Normal and supernormal profit

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.

In Sicily, many households can grow lemons of the same quality as each other. Chiara decides to sell lemons at her local market, expecting to make a normal profit. She notices that all of the many lemon sellers are charging exactly the same price.

Draw diagrams showing the equilibrium positions for both the lemon market and a typical firm in the long run.

Which one of the following will exist in the short run if Chiara makes a loss?

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.

Explain one reason why a country such as Germany wants to avoid an increase in the national debt relative to GDP (Figure 2).

Examine two likely effects of the forecast change in the rate of unemployment between 2019 to 2020, on firms in Germany. Refer to Figure 4 in your answer.

Discuss the likely impact of investment in new technology on the profitability of firms in Germany, as described in Extract C line 20. Use a cost and revenue diagram to support your answer.

EITHER

Evaluate the microeconomic and macroeconomic factors which are likely to determine the level of economic growth in Germany relative to other developed economies.

Evaluate the microeconomic and macroeconomic impacts of ‘a much more expansionary fiscal policy’ (Extract C line 23) on the German economy.

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With specific reference to Figure 3, explain why productivity is measured by ‘GDP per hour worked, nominal values at PPPs’.

Apart from literacy and numeracy skills in young workers, examine one reason for the trend in productivity in the UK, over the period shown in Figure 4.

Discuss factors that are causing many high street retailers in the UK to close some branches or shut down completely. Use a cost and revenue diagram to support your answer.

EITHER

Evaluate possible microeconomic and macroeconomic policies which could be used to improve UK competitiveness.

Evaluate the microeconomic and macroeconomic effects of a decline in the literacy and numeracy skills of a country’s young workers.

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With specific reference to Figure 3, explain why productivity is measured by ‘GDP per hour worked, nominal values at PPPs’.

Apart from literacy and numeracy skills in young workers, examine one reason for the trend in productivity in the UK, over the period shown in Figure 4.

Discuss factors that are causing many high street retailers in the UK to close some branches or shut down completely. Use a cost and revenue diagram to support your answer.

EITHER

Evaluate possible microeconomic and macroeconomic policies which could be used to improve UK competitiveness.

Evaluate the microeconomic and macroeconomic effects of a decline in the literacy and numeracy skills of a country’s young workers.

Write your answer here:

Emily owns and operates a nail ink salon. The diagram shows the cost and revenue curves for treatments at her nail ink salon. Initially, Emily sets her price to maximise profits.

Costs, Revenue

Calculate the change in total supernormal profit if Emily changes her objective from profit maximisation to revenue maximisation. You are advised to show your working.

Emily now decides to change her objective from revenue maximisation to sales maximisation. This change will lead to:

Using the data in Figure 4 and other information provided, explain the likely change to Indonesia’s terms of trade since 2011.

Examine the likely effects on the profitability of Indonesian rice farmers of the government’s increased investment in dams (Extract E, lines 43-48). Use a cost and revenue diagram to support your answer.

Discuss the benefits of aid to Indonesia.

EITHER

With reference to the information provided and your own knowledge, evaluate the microeconomic and macroeconomic effects on Indonesia of the volatility of prices of commodities such as coal.

Evaluate the likely microeconomic and macroeconomic effects of the supply-side policies recently introduced in Indonesia.

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8 ‘Revenue maximisation is a more realistic business objective than profit maximisation for many businesses.’

To what extent do you agree with this statement? Refer to an industry of your choice in your answer.

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