business
whose global brands include Frito-Lay,
Gatorade and Aquafina.
26. Type into chat one factor that might affect the
profits of Pepsi in the short run
27. Type into chat one factor that might affect the
profits of Pepsi in the long run
29. Short and long run factors affecting operating profits
Input prices Sugar taxes
Labour
productivity
Cyclical
demand
Exchange
rates
Short term / cyclical factors
affecting profits
30. Short and long run factors affecting operating profits
Input prices Sugar taxes
Labour
productivity
Cyclical
demand
Exchange
rates
Short term / cyclical factors
affecting profits
Longer term factors
affecting profits
Economies of
Scale
Behavioural
change
Successful
product
diversification
Synergies from
takeovers /
mergers
Strength of
market
competition
37. Abnormal profit
Profit in excess of normal - also known as
supernormal or monopoly profit.
Marginal profit
The increase in profits when one more
unit is sold. If MR = £20 and MC = £14
then marginal profit = £6
Normal profit
Normal profit is the transfer earnings of
the entrepreneur i.e. the minimum
reward necessary to keep her in her
present industry
Profit maximisation
Profit maximization occurs when marginal
cost = marginal revenue
Profit per unit Profit per unit (profit margin) = AR – ATC
According to PepsiCo’s most recent annual report, the company generated net revenue of 63.06 billion U.S. dollars worldwide in 2015. Food sales brought in 53 percent of global revenue, whereas beverage sales captured a share of 47 percent.