Costs of production

A small hotel in Scarborough has seen its energy bills increase from £2 000 to £8 000 per month. Small businesses do not have the energy management teams of larger companies to negotiate better deals.

(Source adapted from: https://www.ft.com/content/d07797e7-2eb7-4240-b15d-692b39510def)

Evaluate the microeconomic effects of rising energy bills on the hotel industry or an industry of your choice.

Explain the difference between a positive and a normative statement, using an example of each from Extract A.

Examine two reasons for the rise in inflation in the UK. Refer to the information provided in your answer.

Discuss the likely impact of a rise in gas prices on a firm that uses a large amount of gas in its production process. Use a cost and revenue diagram to support your answer.

EITHER

Evaluate microeconomic and macroeconomic policies that could be used to reduce inequality in the UK.

Evaluate the likely microeconomic and macroeconomic effect of tax cuts in the UK.

Write your answer here:

With reference to Figure 1, calculate the three-firm concentration ratio for branded coffee shop chains.

With reference to Figure 2 and your understanding of price elasticity, examine two factors that may cause significant changes in the international price of coffee beans.

Profit maximisation is assumed to be the business objective of most firms. With reference to Extract A, assess whether this is the case for coffee shop owners.

Using a cost and revenue diagram, discuss the likely impact of ‘rising costs’ for coffee shops on their profitability (Extract A, line 2).

With reference to the information provided, discuss whether the coffee shop market is contestable.

Explain the likely impact of diminishing marginal productivity of labour on cabin crew staffing levels. Refer to Extract A in your answer.

Examine the likely impact of Thomas Cook’s plan ‘to reduce their airline emissions’ (Extract B, line 6) on the social optimum position. Use an appropriate externalities diagram in your answer.

With reference to Extract C, assess whether Thomas Cook’s failure was caused by the principal-agent problem.

With reference to Extract C, discuss the proposed government subsidy to prevent Thomas Cook from reaching its shut-down point.

With reference to the information provided, discuss the decision by Jet2 to increase its package holiday prices.

The following illustrates the daily average cost curve for a doughnut producer:

Explain what happens to total cost at output levels greater than Z.

At output levels greater than Z, which one of the following correctly identifies what will happen to the cost?

Average fixed cost Average variable cost Marginal cost

For a luxury doughnut producer the average selling price is £2. The average variable cost is 40% of the selling price and its fixed cost per day is £300. Calculate total costs per day assuming it produces 400 doughnuts per day.

The following illustrates the daily average cost curve for a doughnut producer:

Explain what happens to total cost at output levels greater than Z.

At output levels greater than Z, which one of the following correctly identifies what will happen to the cost?

Average fixed cost Average variable cost Marginal cost

For a luxury doughnut producer the average selling price is £2. The average variable cost is 40% of the selling price and its fixed cost per day is £300. Calculate total costs per day assuming it produces 400 doughnuts per day.

In 2016, the insurance group Esure undertook a demerger with its GoCompare price comparison website.

The most likely reason for this demerger was to:

Following the demerger, GoCompare announced in 2017 a profit of £17.5 million, up 21.5% on 2016. Total revenue in 2017 was £75.8 million, up 4.1% on 2016.

(Source: adapted from https://www.insuranceage.co.uk/insurer/3107496/ profits-up-at-go-compare)

Calculate, using the information provided, the total costs of GoCompare in 2016.

Figure 1 shows the distribution of the revenue received from the sale of a Starbucks cappuccino drink priced at £2.27 in 2015.

(Source: adapted from Allegra strategies research and analysis, reported in The Times, 27th January 2015)

Which one of the following is a fixed cost to Starbucks?

Explain the difference between fixed costs and variable costs.

With reference to Figure 1, calculate the profit (in pence) for a cappuccino drink. You are advised to show your working.